Share price of Titas Gas and withdrawal of direct listing system
Saturday, 16 February 2008
Mohammed Ashraf Hossain
RAPID economic development is a must for generating employment opportunities for a maximum number of the country's existing unemployed or underemployed workforce. This development results from expanded activities in areas of trade, commerce and industry. All production-oriented activities require investment of capital, large or small. Countries adopt various ways to mobilise capital for supporting investment activities. Selling share to public is one of the widely accepted ways to mop up capital. Trading of shares through stock exchanges is needed to help develop a market from where sponsors can tap a good amount of capital for their ventures. A huge amount of money is otherwise lying idle with the members of the public. Individually a citizen may have small money but in aggregate the amount is quite big and sizeable. A well-organised and disciplined share market can help mobilise a large chunk of money from public and make the same available to the sponsors. But when the general investors lose their small money by investing in the capital market, they lose their confidence in the share market. This limits the scope for mobilising capital from the members of the public.
Government, according to recent media reports, has decided to off-load 25% share of Titas Gas Transmission & Distribution Co. Ltd. to the public. This enterprise is expected to be corporatised within next couple of months. But it is yet not known how the shares thereof will be disposed off -- whether by initial public offering (IPO) or by direct listing with stock exchanges. Recently, the government offloaded shares of Jamuna Oil Co. Ltd. and Meghna Petroleum Ltd. through direct listings. Shares, having nominal value of Tk. 10.00 sold at Tk. 300.00 to Tk. 952.00 each. This happened despite the fact that the companies had revealed in black and white the value of their asset at Tk. 36.00 and Tk. 28.00 respectively against the face value of each of their share at Tk. 10.00.
In fact, the small investors in Bangladesh mostly do not analyse the value of share, strictly on the basis of fundamentals, in financial terms. They make their decision mostly on speculations. It is alleged that one or more syndicates of share traders spread rumours in the market and also purchase some shares at exorbitant, irrational high prices. This influences a large number of general small individual investors, encouraging them to purchase shares at high prices.
The market value of each asset depends on its income generating capacity as well as future rational market expectations. The profit, which a share may bring to its holder in the near future and its self-value in the future, should dominate the level of its market price. It is observed that a share, having a nominal value of Taka 10.00, fetches Tk. 6.00 as dividend on the basis of the previous year's performance of the concerned company. Having only an asset value of Tk. 36.00 it is found to be sold at Tk. 952.00 to Tk. 300.00. In case of Jamuna Oil, its share trading started on January '08 on a strong upbeat mood. In case of Meghna Petroleum, the same phenomenon was observed during its share trading in debut. It is certain that in long run the ordinary investors will incur heavily losses for such purchases at a highly overpriced level. If those state owned enterprises would have sold their shares to the public through initial public offerings (IPOs), their shares would not have been sold at more than Tk. 36.00 each for Jamuna Oil and Tk. 28.00 for Meghna Petroleum. Because those companies would then be required to take approval from the Securities and Exchange Commission (SEC) prior to the floatation of their IPOs, justifying the rationale for their offered share prices. In that case, the general investors could purchase shares at a maximum price of Tk. 36.00 a share having a matching asset thereof equivalent to that value and Tk. 28.00 a share likewise in the cases of Jamuna Oil and Meghna Petroleum respectively.
We should learn from the past behavioural pattern of share prices of the listed companies in the stock exchanges. To ensure a rational transaction of shares, a reasonable price should be offered to the public for sale of shares by a listed company. Our past experience bears out that the direct listing method did not work rationally in Bangladesh. This system should be withdrawn immediately.
We know that Titas Gas Co. is going to offload 25% of its shares to the members of the public. This should be done through IPO. As the company is expected to sell shares worth Taka 2.10 billion (210.00 crore) if direct listing method is followed initially. Then, a large amount of money might be mobilised by the company with its share selling much above the rational level. But that may ultimately hurt the interests of the general investors, impacting adversely their confidence in the country's secondary market. In that event, the opportunity for mobilising a large amount of capital by prospective companies will ultimately be lost. This will deal a severe negative, heavy blow to trade, commerce and industry in the country's economy. We know that maximum employment opportunities are needed to raise the standard of living of the general public. But such opportunities can be created on a sustained basis only when trade, commerce and industrial development activities expand on a rational basis.
In this backdrop, the SEC should withdraw direct listing system relating to sale of shares by companies. We would like to urge the Titas Gas Co. to sell its shares, up to a maximum of its 25% of equity capital to public through IPO. These measures will definitely contribute to bringing about discipline as well as generating momentum in the country's stock market.
