Most of the companies listed with the Dhaka and Chittagong stock exchanges in the last three years reported fall in profits, some in the very next year of their listing and some others in the latest interim financial period. Capital market experts said many companies show good business prospects by fabricating financial statements in a bid to get regulator’s approvalfor their initial public offerings and to attract investors to buy their shares.
The stock market regulator, Bangladesh Securities and Exchange Commission, approves IPO applications of such companies (which overstate financial statements) due to its various limitations, they said.
A better scrutiny of the initial offers of such companies by the BSEC, issue manager, and auditors of the companies can be helpful to check the unlawful activity, they said.
Of the 23 firms of different sectors got listed with the Dhaka and Chittagong stock exchanges during 2011-2013, 14 showed decline in business performance and nine firms managed to maintain growth stated in their IPO proposals after the regulator’s approval.
The 14 companies which failed to sustain the profits they stated in their respective IPO prospectus approved by the regulator even after raising funds from the capital market are Zahintex Industries, Rangpur Dairy & Food Products, Padma Islami Life Insurance, GPH Ispat, GBB Power, Saiham Cotton Mills, Bangladesh Submarine Cable Company, Unique Hotel & Resorts, Sunlife Insurance Company, Argon Denims, Global Heavy Chemicals, Orion Pharma, Fareast Finance & Investment and Paramount Textile.
GSP Finance Company (Bangladesh), Aamra Technologies, Generation Next Fashions, Envoy Textiles, Summit Purbanchol Power Company, Premier Cement Mills, Golden Harvest Agro Industries, Bengal Windsor Thermoplastics and Familytex (BD) are the nine companies which managed to get increased profits after their listing with the bourses.
Zahintex Industries, listed in 2011, showed net profit of Tk 2.17 crore in its July-December half yearly statement of 2013 which was Tk 5.98 crore in the same period of the previous year.
The net profit of Saiham Cotton Mills, listed in 2012, declined to Tk 12.23 crore in the period of May-October of 2013 which was Tk 17.84 crore in the same period of the previous year, the latest report of the company showed.
BSEC commissioners, however, denied giving any comment in this regard.
Former caretaker government adviser AB Mirza Azizul Islam Islam told New Age, ‘Preparing manipulative financial statement to get better price in the initial public offering might be a reason for the decline in profit after getting listed, while unstable political condition might be another reason for the fall in profit last year.’
Inadequate regulatory scrutiny due to a lack of efficient human resources might be another reason, but it may vary case to case, Mirza Aziz, also a former BSEC chairman, said.
Paramount Textile which got listed with the stock exchanges in 2013, in its quarterly report for July-September period of 2013 showed net profit of Tk 4.90 crore against Tk 5.67 crore in the same period of the previous year.
‘Many companies show brighter financial picture when the companies seek regulator’s approval for their IPOs and to draw public attention to their shares,’ a former BSEC chairman Faruque Ahmed Siddiqui told New Age.
Companies which show overstated statements before their IPOs usually fail to sustain the financial status after their listing as they have obligation to pay dividends to shareholders and taxes to the government as per the profits, he said.
Union Capital managing director Akter Hossian Sannamat said, ‘Investors are the ultimate losers if any company fails to sustain the growth it states in its prospectus before listing.’
Issue managers should be held liable if profit of any company drops after getting its IPO approved and they (issue managers) should be brought to book if they fail to show proper reasons for the fall, he said.
-With New Age input
