The stock market regulator has launched probes into the utilisation of money that 11 companies raised through initial public offerings (IPO), rights shares and repeat public offering (RPO).
The companies are Bangladesh Shipping Corporation, Best Holdings, Index Agro Industries, JMI Hospital Requisite Manufacturing, Lub-reef (Bangladesh), Navana Pharmaceuticals, Ring Shine Textiles, Sikder Insurance, Silva Pharmaceuticals, Active Fine Chemicals, and Amra Networks.
The Bangladesh Securities and Exchange Commission (BSEC) formed separate panels this month to investigate each company. They are to look into allegations of fund mishandling against the companies and submit a report within 60 working days.
The aim is to "ascertain whether the utilisation/ expense of IPO proceeds had been made in line with the provisions of the prospectus and commission consent letter," reads a BSEC letter.
The decision to probe the companies was made following the findings of some inconsistencies in their fund utilisation reports, said BSEC spokesperson Mohammad Rezaul Karim.
The investigators will also see if the utilisation of the funds has been reported from time to time as per the prospectus and recommendations of the market watchdog.
These companies raised an aggregate amount of Tk 13.1 billion from the capital market for business expansion. Among them, Bangladesh Shipping Corporation collected Tk 3.14 billion through an RPO and Aamra Networks Tk 930 million by issuing rights shares.
The companies all together utilised around Tk 7 billion as of June this year.
"The objective of our inquiries is to ensure proper utilisation of the funds," said Mr. Karim. Other companies will be subjected to similar investigations in the future, he added.
In 2011, state-owned Bangladesh Shipping Corporation (BSC) raised money through an RPO to expand its business operations, with a plan to purchase ships and construct buildings.
The BSC was supposed to utilise the fund fully by June 2012, but more than 70 per cent or Tk 2.2 billion remained unutilised until June this year.
The corporation's plan to buy a second-hand mother tanker and a second-hand DWT (dead weight tonnage) product carrier with the RPO fund was cancelled as it decided to purchase six vessels by taking a loan from the government.
Now, the Shipping Corporation plans to make use of the idle fund by June 2026 in its upcoming vessel purchase project.
Previous commissions led by M Khairul Hossain and Shibli Rubayat-Ul Islam did not take any measures against the companies for failure to utilise funds within the given time.
There are allegations that some firms took advantage of the absence of effective regulations in this regard.
Meanwhile, investors got false impressions that they would get higher returns from the companies. On the other hand, the companies have been benefiting from these funds.
Under the existing rules, issuers are prohibited from transferring IPO proceeds to other accounts or using them for purposes not specified in their prospectuses.
Any changes in the promised business plan or fund utilisation period require prior approval from a majority of the public shareholders.
The issuer companies cited several reasons for the delay in using IPO funds as planned, including Covid-19, global economic crises, rising costs of raw materials, challenges in opening letters of credit (LCs), and the dollar crisis.
Generally, issuers get a two-year time frame to fully utilise IPO proceeds. Many revise their plans on receiving approvals of shareholders and the securities regulator.
For example, Navana Pharma, which collected Tk 750 million under the book-building method in September 2022 to build a general manufacturing building and utility & engineering buildings and for renovation of its cephalosporin unit, revised its plan in March.
As of June this year, the company utilised Tk 645 million.
Now, Navana Pharma has decided to extend the time for full utilisation of the IPO proceeds to October 2025 to implement its new plan.
Best Holdings, the owning company of Le Meridien Dhaka, raised Tk 3.50 billion in October 2023 under the book-building method. It used Tk 1.80 billion as of March this year. It still has time to use the remaining fund.
Best Holdings was allowed to collect money by floating an IPO even after it had increased paid-up capital by converting bonds worth Tk 1.25 billion, which had been issued to Agrani Bank, into shares in June 2023.
According to the Public Issue Rules 2015, companies are forbidden from raising funds within two years after increasing paid-up through cash. The previous commission was lenient with Best Holdings.
The stock of Best Holdings has been trading below the offer price of Tk 24 each share. It closed at Tk 18.1 per share on the Dhaka Stock Exchange on Thursday.
Silva Pharmaceuticals, which raised Tk 300 million in 2018, utilised Tk 244 million as of June this year.
The drug maker already extended its fund utilisation deadline twice, citing business adversities, including pandemic, dollar crisis and disruptions to the supply chain.
Aamra Networks gathered nearly Tk 930 million by issuing rights shares in April this year to pay back loans, upgrade network systems, and to expand network coverage.
The company reported full utilisation of the rights proceeds by September this year, although it has time until May next year.
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