Investors more enthusiastic about IPOs sans premium

Mohammad Mufazzal | Published: February 09, 2015 00:00:00 | Updated: November 30, 2024 06:01:00

Investors are found to be less enthusiastic about putting in their money in initial public offerings (IPOs) that carry premium than those with no premium, according to transaction statistics of the Dhaka Stock Exchange (DSE).
Â The size of public subscription for issues offered with premium in the last three years was less than that for issues without premium. Besides, the rise in prices of stocks with premium was also far less than those of stocks without premium during the initial trading days. Â
The market prices of some issues that went public without premium even shot up to 721 per cent on their debut trading.
The public subscription of non-premium issues was also very high, in some cases the subscription was even 72 times of the offered stock value. After one or two months, the market prices of the newly listed issues, on an average, shed up to 61 per cent of the debut trading values.
Between 2012 and 2014, the Bangladesh Securities and Exchange Commission (BSEC) approved the IPOs (initial public offerings) of 43 companies and four mutual funds (MFs).
However, no MF was floated during the last two years, as the market situation worsened and sponsors. Experts also blamed the inefficiency of fund managers for poor performance of most listed mutual funds.
Market insiders said investors are more interested to apply for the shares offered at face value with a hope of fetching better return.
"Investors are able to apply for more shares at face value with their limited fund," said Md. Shakil Rizvi, a former president of the Dhaka Stock Exchange.
Former BSEC chairman Dr AB Mirza Azizul Islam said investors also purchase the shares at high prices from the secondary market expecting high prices later.
"What happens ultimately is that high-priced shares start shedding prices due to their poor fundamentals. The rate of decline gathers pace as investors try to retrieve their investments by offloading shares at a time," Dr Islam said.
The data from the premier bourse showed that among 42 companies, 17 went public with an offer price of Tk 10 per share.
Public subscription of companies, which went public at face value, was very high. For example, the subscription of Far Chemical Industries was 72.22 times of the value of the offloaded primary stocks.Â Sunlife Insurance was oversubscribed 64.33 times, AFC Agro Biotech 59.92 times, Bangladesh Building Systems 45.95 times, Hwa Well Textiles (BD) 45.34 times, Shurwid Industries 43.80 times and Khan Brother PP Woven Bag Industries 43.63 times.Â Â
On the day of debut trading, the market price of Sunlife Insurance rose 721 per cent to close at Tk 82.10, Ratanpur Steel Re-Rolling Mills (RSRM) 673 per cent to close Tk 77.30, Khan Brothers PP Woven Bag Industries 666 per cent to close at Tk 76.60, AFC Agro Biotech 550 per cent to close at Tk 65, Far Chemical Industries 426 per cent to close at Tk 52.60, Emerald Oil Industries 400 per cent to close at Tk 50.0, Familytex (BD) 385 per cent to close at Tk 48.50, Shurwid Industries 382 per centÂ to close at 48.20,Â Bangladesh Building Systems 372 per cent to close at Tk 47.20 and Mozaffar Hossain Spinning Mills 353 per cent to close at 45.30.
The rate of oversubscription of the companies, which went public with premium, varied from 1.05 to 10 times of the share value issued. On the day of debut trading, the market prices of the companies rose from 4.0 per cent to 173 per cent. Â
GPH Ispat went public with an offer price of Tk 30 and the company's shares were at Tk 72.90 on the day of debut trading. GBB Power went public with an offer price of Tk 40 and was traded at Tk 43 on the day of debut trading. Unique Hotel & Resorts, which went public at a price of Tk 75, was traded at Tk 78 on the first trading session. Paramount Textile went public with an offer price of Tk 28 was traded at 45.60 on the day of debut trading.
Saif Powertec, which went public with an offer price of Tk 30, was traded at Tk 71.40 on the day of debut trading.
Among the companies, which went public with premium, the Peninsula Chittagong and the Far East Knitting and Dyeing Industries went public with an offer price of Tk 30 and Tk 27 respectively. Both the companies recently observed market price below their respective offered prices.Â Â Â
Some regulatory approvals to IPOs had drawn flacks, although the BSEC recently said in a clarification that they do not approve any IPO if a company cannot meet certain requirements.
"Along with taking punitive measures against some issue managers, the BSEC also rejected 18 IPO proposals and 16 rights offer in 2013 and 2014 for not complying with securities rules," the regulator said.
BSEC commissioner Arif Khan said the high public subscription of IPOs shows that there is demand for IPO in the capital market.
"Market price in the secondary market depends on various factors such as political situation, investors' sentiment and macro-economic situation. It's a matter of investors' decision whether they will purchase shares or not," Mr. Khan told the FE.
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