BSEC must remain alert on fabricated financial disclosures

The securities regulator cannot avoid its responsibility before allowing a company to go public with fabricated financial disclosers as the ultimate responsibility lies with the same, experts and market insiders said.
Their observation comes after some companies allegedly got regulatory approval with the financial disclosures which do not match with the companies' fundamentals and physical existence.
"The ultimate responsibilities lie with the securities regulator while allowing a company to go public. The regulator should be more cautious following the repetition of going public with window-dressed balance sheets," said Dr. AB Mirza Azizul Islam, the former chairman of the securities regulator.
Mr. Islam, also the former adviser to the caretaker government, said the regulator can take help of the local administrator to ensure whether the companies' existence matches with the disclosures.
The officials of the Bangladesh Securities and Exchange Commission (BSEC) have said they have to rely on the certificates provided auditors and the issue managers.
"It's not possible for us to ensure the companies' physical certification. In that case we have to depend on the auditors' certificates," Mohammad Saifur Rahman, a BSEC executive director and spokesperson, told the FE.
He said the securities regulator has not enough manpower to approve a company's IPO proposal based on its physical merit.
Meanwhile, the fixation of offer prices of some companies allegedly by the securities regulator through informal negotiations coupled with adoption of a new method has raised questions among the stock market analysts over the rationality of the same.
As a result, the trading prices of such issues are not sustainable lead to frustrations of general investors.
When asked, the sources of the securities regulator have said the regulator tries to reduce the high premium demanded by the companies willing to go public.
"In some cases the regulator informally suggested the reduction of premium," the BSEC source said.
A number of companies, which earlier submitted IPO proposals, have revised their offer prices reflecting the regulatory suggestions in reducing the premiums.   
The securities rules say that in no way the regulator can be involved with the fixation of offer prices.
Some companies have said the regulator's initiative in reducing premium may help investors to get shares at lower prices.
According to them, the companies having good fundamentals are being discouraged to offload shares as they are being treated like the companies willing to go public with poor fundamentals.
When asked, a BSEC official has claimed that now-a-days the regulator does not negotiate with the issuer companies to fix the offer price by reducing the premium.
It has been known that presently the BSEC follows a method based on fixed P/E ratio (10) to fix the offer price of a company willing to go public.
For example, the earning per share (EPS) and net asset value of a company willing to public are of Tk 2 and Tk 30 respectively.
In that case, the offer price of the company will be (2X10+30)/2= Tk 25.
MKM Mohiuddin, the former president of the Chittagong Stock Exchange (CSE), has stressed uniform theory which should be followed by the issue manager, issuer company and under writer while demanding a justified offer price.
When asked, the BSEC officials failed to say whether such calculation is justified by any method or ensures fair price.
The sources of the securities regulator have also said the regulator has a plan of not allowing the companies to go public under fixed price method if they demands offer price above the face value.
"If the regulator's plan comes to effect, a company demanding offer price above the face value will have to go public under the book building method," said the BSEC officials.
While talking to the FE, some issue managers have said the securities regulator should not fix the offer price through negotiations.
"Unfortunately, the regulator often asks the issuer companies to reduce offer price demanded to go public. As a result, a discrimination is created among offer prices," said an issue manager on the condition of anonymity.
In this regard, the BSEC chairman and other policy makers cannot be reached for comments in stead of repeated efforts.