Bank IPOs performed worst, insurance best in 2022

The banking sector was in the news throughout 2022 with reports of loan disbursement irregularities and liquidity crisis, which elicited a negative reaction from the investors and resulted in a drop in two newly listed banks' share prices.

Usually, there is a high demand for newly listed companies' shares in the secondary market of the stock exchanges, because investors make huge profits from new share transactions, but that was not the case for the newly listed banks last year.

According to a report of the City Bank Capital Resources, the Union Bank Ltd and the Global Islami Bank Ltd were listed on the stock exchange in 2022. Investors did not show much interest in the banks' shares since the first day of trading of those shares. Consequently, those who got the shares through initial public offering (IPO) are currently suffering losses.

However, investors made large profits by buying and selling shares of four insurance companies and three manufacturing sector companies that were listed in the stock market last year.

Shakil Rizvi, shareholder director at the Dhaka Stock Exchange (DSE), told The Business Standard, "There was a huge impact of negative news regarding the banking sector throughout 2022, while the regulatory bodies remained silent about the veracity of those reports. These factors caused a negative reaction among the investors, and consequently affected the two newly listed banks' shares negatively."

He also said newly listed companies' share prices often jump, especially in the first few days of the start of trading, and then drop a few days later. This harms the investors as well as the stock market. So, it is not right to increase the share price sharply.

New shares of 2022

Last year, nine companies got listed in the DSE's secondary market, raising around Tk1,088 crore.

Among them, the Union Bank raised Tk428 crore and the Global Islami Bank raised Tk425 crore respectively. These two banks had issued shares at Tk10 each.

Out of the remaining seven companies, two – JMI Hospital Requisite and Navana Pharma – sold shares at premium prices fixed through the book building method.

JMI Hospital Requisite issued shares at Tk20 each to general investors and at Tk25 to eligible investors to raise Tk75 crore from the stock market.

Navana Pharma also raised Tk75 crore at Tk23.8 to general investors and at Tk34 to eligible investors.

Besides, Chartered Life Insurance raised Tk15 crore, BD Thai Food Tk15 crore, Meghna Insurance Tk16 crore, Union Insurance Tk19.4 crore and Islami Commercial Insurance Tk20.30 crore. These companies issued shares at a face value of Tk10 each.

The number of fundamentally strong companies should be increased in the stock market, said Shakil Rizvi.

 Worst performing IPOs of 2022

For the year 2022, the Global Islami Bank's IPO performed the worst with a 10% negative return, which was followed by Union Bank with a 7% negative return.

The Union Bank was listed with the Dhaka bourse in January last year with the biggest IPO among the listed banks, while the Global Islami Bank entered the market in November with the second highest IPO.

The shares of these two banks are currently stuck at the floor price set by the Bangladesh Securities and Exchange Commission (BSEC), so they cannot drop any further.

These two banks were in the news last year for making several large loans breaking regulations. They also failed to maintain the capital reserve ratio (CRR) due to the liquidity crisis. So, the Bangladesh Bank has given special loans of Tk1,465 crore to the Union Bank and Tk700 crore to the Global Islami Bank, according to reports published in newspapers.

Besides, the central bank has instructed the banks to send a daily log of sanctioned credit of Tk10 crore and above as it looks to restore order.

Shahidul Islam, CEO of VIPB Asset Management, said investors have turned away from the shares of these two banks due to negative sentiment.

Ershad Hossain, managing director and CEO of City Bank Capital, said the money market crisis is responsible for the decline in the share prices of these two banks.

 Best performing IPOs of 2022

Chartered Life Insurance, which was listed in October 2022, was the top-performing IPO last year, with over 500% return since its listing.

Following Chartered Life Insurance, BD Thai Food (400%), Meghna Insurance (328%), Union Insurance (273%), JMI Hospital (267%), Navana Pharma (226%) and Islami Commercial Insurance (181%) were the other top performers.

VIPB Asset Management CEO Shahidul Islam said the IPO size of these companies is small, so their number of shares is low. As a result, these companies' share prices are increased through speculation, but in case of big IPOs, such speculations cannot be done easily.

Shakil Rizvi, shareholder director at the DSE, said the IPO share price often increases by 400-500% in the first few days of their launching. After that, the share price drops again, which causes a high amount of losses for the general investors. This is a big reason behind the crisis in the secondary market. The regulatory body should pay close attention to this kind of sharp rise in prices.

Prior to 2019, there was no circuit breaker for the first three days of trading of new company shares. That means, there was no limit to increase or decrease in share price for the first three days. When market manipulators increased share prices at an alarming rate by using this facility, the BSEC set a circuit breaker at 50% for the first two days in 2019. That means, in the first two days of launching a share, its price can increase or decrease a maximum of 50%.

When the share price manipulation did not stop, the BSEC imposed a circuit breaker at 10% from the first day of trading of IPO shares in May 2021. As a result, it takes more time to manipulate IPO share transactions.