BSEC to look into IPO fund usage by 9 listed firms

The Bangladesh Securities and Exchange Commission (BSEC) has launched an inquiry into how nine companies, listed on the capital market between 2018 and 2024, utilised the funds they raised through initial public offerings (IPOs) and repeat public offerings (RPOs).

According to BSEC sources, the decision was made in a meeting on Tuesday (1 October). 

The companies under scrutiny are Bangladesh Shipping Corporation (RPO), Index Agro Industries, JMI Hospital Requisite Manufacturing, Lub-rref (Bangladesh), Navana Pharmaceuticals, Ring Shine Textile, Sikder Insurance, Silva Pharmaceuticals, and Best Holdings Ltd.

Sources told TBS that these companies have not utilised the raised funds within the specified timeframes, prompting the BSEC to review their activities to ensure compliance with regulations and protect investors' interests.

According to stock exchange reports, some of these companies have extended the deadlines for using the funds allocated to their projects. 

Consequently, they have failed to meet their commitments to investors as outlined in their prospectuses. Instead, the companies have profited from retaining these funds, while ordinary shareholders have been deprived of the expected returns.

Market insiders said the BSEC, under the leadership of M Khairul Hossain and later Shibli Rubayat-Ul Islam, did not take effective action against companies that failed to use the funds on time.

This allowed the companies to exploit regulatory loopholes, further delaying fund utilization. Allegations have surfaced that both BSEC commissions benefited from the companies listed between 2011 and June 2024. This not only harmed investors but also weakened the structure of IPO fund management in the capital market.

Several company officials have cited the pandemic, global economic crisis, rising raw material costs, challenges with opening Letters of Credit (LCs), and the dollar crisis as reasons for delays in using the funds as planned.

They said in 2021, the exchange rate of the US dollar generally ranged from Tk80 to Tk90. However, since 2022, the exchange rate has been volatile and steadily increasing, reaching Tk121 per dollar currently.

By law, companies are not allowed to transfer IPO funds to other accounts or use them for purposes not stated in the prospectus. 

If a company wishes to change the use of these funds or delay their utilisation, it must first get approval from at least 51% of the public shareholders (excluding sponsors and directors) at a general meeting, with proper notice provided to all shareholders.

Capital market experts have pointed out that companies often avoid seeking approval from general shareholders when changing the timeframe for using IPO or RPO funds because there is no strong law enforcing this requirement. This loophole enables companies to misuse or delay the use of investor funds without facing any penalties.

To address this issue, experts suggest that the BSEC should introduce stricter regulations for fund utilisation. Such regulations would ensure that companies cannot deceive investors or misuse their funds, holding them accountable for using the funds as outlined in their prospectuses.

Stock market analyst Abu Ahmed told TBS earlier that the IPO rules should be tightened so that the companies to compelled to use such funds properly. Besides, the regulator has to realise the motive of issuers who want to raise funds from the capital market. 

Most of the companies that have not fully utilised their IPO funds received extensions from the regulatory commission. A few companies, which were listed on the capital market in the last two years, still have time to use their funds as per their prospectuses.

Best Holdings and Navana Pharmaceuticals have the tenure to use these IPO funds as per the prospectus.

In 2011, state-owned company Bangladesh Shipping Corporation raised Tk313.70 crore from the capital market through repeat public offering (RPO) to expand business operations. The company planned to purchase ships and building constructions under the business expansion.

However, it was supposed to use RPO funds within June 2012 in the said project properly as per the prospectus. Till June 2024, the company has yet to use Tk220.27 crore which is 70.22% of its RPO funds.  

In 2021, Lub-rref (Bangladesh) Ltd, a lubricant producer under the BNO brand, raised Tk150 crore from the capital market through an IPO for the base oil refinery project.

The base oil refinery project cost was Tk1,283 crore, including Tk150 crore IPO funds. Of this project, Tk900 crore was in loans including Tk750 crore in foreign loans, which were supposed to be used as LCs for the project. However, due to the global crisis and local liquidity shortage, those loans are being delayed.

Now the company is facing a critical challenge in sustaining its operations due to a shortage of working capital. The company is strategically considering utilising funds as working capital to address this pressing issue. 

This move aims to bolster liquidity and ensure continuity in its business endeavours amidst the current financial constraints. Till now, the company has yet to use Tk56 crore to purchase machinery.