Making frequent changes to the initial public offering rules by the Bangladesh Securities and Exchange Commission have failed to stop irregularities on the primary market in the country’s capital market. The BSEC has amended the rules thrice in the last four years and issued seven notifications related to the IPO rules over the period to remove the loopholes in the rules. Market analysts said that frequent changes in rules and policies could harm credibility and bar good companies from making long-term decisions. The BSEC is at its wits’ end over manipulations on the IPO market. Despite several attempts, the commission have failed to create a proper public offering rules that would benefit all investors, market intermediaries and companies, and arrest wrongdoings. Therefore, some companies and persons have continued taking advantage of the loopholes in the rules, creating a disaster on the IPO market. Market operators alleged that the commission had made the rules as per the suggestions made by a particular group of people without proper research and market analysis. They also said that the BSEC gave the guilty parties and wrongdoers only a slap on the wrist that encouraged them to continue the malpractices. Anomalies occurred mainly with the fund raising through the book building method and placement share issuance. The BSEC has been trying to tighten its grip on the areas to curb malpractices, but it has so far failed to be successful. BSEC chairman M Khairul Hossain on some occasions also expressed his frustrations on the book building method of IPO as it has failed to get fair prices for the listed companies’ shares. Market analysts said the issue managers with the connivance of some institutional investors bid high for the companies’ shares, so that they could get good profits in the first few days of the trading of the company’s shares on the secondary market. The cut-off price of Aman Cotton was Tk 40, Bashundhara Paper Mills Tk 80, Aamra Networks Tk 39 and ACME Laboratories Tk 77, and the prices of the companies’ shares surged by more than 100 per cent in a few sessions of their secondary market trading. Now the companies have been trading far below their cut-off prices. After these abnormal pricing, the BSEC amended for the last time the public issue rules, 2015 in September last year when it made to the rules a number of changes including tightening bidding process and raising size of IPO offer to curb manipulations. As per the rules, a company intending to raise fund under the book building method must raise at least Tk 75 crore through the public issue. The rules also introduced Dutch auction in which eligible investors must be allotted shares at their own bidding price and the price of the offering is set after taking in all bids to determine the highest price at which the total offering can be sold. But, the rules do not mention the minimum amount of share offloading while the rules mention the minimum offloading shares of 10 per cent for raising fund under the fixed price method. Walton Hi-Tech Industries, which is set to raise Tk 100 crore under the new rules as the first company, has become a beneficiary of the loopholes in the rules. The cut-off price of each share of Walton has been set at a whopping Tk 315 through bidding of institutional investors. Only 0.93 per cent of its total shares could be offered to raise Tk 100 crore, which would be the lowest floatation of shares on the capital market. The scarcity of free-float shares may create overpricing of the company’s shares and cause such manipulations seen in the case of small capitalised companies. Despite tightening the bidding process with directing eligible investors to give proper reason for their price quote, the EIs bid in a range between Tk 12 a share to Tk 765 a share of Walton, which was very abnormal. Now the BSEC is thinking to make another change to the rules.
