Midland Bank Limited has received the regulatory approval to raise a fund of Tk 70 crore through initial public offering (IPO) though the company could not comply with a securities directive to go public.
Bangladesh Securities and Exchange Commission (BSEC), the securities regulator, approved the company’s IPO proposal during a commission meeting held at its office Wednesday with its chairman Prof Shibli Rubayat-Ul-Islam in the chair.
With the approval, the fourth generation bank is now set to go public, but two of its directors failed to comply with the minimum shareholding requirement, a source at the BSEC said.
Among the directors, Dr Kazi Shahidullah and Garment Export Village Limited representative AKM Badiul Alam are now holding less than 2 per cent of the bank’s shares each, according to the bank’s data submitted to the BSEC.
As per the BSEC guideline, a shareholder in any company must hold at least a 2 per cent stake in the company’s total paid-up capital if it wishes to be a listed one.
“So, it is a clear violation of the securities guidelines,” a BSEC official told The Business Post, seeking anonymity.
Furthermore, a Dhaka Stock Exchange (DSE) observation report revealed that these two directors’ shareholding could further decline in the company, resulting in 0.22 per cent for Kazi Shahidullah and 0.16 per cent for Badiul Alam.
In this situation, it came as a wonder how the securities regulator approved the bank’s IPO proposal, breaching the securities guideline itself.
Under the fixed price method, the bank would raise the fund by offloading seven crore ordinary shares at a face value of Tk 10 each.
According to the BSEC data, the bank would utilise the fund by investing in government Treasury bond and capital market as well as bearing the IPO expenses.
The fourth generation bank’s net asset value (NAV) per share without revaluation surplus stood at Tk 13, while its earnings per share (EPS) stood at Tk 0.9 till December 2021.
LankaBangla Investment Limited will act as the issue manager for the IPO process.
When asked, BSEC spokesperson Mohammad Rezaul Karim told The Business Post, “Though the bank could not meet the securities guideline, we gave it some conditions to implement the IPO process.”
“The conditions are that each of its directors must hold a 2 per cent stake individually and 30 per cent collectively before its listing on the stock market,” Rezaul said.
Another condition is that the bank has to appoint independent directors as per the corporate governance guidelines prior to its listing.
The bank started its operations as a fourth generation scheduled bank back in 2013.
Regarding the listing, the DSE initially identified a total of 19 observations on the bank.
Accordingly, the Dhaka bourse had issued a letter to the bank seeking its clarifications of the observations.
Following the bank’s reply, seven observations were placed before the 178th management panel for the IPO review meeting of the DSE held on May 22 this year for their opinions.
As per the DSE observations, the bank had a Tk 185.05 crore investment in fixed deposit receipts (FDRs) with nine non-bank financial institutions (NBFIs) till December 2021.
But recently, the financial conditions of these NBFIs became weak, putting the bank’s deposits at risk.
It also appeared to the DSE that the bank’s FDRs may not be recovered.
Furthermore, the bank has planned to put an investment of Tk 50.65 crore in International Leasing and Financial Services Ltd, whose classified loan stood at 88.22 per cent for the year 2020, and in FAS Finance and Investment Ltd, whose classified loan was 88.76 per cent for the same year.
Besides, Tk 9 crore was invested in CVC Finance, which is a related organisation of the bank.
The bank’s FDR investments with the nine non-bank financial institutions account for 22.56 per cent of its total paid-up capital.
If the bank cannot recover the FDR capital, it would severely impact its earnings per share and total assets.
According to the financial data of the draft IPO prospectus, the bank stated that its classified loan stood at Tk 145.5 crore till December 2021, which was 3.7 per cent of its total loans and advances.
The bank’s classified loan increased by 221.35 per cent in 2021 compared to the previous year, with the amount being Tk 45.28 crore at the end of 2020.