Typically, general investors decide to invest in a new company after studying its prospectus, but companies forget their obligations after raising funds to go public
Aug 21, 2022 at 9:50 p.m
Last modified: August 21, 2022, 23:02
Infographic: TBS
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Infographic: TBS
Some listed companies have delayed using their initial public offering (IPO) funds, citing trivial reasons and depriving investors of timely benefits.
Typically, general investors decide to invest in a new company after studying its prospectus. But companies forget their obligations after raising funds to go public. As a result, investors suffer and are deprived of their expected returns.
In August 2018, Aman Cotton Fibrous raised Tk80 crore from the stock market to buy new machines and pay off loans. But the company has only repaid its loans so far and has yet to set up new machines for business expansion.
Instead of buying machinery, it pledged Tk73 crore of the IPO fund as collateral for credit facilities for two of its sister companies – Akin Carries Limited and Aman Food Limited.
Kattali Textile Mills Ltd raised Tk34 crore in 2018 but did not complete the use of the IPO proceeds in the scheduled time. The controversial company tried to mislead the Securities and Exchange Commission on this matter by filing false updates and submitting fake bank statements to back up its false claims.
As a result, the Bangladesh Securities and Exchange Commission (BSEC) fined its chief executive 1 crore Tk and other directors, except for the independent and nominee directors, 50 lakh Tk each.
SS Steel Limited was due to purchase machinery within 18 months of receiving its IPO fund but has not done so.
ADN Telecom, Runner Automobiles, Walton Hi-Tech, Esquire Knit Composite, Golden Harvest, Runner Automobiles, and Dominage Steel Building Systems are also reluctant to use their IPO proceeds for a number of reasons and pending shareholder approval.
According to market insiders, many companies enter the capital market with high hopes, but then backtrack after raising funds, disappointing their investors.
The companies show their appetite for growth and their investment urgency before the listing. They also exaggerate the potential of their products and future demand scenarios. It is alleged that many of the firms have tactfully overstated their financial statements, market insiders added.
The BSEC, which had previously extended the realization deadlines for the IPO proceeds due to the Covid 19 pandemic, now demanded that the newly listed companies quickly realize their funds.
A BSEC official seeking anonymity told The Business Standard that most of the newly listed companies could not appropriately use their IPO proceeds amid the Covid-19 pandemic as the Commission eased the use of funds.
On the other hand, some companies could not import machines due to the pandemic. But now that the situation is normal and economies around the world have reopened, there is no scope to further delay the use of the IPO funds, he added.
The BSEC is also trying to find out why entrepreneurs are reluctant to use the IPO funds. It is trying to resolve the issues on a case-by-case basis, the official also said.
In April last year, due to the pandemic shock, the BSEC eased all types of filings and IPO usages. But some companies are still delaying the use of their IPO funds even after economies reopen.
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