IPO Process IN Bangladesh

IPO is an acronym for Initial Public Offering which is the first sale of stock by a private
company to the public. IPOs are often issued by smaller, younger companies seeking the capital
to expand, but can also be done by large privately-owned companies looking to become publicly
traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it
determine what type of security to issue (common or preferred), the best offering price and the
time to bring it to market. IPOs are also referred to as "public offering" because the general
public becomes the partial owner of the company after buying the shares through IPO.

The IPO approval process starts with the submission of application to Bangladesh Securities and
Exchange (BSEC). For helping the company issuing the common stock (known as issuing firm),
the issuing firm appoints an issue manager from the list approved by BSEC. There are two
methods in IPO process. One is called fixed price method and the other is book building method.

a) Fixed price method: In fixed price method, the issuer is allowed to price the shares as he
wishes. The basis for the price is explained in an offer document through qualitative and
quantitative statements. This offer document is filed with the stock exchanges and the registrar of
companies.

b) Book-building method: Book-building is a process of price discovery used in public offers.

The issuer sets a base price and a band in which the investor is allowed to bid for shares. The
investor had to bid for a quantity of shares he wished to subscribe to within this band. The upper
price of the band can be a maximum of 1.2 times the floor price. Every public offer through the
book building process has a book running lead manager (BRLM), a merchant banker, who
manages the issue.

General requirements for public offer application: - An issuer may make application
for public offer of its securities, if

(1) It offers at least a quantity of securities equivalent to 10% of its paid-up capital (including
intended offer) or Tk. 15 crore at par value, whichever is higher. (2) It has minimum existing
paid up capital of Tk. 15 crore. (3) It has not increased it paid-up capital after the date of audited
financial statements as included in the prospectus.(4) The issue manager is in no way connected
with the issuer not does hold any of its Securities.(5) It has prepared its financial statements in
accordance with the requirements of the Bangladesh Securities and Exchange Rules, 1987, the
provisions of IFRS /IAS as adopted in Bangladesh and audited the same as per Bangladesh
Auditing Standard(BAS) as well as the Companies Act, 1994 and other applicable legal
requirements.(6) It has got its latest financial statements audited by the panel auditors as declared
by the Commission from time to time.(7) It has been regular in holding annual general meeting
(AGM).(8) It has complied with the provisions of Corporate Governance Guidelines as published
by the Commission from time to time. (9) It has complied with all requirements of these Rules in
preparing prospectus. (10) It has no accumulated retained loss at the time of application. (11) It
has complied with the provisions of guidelines regarding valuation of assets, if any, as published
by the Commission from time to time. (12) The issuer or any of its directors is not a bank
defaulter.

 Documents Required to be submitted: -

According to the Regulations the applicant company has to submit some documents duly
certified by the Company or the Authorized Representative presenting the security to the
Exchange. Generally, the following documents have to be submitted in addition to the
application form-

(1.) Memorandum & Articles of Association (2.) Copy of the Certificate of Incorporation (3.)
Copy of the Certificate of Commencement of Business (4.) Copy of the certificate of registration
of the industrial Units (5.) Copies of all material contracts and agreements entered into (6.)
Copies of Letter(s) of Credit established in favor of Machinery Suppliers (if linked with the
public issue). (7.) Copy of Consent order issued by the Commission (8.) Names of Directors
along with directorship of other companies listed on the Exchange (9.) Draft prospectus/Offer for
sale (10.) Auditors Certificate for the amount subscribed by the promoters/ directors/
subsidiaries/ associates (11.0 Copy of underwriting agreement (if any) (12.) Statement of audited
accounts for the last 5 years or for a shorter number of years if the company is in operation only
for such shorter period (13.) Statement showing the cost of project and means of finance Copies
of the approval of tax-holiday application under Ordinance, 1984 (14.) Copies of the consent
Letters from Bankers/Financial Institution to the Issues (15.) Application for submission of
Undertaking and payment of fees (16.) Copy of approval of prospectus/offer for sale from
Commission.

However, in case of a new project a Copy of the Feasibility Report should be submitted in
addition to the above documents. Beside this, if there is any agreement relating issue to securities
for consideration other than cash then a Copy of such agreement has to be submitted.

Problems for IPOs in Bangladesh: -

Currently public issue rules are in “Disclosure Basis” where all types of disclosure cannot be
possible for an investor. Lack of competent professionals in the regulatory organization. Issuer
feels insecure about IPOs and discouraged to face public at the Annual General meeting. Issuing
companies have no idea about the benefit of public equity and they understand that public funds
are expensive than bank loan. Management should be fair for betterment of the shareholders as
well as the company. The management and the staffs should be well educated and well trained in
their respective field. Prospectuses of the most of the companies are not available. More than two
applications per person is not possible. The companies listed with the stock exchanges have to
pay annual listing fees ranging from Tk. 10,000.00 to 1,00,000.00. The initial listing fee with the
bourses was 0.25 percent of the paid-up capital of the company, the annual listing fee is high
which is a life-time and companies find it as a burden.

Many large companies are not willing to offer their shares in the market as they feel
uncomfortable to make disclosure of their accounts for some unknown reasons. Capital market
situation has gone to its lowest ebb in absence of favorable policy for the micro investors and the
failure of the Security Exchange Commission to bring dynamism in the capital market.
Continued IPO by SEC amidst recession in the capital market and absence of special category
for giving incentives to micro investors have further weakened the state of market. Issuer
company is not maintaining documents on eve of public offering. Process of pricing of an IPO is
not encouraging for an investor to go for IPO. Currently basic issue rules are in “Disclosure
Basis” where all type of disclosures cannot be possible for an issue. Lack of competent
professionals in the regulatory organization.