The recent proposal by the Securities and Exchange Commission’s (SEC) on the compulsory listing of private companies in Bangladesh has sparked a lively debate between regulators and private business.

On February 12 the SEC decided that public limited companies with a paid up capital of Tk 0.50 billion or more, and in commercial operations for three years, will have to go for initial public offering (IPO) in one year after entering into operation.

The SEC also decided that if the private companies’ paid up capital reaches or exceeds Tk 0.40 billion in case of raising their paid up capital, they will have to become a public limited company in a span of six months.

The private limited companies whose paid up capital is already Tk 0.40 billion or more will have to become public limited companies within a year.

Compulsory listing nothing new

The mandatory listing of a company on the stock exchanges is nothing new. The practice is already here, said Securities and Exchange Commission (SEC) Chairman Faruq Ahmad Siddiqi.

“If we look at the last two to three years of IPOs, it can be said that most of the IPOs were from banking, non-banking financial institutions and insurance sector. This was possible because there was compulsion,” he said.

He also said there were obvious benefits to listing, such as the reduction in corporate tax by 10 percentage points, yet very few companies seemed interested.

“There may be some reasons for not coming into the stock market. Maybe the private companies’ owners, especially the first generation entrepreneurs, do not want to go beyond their family ownership,” he said.

“If that is a reason, we need to create awareness among the entrepreneurs that the stock market is a good alternative for raising funds for the further expansion of their company,” he said.

Moreover, a family can still maintain control through holding a majority of the stock.

He said the stock market was a good place to raise capital as this could be done without liability, interest and capital repayments. “If a company goes for IPO to raise capital from the stock market, they just need to share a portion of the profit and follow the corporate culture,” he said.

‘Without a good corporate culture and corporate governance, a company cannot exist in the long run,” he said.

The SEC chief argued that the compulsory measures are not introduced this year. “In fact, such obligatory listing rules are there from 2006. This year we just made some amendments in the rules to encourage the private sector entrepreneurs to list their companies,” he said.

As per the previous rules, a company must go for IPO with 30 percent amount of the paid up capital after a certain period. Under the new rules, the owner will have much more power to deicide how much of the company they wish to sell.

As to criticism of the present listing process, Siddiqi said the SEC is working hard on introducing a better pricing method such as book building so that entrepreneurs get the market value of their shares.

He also said the commission’s initiative will not help the market to get more securities, but also accelerate the country’s stock market as well as the economic growth.

Decision should be up to owners

International Chamber of Commerce-Bangladesh (ICC-B) President Mahabubur Rahman said the decision to list should be left to the owner and not be forced upon a business.

Rather, he thought that if the SEC wanted to increase the number of companies coming to the stock market it should introduce proper incentives.

In fact, Rahman feared that compulsory listing could harm the stock markets credibility, as so far the experiences of many companies who had listed had not been good.

For example, of the around 300 listed securities on the market, around 200 companies are now performing badly and many are not paying dividends or holding annual general meetings, he said.

If private companies are forced to go for IPOs and if the companies failed to perform successfully, this will have a negative impact on the overall market, the ICC-B chief pointed out.

“Moreover, if I do not want to go for IPO, then why I will be forced?” he questioned.

He said an entrepreneur establishes a company through a 10-15-year of effort. Why should he or she be forced to share his or her profits with the public?

Added to this an entrepreneur is very unlikely to be able to get the real market value of his or her share under the existing pricing methods. Shares that the owner is forced to sell at a say Tk100 routinely change hands on the first day of trading for several Tk100 with no benefit to the company. The initiative of introducing book-building method is welcome and the system should be introduced immediately, Rahman said.

“I cannot support the mandatory listing. In my knowledge there is no such obligatory measures in any other country,” he said.

He also said if it is allowed to list a company primarily on other regional stock exchanges such as Mumbai or Karachi and later in other world stock market, the private companies will be interested in coming onto the local stock market.

“My final word is the owner will decide whether he or she will list his or her company on the stock market,” he added.

Rahman also said the government should encourage the foreign or multinational companies to list on the country’s stock market.

He said in order to rejuvenate the bad performing companies, the regulator should take punitive measures such as penalty, share buy-back by the issuer company and delisting of the company.

Sarwar@thedailystar.net

The SEC hopes the move will increase the number of quality companies that list on the stock exchange breathing fresh life in to the country’s capital markets. It will also force greater transparency and encourage good corporate governance.

Private business leaders however say it is an unprecedented interference, which would be unique to Bangladesh and that some of the world’s largest companies remain unlisted. Such decisions should be left to the owners themselves.

Instead the SEC should concentrate on improving the present IPO procedures in order to encourage more companies to come to the market.

In fact if turned into law the new rules will only extend existing provisions attached to the financial sector, where banks, non-banking financial institutions and insurance companies already have to list after a certain period.

Even the telecom sector has been forced to come to the market, this time however under the rules of their licencing agreement signed with Bangladesh Telecommunications Regulatory Commission. The first fruits of this will be seen later this year when Grameenphone, the country’s largest mobile operator, will conduct the biggest ever IPO in Bangladesh’s history.