Thoughts about IPO 'bubble' in Bangladesh
Monday, 4 October 2010
Javed bin Kamal
A rickshaw-puller made an application for IPO (initial public offering) recently for a mutual fund. Many of us might be susprised at this new development of our capital market. However, this piece of news should not entirely be taken as a bolt from the blue. To be able for making an application for IPO subscription, he must have a bank account holding a minimum of Bangladesh Taka (BDT) 5500 as balance, a BO (beneficiary owners) account with a brokerage which requires the minimum amount of Tk 600-800 to open, and an yearly charge of Tk 300. In this connection, what makes us particularly delighted is that, in financial terms, funds from surplus income or savings are being mobilized for making investments. This fulfills the purposes of savings mobilization, earning profit, and meeting liquidity. But risk-adjusted return is involved in the process.
Human behaviour is somewhat mysterious. Now-a-days, it is our observation that syndicated IPO applications are a new phenomenon in stock exchanges of Bangladesh. Luck is involved in getting an IPO. IPOs are allotted on the basis of a lottery to decide who will become a share owner. Non-resident Bangladeshis (NRBs) have to open FC (foreign currency) account and they enjoy more privileges in getting a IPO allotment. The number of BO account holders is increasing.
Applying for IPO is a time-consuming task in Bangladesh. There is oversubscription in almost every IPO and bankers to the issue remain too busy with handling a very large number of IPO applicants. Collecting refund warrant manually is another troublesome task. Recently, Golden Son Ltd., halted the process of distributing refund warrant due to an unfortunate situation and. But good news is that the Securities and Exchange Commission (SEC) has offered an option for investors who have to choose between receiving refund through either manually or by online.
IPOs can generate a great deal of interest and draw media attention, especially when large gains, in value terms, are witnessed during initial trading. There are now a number of free services available on the web-sites. These provide information about IPOs -- such as soikots blog, receipt collections, IPO lottery results, bisal.net. However, the challenge before most investors continues to be the getting of the opportunity to buy shares of IPOs on the offer.
Why don't the people go for risk-free interest-bearing bank deposits? But in case of an IPO, there is more opportunity to earn, i.e. risk-adjusted return, coupon, profit, and bonus.
Bangladesh, of late is otherwise considered be an emerging Asian tiger and including among many emerging nations, including countries like Kenya, Nigeria and others. In this connection, Bangladesh is rated less risky about prospects of economic development. This will eventually help it to move it along continued growth trajectory by dint of a dynamic pool of its private entrepreneurs. Along with that, now proper attention should be given to improving and strengthening corporate governance. Private equity is still a new area of operational brand in Bangladesh's financial setting. Experts have been predicting that it is likely to grow at 1.0 per cent of its gross domestic product (GDP). Under private equity, already an investment has been made in Rahimafrooz Group's battery and retail businesses.
Too much investment might some problems. Can the economy absorb such a huge amount of investment? How can any bubble situation be avoided? A stock market bubble comes into the scenario when some major key market 'players' work in collusion to raise the prices of stocks much above their 'rational' level, through 'contrived' or managed form of stock valuation.
Bubble in American stocks in the 1920s before the Great Depression and the Dot-com bubble of 1990s were due to 'speculations' about around the growth of new technologies. In 1920, there were extensive opening of technological innovations -- radio, automobiles, aviation and the deployment of electrical power grids. In the 1990s, both Internet and e-commerce technologies emerged.
The bull-run that took place in Bangladesh during 1996 did, however, lead to some positive developments later for the market. Following that, a number of investment-friendly regulatory reforms have come from the Securities and Exchange Commission (SEC). We have now stronger surveillance and better rules relating to public issues, rights issues, acquisitions, mergers etc., than before. It has been a learning practice for Bangladesh.
Corporate governance is of major consequence now for ensuring safety of investors interest. Over-the-counter market has been on track for 'z' category stocks. Both the offices of the SEC and the Registrar of Joint Stock Company (RJSC) do also need to be further improved and strengthened in operational terms.
Meanwhile, book building method of IPO floatation might not be considered by many as being very profitable. Jamuna Oil, Grameen Phone etc., floated their stocks through this method. IPO 'holders' might lose some of their safer profits, if the book-building method is preferred by more companies, seeking to float their IPOs.
On its part, Bangladesh has made some significant achievements on social development side, despite its challenging political environment and widespread poverty. It is also notable that some well-known global investment banks like Citi, Goldman Sachs, JP Morgan and Merrill Lynch have recognized Bangladesh as a potential investment site. The Dhaka Stock Exchange Index is now at a 10-year high level.
Nonetheless, there are lots of things yet to be done in order to help graduate the country's stock exchanges to a still higher stage of development for sustained growth. The capital market in Bangladesh is not yet mature and developed enough, in terms of depth and coverage. Its sustained development is imperative for optimising the utilization of its full potential.
