Inordinate delay frustrates govt move to boost capital market

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S M Jahangir
An inordinate delay in the floatation of initial public offerings (IPOs) by a good number of insurance companies is dealing a blow to an official move for enlistment of new issues with the capital market, official sources said.
According to them, more than 20 private insurance companies have been buying extra time over the last few years with payment of significant amounts of financial penalty every year.
The existing provision for a poor financial penalty and non-compliance with the IPO flotation guidelines by some insurers are seen as major reasons for their delay in going public, official sources said.
Besides, a procedural delay in the approval of IPO proposals by the country's stock market watchdog - Securities and Exchange Commission (SEC) - is also responsible for it, they noted.
The Chief Controller of Insurance (CCI) realised nearly Tk 30 million as penalty from the companies until June 2007 for their delay in floatation of IPO, the official said, adding that a similar amount of penalty has also been due for the subsequent year.
Earlier, the regulatory authorities of the private insurance companies had imposed a restriction on renewal of operating licences for the insurers failing to comply with the IPO floatation guidelines within the stipulated timeframe.
Under the restriction, the insurance companies, especially those which could not float IPOs, would not be able to do any new business, official sources said.
The CCI, the regulatory authority of private insurance companies, had also imposed a financial penalty at the rate of Tk 1,000 per day on insurance companies for their delay in the flotation of IPOs.
Although such financial penalty has been due with the relevant insurance companies since July 2004, the insurers initially got an opportunity to renew their licences by paying a certain portion of the total penalty.
Now, the CCI is strictly enforcing the provision of financial penalty in order to force the insurance companies to go public, said the official.
Citing the existing rules, the official said the private insurance companies are to mobilise at least 60 per cent of their required paid-up capital through IPOs.
Presently, some 60 insurance companies -- 43 general and 17 life -- are in operation in the private sector in Bangladesh.
Of the total, some 35 insurance companies have so far got listed with the country's capital market, sources said, adding three or four companies have submitted their proposal on floatation of IPOs to the Securities and Exchange Commission (SEC).
Some IPO proposals submitted by the private insurance companies also await approval of the SEC, said officials.
According to officials, the floatation of IPO has been made mandatory for the insurance companies, aiming to make them operationally sound through raising the capital base.
Another important objective of the provision is to boost the country's capital market, the sources said.
Considering the overall situation, the authorities have incorporated a harsh financial penalty in the new insurance ordinance, which is now under process, for forcing the non-listed insurance companies to go public, the official sources added.
According to the proposal, insurance companies will be charged Tk 500,000 as financial penalty for their failure to float IPOs within the stipulated timeframe in addition to imposition of fine at the rate of Tk 1,00,000 for each day of delay, said an official.