2024 IPO outlook bullish as bank borrowing cost remains elevated

Four companies have already raised funds worth Tk 5.50 billion through initial public offerings (IPOs) in the first three months through March, a sign that public listing regains allure as means for fund collection.
Last year, only five firms and a close-ended mutual fund collected Tk 2.68 billion in total from the primary market.
Experts say the newly-listed companies have listed in anticipation that the fund would help them attain growth amid rising interest rates and when economic challenges rendered by the Russia-Ukraine war have persisted.
"The rising interest rates might have prompted the issuers to move to the stock market for arranging funds instead of taking loans from banks," said Md Sajedul Islam, managing director of Shyamol Equity Management.
Costly bank borrowing would have increased business cost, while the stock market offers scope for long-term financing without interest burden.
Of the four companies, two firms -- Best Holdings and Asiatic Laboratories -- floated shares under book-building method. NRB Bank joined the stock market by listing through the fixed price method, while Web Coat has listed on the SME platform.
Most of the funds, raised through IPOs, were meant for business expansion, repayment of loans, and to meet working capital requirements, according to their prospectus.
The outlook appears to be bullish for 2024, as two more companies -- Techno Drugs and Craftsman Footwear -- are set to begin their listing process this month.
The share subscription of Craftsman Footwear through a qualified investors offer (QIO) will open on April 21, aimed at raising Tk 50 million.
Sadat Hossain Salim, managing director of Craftsman Footwear, recently said the increased lending rate of banks had already been threatening sustainable business growth.
"That's why we want to arrange funds through public listing for business expansion."
The lending rates of banks have continued to go up because of the rising interest rates of Treasury bills and the policy rate hikes by the central bank.
The maximum lending rate jumped to 13.55 per cent in April as SMART (six-month moving average rate of Treasury bills) rose to 10.55 per cent from 9.61 per cent the month before.
Interest rates against bank loans may climb up to 15 per cent in the near future, making businesses unsustainable with bank borrowings.
However, Mr Sajedul Islam said most companies, except for a few, which had gone public in recent years, were not good enough to support the market due to their insignificant sizes and poor fundamentals.
"The stock market is a great source of funds for industrialisation, but its true potential has remained untapped. In many cases, companies showed a weaker performance after listing on the bourses," he added.
Some of the newly-listed companies have been downgraded to junk category, to the utter frustration of investors.
For example, Ring Shine Textiles, which raised Tk 1.50 billion in 2019, fell into trouble immediately after getting listed.
The stock market regulator, stock exchanges, and issue managers have key roles to play in bringing well-reputed companies to the stock exchanges.
Faruq Ahmad Siddiqi, former chairman of the securities regulator, said the market would not gain stability unless a good number of companies with sound fundamentals were brought to the market.
"No artificial support will be able to make the market stable," he said.
Echoing Mr Siddiqi, Abu Ahmed, a former chairman of the economics department at the University of Dhaka, stressed the need for tax incentives to lure good companies to the market.
"Some multinational companies are doing business in the country, but they are not listed in Bangladesh. However, they are listed in the neighboring countries. They should be offered tax incentives in the interest of the capital market's development," said Mr Ahmed.
Currently, 13 multinational companies are listed in the stock market, accounting for more than 12 per cent of the market capitalisation.
Prof Ahmed said the regulator should be cautious about the unscrupulous companies that tend to take advantage of relaxed rules and regulations.
An official of the Bangladesh Securities and Exchange Commission (BSEC), requesting anonymity, said fundraising through IPO may rise in 2024.
He said that usually IPO applications are filed twice a year -- after the June-closing and the December-closing. The companies, whose financial year ended in December, are expected to submit IPO applications soon.

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