The move of Summit Purbanchol Power Company to divert its initial public offering fund to ‘buy’ stakes of another subsidiary of its mother organisation
has drawn controversy as experts and stakeholders
have termed the practice ‘unethical’.The SPPCL raised the money from public for redeeming its preference shares by taking permission from the Bangladesh Securities and Exchange Commission but now the company announced to acquire Summit Narayangonj Power Limited with the IPO proceed.
Capital market experts said the market regulator should look into the matter to protect the interest of the general investors as the Summit Naraynganj’s agreement with the Power Development Board for supplying power from the short-term rental power plant would expire in 2016.
The SPPCL raised Tk 120 crore from the IPO to redeem its preference shares which were held by 15 banks and financial institutions.
According to an announcement made by the SPPCL on March 18, the company’s board of directors decided to adopt a special resolution for using the IPO fund in acquiring the shares of Summit Narayanganj Power instead of redeeming preference shares. The board’s decision will be placed in the annual general meeting on April 28.
‘This is an unfair and unlawful practice as the SPPCL has changed its IPO fund purpose after raising it from public,’ Mahmood Osman Imam, who teaches finance at Dhaka University, told New Age.
He said as per rules the SPPCL could not take such move.
‘If any company changes the purpose of IPO fund after getting listed with the stock exchange, it will do an act of cheating with the investors who invested the money knowing a different purpose,’ he said.
Mahmood also said that as both the company is subsidiary of Summit Power, the exchange of the IPO fund among the companies should not be allowed.
‘We have hardly seen any such practice of shifting IPO fund to another purpose from what is mentioned in the approved prospectus,’ Bangladesh Merchant Bankers’ Association president
Mohammed A Hafiz told New Age.
He said if the company could give any logical reason for changing its
decision about IPO fund and the regulator approved it, there would be no question.
‘But the regulator should protect the common investors’ interest in such case. Passing of such decision in a company’s AGM might not be enough for the regulatory approval. If the regulator feels that it can hamper the investors’ interest, it can always take initiative to address such move,’ he said.
Some BSEC officials also said that the move by SPPCL was not a ‘good practice’ even if there was no legal binding.
‘We understand that the SPPCL’s move is not a good practice and sets a bad example. But, on the legal ground it would be hard for the BSEC to reject possible SPPCL’s plea for changing of the purpose of the IPO fund if the company passes it in its AGM,’ a senior BSEC official told New Age.
He, however, said that it was easy for any company in Bangladesh to approve any proposal in the AGM as most of the companies use proxy investors. ‘It is hard for the BSEC to stop such practice as many of the general investors can not speak up.’
The BSEC, however, recently denied Energyprima Limited, a power company, to go for an IPO as the lifetime of the company will expire after three years according to its power purchase agreement with the BPDB.
‘There is no legal barrier to a change in the purpose of IPO proceed. Even, we do not need approval from the BSEC in acquiring the shares of Narayangonj Power Plant if the shareholders approve it in the AGM,’ SPPCL company secretary Mahmud
Hasan told New Age on Monday.
He said Summit Narayangonj Power Plant would add Tk 24 crore additional profits to the SPPCL every year.
‘Now we need to pay Tk 10 crore in dividends yearly to the preference shareholders. Still, we will make more money by buying the new company rather by redeeming the preference shares,’ he said.
He said that the SPPCL hoped that the BPDB would extend its agreement with Summit Narayangonj Power Plant as the demand for electricity was increasing rapidly.
Asked Dhaka Stock Exchange senior vice-president Ahmed Rashid Lali said, ‘The bourse does not have any authority over the issue even if it goes against the investors’ interest.’
‘The company needs to get approval from the BSEC and we have no authority over the matter,’ he said.
-With New Age input