RAPID economic development is a must for generating employment opportunities for a maximum number of the country's existing unemployed or underemployed workforce. This development results from expanded activities in areas of trade, commerce and industry. All production-oriented activities require investment of capital, large or small. Countries adopt various ways to mobilise capital for supporting investment activities. Selling share to public is one of the widely accepted ways to mop up capital. Trading of shares through stock exchanges is needed to help develop a market from where sponsors can tap a good amount of capital for their ventures. A huge amount of money is otherwise lying idle with the members of the public. Individually a citizen may have small money but in aggregate the amount is quite big and sizeable. A well-organised and disciplined share market can help mobilise a large chunk of money from public and make the same available to the sponsors. But when the general investors lose their small money by investing in the capital market, they lose their confidence in the share market. This limits the scope for mobilising capital from the members of the public.
Government, according to recent media reports, has decided to off-load 25% share of Titas Gas Transmission & Distribution Co. Ltd. to the public. This enterprise is expected to be corporatised within next couple of months. But it is yet not known how the shares thereof will be disposed off -- whether by initial public offering (IPO) or by direct listing with stock exchanges. Recently, the government offloaded shares of Jamuna Oil Co. Ltd. and Meghna Petroleum Ltd. through direct listings. Shares, having nominal value of Tk. 10.00 sold at Tk. 300.00 to Tk. 952.00 each. This happened despite the fact that the companies had revealed in black and white the value of their asset at Tk. 36.00 and Tk. 28.00 respectively against the face value of each of their share at Tk. 10.00.
In fact, the small investors in Bangladesh mostly do not analyse the value of share, strictly on the basis of fundamentals, in financial terms. They make their decision mostly on speculations. It is alleged that one or more syndicates of share traders spread rumours in the market and also purchase some shares at exorbitant, irrational high prices. This influences a large number of general small individual investors, encouraging them to purchase shares at high prices.
The market value of each asset depends on its income generating capacity as well as future rational market expectations. The profit, which a share may bring to its holder in the near future and its self-value in the future, should dominate the level of its market price. It is observed that a share, having a nominal value of Taka 10.00, fetches Tk. 6.00 as dividend on the basis of the previous year's performance of the concerned company. Having only an asset value of Tk. 36.00 it is found to be sold at Tk. 952.00 to Tk. 300.00. In case of Jamuna Oil, its share trading started on January '08 on a strong upbeat mood. In case of Meghna Petroleum, the same phenomenon was observed during its share trading in debut. It is certain that in long run the ordinary investors will incur heavily losses for such purchases at a highly overpriced level. If those state owned enterprises would have sold their shares to the public through initial public offerings (IPOs), their shares would not have been sold at more than Tk. 36.00 each for Jamuna Oil and Tk. 28.00 for Meghna Petroleum. Because those companies would then be required to take approval from the Securities and Exchange Commission (SEC) prior to the floatation of their IPOs, justifying the rationale for their offered share prices. In that case, the general investors could purchase shares at a maximum price of Tk. 36.00 a share having a matching asset thereof equivalent to that value and Tk. 28.00 a share likewise in the cases of Jamuna Oil and Meghna Petroleum respectively.
We should learn from the past behavioural pattern of share prices of the listed companies in the stock exchanges. To ensure a rational transaction of shares, a reasonable price should be offered to the public for sale of shares by a listed company. Our past experience bears out that the direct listing method did not work rationally in Bangladesh. This system should be withdrawn immediately.
We know that Titas Gas Co. is going to offload 25% of its shares to the members of the public. This should be done through IPO. As the company is expected to sell shares worth Taka 2.10 billion (210.00 crore) if direct listing method is followed initially. Then, a large amount of money might be mobilised by the company with its share selling much above the rational level. But that may ultimately hurt the interests of the general investors, impacting adversely their confidence in the country's secondary market. In that event, the opportunity for mobilising a large amount of capital by prospective companies will ultimately be lost. This will deal a severe negative, heavy blow to trade, commerce and industry in the country's economy. We know that maximum employment opportunities are needed to raise the standard of living of the general public. But such opportunities can be created on a sustained basis only when trade, commerce and industrial development activities expand on a rational basis.
In this backdrop, the SEC should withdraw direct listing system relating to sale of shares by companies. We would like to urge the Titas Gas Co. to sell its shares, up to a maximum of its 25% of equity capital to public through IPO. These measures will definitely contribute to bringing about discipline as well as generating momentum in the country's stock market.