The writer can be reached at
e-mail-b_bubble@live.com
A rickshaw-puller made an application for IPO (initial public offering) recently for a mutual fund. Many of us might be susprised at this new development of our capital market. However, this piece of news should not entirely be taken as a bolt from the blue. To be able for making an application for IPO subscription, he must have a bank account holding a minimum of Bangladesh Taka (BDT) 5500 as balance, a BO (beneficiary owners) account with a brokerage which requires the minimum amount of Tk 600-800 to open, and an yearly charge of Tk 300. In this connection, what makes us particularly delighted is that, in financial terms, funds from surplus income or savings are being mobilized for making investments. This fulfills the purposes of savings mobilization, earning profit, and meeting liquidity. But risk-adjusted return is involved in the process.
Human behaviour is somewhat mysterious. Now-a-days, it is our observation that syndicated IPO applications are a new phenomenon in stock exchanges of Bangladesh. Luck is involved in getting an IPO. IPOs are allotted on the basis of a lottery to decide who will become a share owner. Non-resident Bangladeshis (NRBs) have to open FC (foreign currency) account and they enjoy more privileges in getting a IPO allotment. The number of BO account holders is increasing.
Applying for IPO is a time-consuming task in Bangladesh. There is oversubscription in almost every IPO and bankers to the issue remain too busy with handling a very large number of IPO applicants. Collecting refund warrant manually is another troublesome task. Recently, Golden Son Ltd., halted the process of distributing refund warrant due to an unfortunate situation and. But good news is that the Securities and Exchange Commission (SEC) has offered an option for investors who have to choose between receiving refund through either manually or by online.
IPOs can generate a great deal of interest and draw media attention, especially when large gains, in value terms, are witnessed during initial trading. There are now a number of free services available on the web-sites. These provide information about IPOs -- such as soikots blog, receipt collections, IPO lottery results, bisal.net. However, the challenge before most investors continues to be the getting of the opportunity to buy shares of IPOs on the offer.
Why don't the people go for risk-free interest-bearing bank deposits? But in case of an IPO, there is more opportunity to earn, i.e. risk-adjusted return, coupon, profit, and bonus.
Bangladesh, of late is otherwise considered be an emerging Asian tiger and including among many emerging nations, including countries like Kenya, Nigeria and others. In this connection, Bangladesh is rated less risky about prospects of economic development. This will eventually help it to move it along continued growth trajectory by dint of a dynamic pool of its private entrepreneurs. Along with that, now proper attention should be given to improving and strengthening corporate governance. Private equity is still a new area of operational brand in Bangladesh's financial setting. Experts have been predicting that it is likely to grow at 1.0 per cent of its gross domestic product (GDP). Under private equity, already an investment has been made in Rahimafrooz Group's battery and retail businesses.
Too much investment might some problems. Can the economy absorb such a huge amount of investment? How can any bubble situation be avoided? A stock market bubble comes into the scenario when some major key market 'players' work in collusion to raise the prices of stocks much above their 'rational' level, through 'contrived' or managed form of stock valuation.
Bubble in American stocks in the 1920s before the Great Depression and the Dot-com bubble of 1990s were due to 'speculations' about around the growth of new technologies. In 1920, there were extensive opening of technological innovations -- radio, automobiles, aviation and the deployment of electrical power grids. In the 1990s, both Internet and e-commerce technologies emerged.
The bull-run that took place in Bangladesh during 1996 did, however, lead to some positive developments later for the market. Following that, a number of investment-friendly regulatory reforms have come from the Securities and Exchange Commission (SEC). We have now stronger surveillance and better rules relating to public issues, rights issues, acquisitions, mergers etc., than before. It has been a learning practice for Bangladesh.
Corporate governance is of major consequence now for ensuring safety of investors interest. Over-the-counter market has been on track for 'z' category stocks. Both the offices of the SEC and the Registrar of Joint Stock Company (RJSC) do also need to be further improved and strengthened in operational terms.
Meanwhile, book building method of IPO floatation might not be considered by many as being very profitable. Jamuna Oil, Grameen Phone etc., floated their stocks through this method. IPO 'holders' might lose some of their safer profits, if the book-building method is preferred by more companies, seeking to float their IPOs.
On its part, Bangladesh has made some significant achievements on social development side, despite its challenging political environment and widespread poverty. It is also notable that some well-known global investment banks like Citi, Goldman Sachs, JP Morgan and Merrill Lynch have recognized Bangladesh as a potential investment site. The Dhaka Stock Exchange Index is now at a 10-year high level.
Nonetheless, there are lots of things yet to be done in order to help graduate the country's stock exchanges to a still higher stage of development for sustained growth. The capital market in Bangladesh is not yet mature and developed enough, in terms of depth and coverage. Its sustained development is imperative for optimising the utilization of its full potential.
The writer can be reached at
e-mail-b_bubble@live.com