Initial public offerings of companies with weak fundamentals have hurt the country’s stock market over the years, shattering investors’ confidence on the market.
Market experts blamed regulator Bangladesh Securities and Exchange Commission for the situation.
Low quality IPOs have played a key role in the recent volatility at the capital market, they said.
They observed that share prices of most of the companies in the secondary market came down to their face value after abnormal rise on their debut on the stock exchanges.
They said the sponsor-directors, placement shareholders and investors connected with them dumped their shares after the lock-in period on the general investors who took the brunt of the price plunge.
DSE officials said that the situation became so bad that the bourse recently decided not to let trading of the shares of any new company until the market volatility eased.
Former BSEC chairman Faruque Ahmed Siddique told New Age that weak IPOs reduced the investors’ confidence and trust over the market.
Share prices of many companies came down to bottom level, which created doubt among investors about the companies’ business intention, he said.
‘IPO is necessary for the stability of the capital market, but it should be ensured that companies with weak fundamentals would not get IPO approval,’ Faruque said.
He said that the regulators should assess more deeply before giving approval to IPOs.
Market operators said that half of the IPOs approved by BSEC during the tenure of M Khairul Hossain as chairman were of textile companies many of which faced survival crisis.
Khairul joined BSEC as its chairman on 15 May, 2011 for three years. His tenure was extended for four years to 2018 and then for two more years to 2020.
Eighty-three companies were so far listed with the stock exchanges in Khairul’s tenure. Of them, 26 companies were from the textile sector.
The share prices of Zaheen Textile, Generation Next, Family Textile, Tung Hai, and C&A Textile were now being traded far below their face value.
Dhaka Stocks Exchange Brokers’ Association president Shakil Rizvi told New Age that the investors’ confidence was heavily affected by poor-quality IPOs at the market.
He said that finding no better company in the market, investors rushed to the low-profile companies that created unusual hype surrounding newly listed companies at the stock market.
The DBA president said that there were lapses in the policy and regulations that should be addressed as soon as possible.
The companies took the benefit of the situation and took away crores of taka from the general investors, worsening the liquidity situation at the market, he said.
The share prices of SS Steel Limited plummeted to Tk 25.70 on Thursday while the share prices of the company had soared to Tk 50.1 on its debut on January 17, 2019.
The cut-off prices of Bashundhara Paper Mills’ shares were determined at Tk 80 but the shares were traded at Tk 67 on Thursday.
Oimex Electrode had shot up to Tk 115 on its debut, the shares of which were issued at Tk 10, but it sank to Tk 30 on Thursday.
The share prices of Queen South Textile Mills and Nahee Aluminum plummeted significantly after abnormal rise on their debut.
Market experts said that companies and their placement-share holders pulled huge amount of funds from the market that eroded confidence and trust of investors on the capital market.
Fourteen companies were listed in 2018 and two in 2019. The lock-in period on placement-share holders and eligible investors of the companies has ended and the investors are dumping their shares in the companies on the public, creating haphazard at the capital market, market operators said.
The key DSE index, DSEX, lost around 640 points in 11 consecutive weeks to finish at 5,326.39 points on Thursday. The average turnover came down to Tk 300 crore.
The regulators also failed to stop secret share sales by sponsor-directors in the lock-in period.
Chittagong Stock Exchange managing director Shaifur Rahman Mazumdar said that there were lack of strategy and policy to bring better IPOs to the market.
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