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Midland Bank has filed the draft prospectus for its initial public offering (IPO) with the Bangladesh Securities and Exchange Commission (BSEC).
The bank is looking to raise Tk 70 crore but its two directors failed to meet the minimum shareholding requirement, according to BSEC officials.
As per the submitted documents, the new generation private sector commercial bank’s two directors- Dr Kazi Shahidullah and Garment Export Village Limited representative AKM Badiul Alam are currently holding less than 2 per cent of the bank’s shares.
“This is a violation of the 2011 Bangladesh Securities and Exchange Commission (BSEC) directive,” said a BSEC official.
According to the directive, each director must hold a minimum 2 per cent of the company’s total paid-up capital.
According to the observations report of the Dhaka Stock Exchange (DSE), their shareholding positions would further decline, resulting in 0.22 per cent by Kazi Shahidullah and 0.16 per cent by Badiul Alam, which is non-compliance with the stock market regulator.
When contacted, Midland Bank Managing Director Md Ahsan-uz Zaman declined to comment.
According to the draft prospectus, the bank, which was incorporated in 2013, will offer 7 crore ordinary shares at a face value of Tk 10 each.
Of the Tk 70 crore, the bank will invest over Tk 61 crore in treasury bonds and bills, Tk 5 crore in the listed securities, and the remaining Tk 3.89 crore to meet the IPO expenses.
However, it filed for IPO when its net profit and earnings per share (EPS) were the lowest in five years. In 2021, its EPS dropped to Tk0.9, while net asset value per share stood at Tk 13.
DSE has verified and analyzed the draft prospectus of Midland Bank along with all relevant papers, documents, and explanations as provided by the issuer.
Based on that, DSE initially identified a total of 19 observations. Accordingly, DSE issued a letter to the bank seeking their clarification on the observations.
After getting their response and supporting documents, seven observations were placed before the 178th Management Panel for IPO Review meeting held on May 22, 2022, for their consideration and opinion.
Subsequently, the six observations were finalized and placed before the IPO review team in their 25th meeting, held on May 30 this year.
As per DSE observations, the bank recognized Tk 185.05 crore as of December 31, 2021 as an investment in FDR with nine non-bank financial institutions. Recently, the financial condition of the NBFI has been weak. So it appears to us that the deposit of Tk185.05 crore as FDR in NBF1 is uncertain to be recovered.
The uncertainty has again been increased due to the fact that the investment of Tk 128.50 crore has had almost no movement for the last 3 to 4 years, the DSE said.
Furthermore, a Tk 50.65 crore investment is planned with International Leasing & Financial Services Ltd, whose classified loan was 88.22 per cent for the year 2020, and FAS Finance & Investment Ltd, whose classified loan was 88.76 per cent for the year 2020.
Besides that Tk 9 crore is invested in CVC Finance, which is a related party of the bank. The investment regarding FDR with nine non-bank financial institutions amounts to Tk185.05, which is 22.56 per cent of the total paid-up capital of the bank. If the company cannot recover the aforesaid FDRs, then it will negatively impact the EPS and total assets of the company.
As per the financial statements of the draft prospectus, the bank has stated that the classified loan of the bank was Tk 145.50 crore as of December 31, 2021, which is 3.7 per cent of the total loan and advances.
Moreover, the classified loan has been increased by 221.35 per cent in 2021 compared to the previous year. The bank’s classified loan was Tk 45.28 crore in 2020.
The bank has not recognized Tk 14.64 crore as of the workers’ Profit Participation and Welfare Fund (WPPF) for the last five years as an expense in the statement of comprehensive income, which is non-compliance with Section 232 and 234 of the Bangladesh Labour Act 2006.
