No cheer for Midland Bank shareholders

Share prices of Midland Bank closed slightly higher with only Tk0.20 gain on its debut trading at Dhaka Stock Exchange, interestingly the company saw a 26 per cent under subscription because of the dull market situation.

Usually, the share price of company observes a rise in its trading debut but it was reverse in the case of Midland Bank as the price came down to Tk9 each, against face value of Tk 10. However, later it closed in the positive note, at Tk 10.20 each.

Around 26 per cent of the initial public offering (IPO) of Midland Bank was undersubscribed, which is the first instance in the history of bank IPOs. Its share price closed slightly higher on its trading debut at the Dhaka Stock Exchange on Monday.

This was the first time since 2006 that the IPO of a bank remained unsold.

Market insiders said that investor confidence has been weakened as a result of the poor performance of new-generation banks in the stock market, which was exacerbated by the recent IPO performance of Global Islami Bank, whose share price fell below the face value on the first day of trading and is still disregarded at the floor price.

Meanwhile, Midland Bank’s net interest margin has decreased from 2.28 per cent in FY21 to 0.83 per cent in FY22 (9M Annualised) mainly due to the increase of non-performing assets and the failure to increase the interest rate due to the prevailing lending rate cap.

The bank also has an outstanding loan of Tk 82 crore as a special mention account as of December 2021, which can be a matter of concern in the future, says an equity note prepared by EBL Securities Ltd.

It also said that the bank’s bottom line is experiencing a significant de-growth of 50.9 per cent in FY22 (9M Annualised), mainly due to lower net interest income and higher provisioning against classified loans.

The post-IPO restated EPS has declined to Tk 0.39 in FY22 (9M Annualised) as against Tk 0.80 in FY21.

The bank raised Tk 70 crore from the capital market from February 16 to February 23 through an IPO under the fixed price method.

However, 26 per cent of the bank’s shares floated were unsold during that period due to the lack of interest from investors in the shares. The IPO subscription of Midland Bank, which ended on February 28, its primary shares worth more than Tk 18 crore remained unsold against its IPO size of Tk 70 crore.

According to the IPO fund proposal, its shares were allotted at Tk 5 crore for its employees, Tk 16.25 crore for eligible institutional investors and Tk 48.75 crore for the general public.

Underwriters, however, guaranteed that issuers would take all unsold shares offered and for the first time in nearly two decades, equity IPO underwriting proved its worth.

The bank reviewed its financial reports on Thursday and said its net profit in the July–September quarter of FY23 fell by 10 per cent year-on-year. Besides, its net profit plunged by 58 per cent during the January–September period of FY23 on a year-on-year basis.

On September 21, 2022, the regulatory body, Bangladesh Securities and Exchange Commission (BSEC), approved the company’s IPO proposal.

According to the draft prospectus’ financial statements, the bank’s classified loan stood at Tk 145.50 crore as of December 31, 2021, which was 221.35 per cent higher than Tk 45.28 crore as on 2020.

As per DSE observations, the bank recognised Tk 185.05 crore as of December 31, 2021, as an investment in FDR with nine non-banking financial institutions (NBFI). Recently, the financial condition of the NBFI has been weak. So it appears that the recovery of the deposit of Tk 185.05 crore as FDR in NBFI is uncertain.

The investment regarding FDR with nine non-bank financial institutions amounts to 22.56 per cent of the total paid-up capital of the bank. If the bank cannot recover the aforesaid FDRs, then it will negatively impact the EPS and total assets of the company.

The uncertainty has been increased again because of the investment of Tk 128.50 crore has had almost no movement for the last 3 to 4 years, as per DSE.

Furthermore, an investment of Tk 50.65 crore 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.

Midland Bank’s Managing Director and CEO Md Ahsan-uz Zaman said, “today’s listing of Midland Bank is a moment of great joy. We will move forward with our investors and will be able to meet their expectations”.