Major funds go for business expansion

As much as 56.5 per cent of the Tk 1,618 crore fund raised by 19 companies through initial public offerings (IPOs) amid the ongoing Covid-19 pandemic has been invested in business expansion.

As per the Bangladesh Securities and Exchange Commission (BSEC) data, the fund was raised between May 2020 and August this year.

It is a plus for the country at a time when the economy is suffering due to the pandemic. It will create more jobs, a crying need right now, and help recover from the pandemic impacts, market analysts said.

Of the 19 companies, 15 are on the large-cap board, and the remaining four are on the small-cap board.

Besides, 16 companies have completed the subscription process and started trading, according to a study by BRAC EPL Stock Brokerage Limited.

The study said, of the Tk 1,618 crore IPO fund, Tk 914 crore has been allocated for business expansion while Tk 225 crore (13.9 per cent) will be used to repay bank loans.

Of the remaining amount, 16.3 per cent will be kept in fixed deposit receipts (FDR) while 10.1 per cent will be used in equity investment, and 3.2 per cent to meet IPO expenses, as per the IPO prospectuses of the companies.

The approval came at a time when the economy is reeling from the Covid-19 pandemic fallouts.

Market insiders said the funds would largely help increase cash flow in the market, create jobs, and help with economic recovery.

According to the companies’ IPO prospectuses, the lion’s share of the funds will be used either for expanding the existing capacity or setting up new units.

The rest will be used for repaying loans and bearing IPO expenses.     

According to the BSEC rules, no more than one-third of issue proceeds can be used for repaying loans or as working capital.

Eleven of the 19 companies are from the manufacturing sector, and they have raised Tk 800 crore.

Of them, eight are on the large-cap board, and the rest are on the small-cap board.

Former adviser to the caretaker government AB Mirza Azizul Islam said there would be more demand for working capital for the expansion of the existing businesses of the companies amid the pandemic.

The stock market can be a great source of funds, but its true potential is still untapped, he said.

He also said the government has to set an example by offloading shares of state-owned companies to the stock market in order to attract entrepreneurs.

Lub-rref (Bangladesh) Limited, a local producer of lube oil, has raised Tk 150 crore.

The Chattogram-based company will use Tk 98 crore to install new machinery at its new plant, which would cost Tk 400 crore.

Its Founder and Managing Director Mohammed Yousuf told The Business Post they are the first company that put in all their efforts to obtain export permission.

“We want to be the pioneer in setting up a lube oil industry in the private sector and export our lubricant products.”

In the last few years, Lub-rref has put in the highest effort for introducing advanced technology and acquiring technical know-how, skill development, and setting up an R&D laboratory, he said.

The outcome of all these initiatives would be the establishment of a state-of-the-art oil refinery, which would be the first of its kind and would break the monopoly of foreign brands in the base fluid of lubricants market, he further said.

The plant will increase production capacity to a great extent and help increase earnings, he added.

Since May last year, when the capital market reopened amid the first wave of the pandemic and Dr Shibli Rubayat-Ul-Islam was appointed as the BSEC chairman, 19 companies have got IPO approvals.

Using the book building method, Energypac Power Generation raised Tk 150 crore, Mir Akhter Hossain Tk 125 crore, Lub-rref Tk 150 crore, Index Agro Tk 50 crore, and Baraka Patenga Power Tk 225 crore.

Besides, using the fixed price method, SBAC Bank raised Tk 100 crore, Sonali Life Insurance Tk 19 crore, Desh General Insurance Tk 16 crore, NRBC Bank Tk 120 crore, eGeneration Tk 15 crore, Lovello Ice-cream Tk 30 crore, Robi Tk 387 crore, Crystal Insurance Tk 16 crore, Dominage Steel Tk 30 crore, Associated Oxygen Tk 15 crore, and Express Insurance Tk 26 crore.

Nialco Alloys is the first company from the small and medium enterprise (SME) sector to get the BSEC approval for listing, and it raised Tk 7.5 crore.

Besides, Oryza Agro Industries will raise Tk 10 crore through the qualified investor offer (QIO), and Master Feed Agrotec Tk 10 crore.