Ignoring the interest of investors, Express Insurance will park the major portion of its initial public offering fund in banks for its own benefit, instead of investing it in higher interest earning treasury bonds.
Defending the decision, a senior official of the company seeking anonymity said, "The businesses of insurance companies in Bangladesh are dependent on letters of credit (LCs). Insurance for LCs come through banks, so the companies need to maintain relations with banks."
Express Insurance secured approval from the Bangladesh Securities and Exchange Commission (BSEC) to go public with a condition to invest at least 20 percent of its IPO fund in the capital market. It will deposit 74 percent of the fund at banks.
It will get listed with the stock market just to comply with the insurance act and will raise Tk26 crore from the share market.
IPO subscriptions will begin on April 13 and continue till April 20. AAA Finance and Investment will work as issue manager of the company.
From the IPO fund, Express Insurance will invest Tk2 crore in treasury bonds, Tk1 crore in mutual fund and Tk2.21 crore in secondary market of the stock exchange.
The rest Tk19.36 crore will be kept in fixed deposit receipts at banks.
Sources at the Bangladesh Bank said the interest rate of treasury bonds with the tenure between two and 10 years is from 7.9 percent to 8.78 percent, while the rate is 6 percent only for bank deposits.
Officials at merchant banks and stock brokerage houses said the investors will be losers if the company keep most of the IPO fund in fixed deposits.
They also said the investment in treasury bonds are more profitable than bank deposits.
Professor Mahmud Osman Imam, who teaches finance at the Dhaka University, said, "The company should invest the fund in treasury bonds instead of keeping the money in fixed deposits in the interest of its investors."
When asked, KM Saidur Rahman, chief executive officer of Express Insurance, told The Business Standard (TBS), "We will deposit our IPO fund in banks in accordance with the rules."
Md Saifur Rahman, spokesman and an executive director of the BSEC, told TBS, "We will look into the matter."
Set up in 2000, the company's authorised capital is Tk75 crore and paid-up capital stand at Tk39.11 crore.
Md Abdul Awal, chairman of the Express Insurance, is also holding the post of managing director of Synthia Securities, a brokerage firm.
Besides, Express Insurance's Vice Chairman Mahfuza Younus is holding the post of chairman of Sonali Papers and Board Mills.
Sonali Paper is currently staying outside the main market of the Dhaka Stock Exchange because of its poor business performance.
Meanwhile, Sonali Paper has secured permission from the securities regulator for coming back to the main market of the country's prime bourse.
The revenue of the Express Insurance has been stagnant for the last five years. Its revenue was Tk42 crore in 2014 which came down to Tk40 crore in 2018.
Due to an increasing operating cost, the net profit of the company has decreased by 49 percent during the five-year period. Its net profit was Tk4.38 in the 2018 financial year.
Saidur Rahman said, "We are trying to improve our business. We hope investors will not be harmed by putting their money in the company."