Fundraising thru rights issues plunges to five-year low

Only one listed firm offers fresh equity shares in 2020

December 18, 2020 10:07:50

| Updated:

December 18, 2020 14:19:29

Fundraising by the listed companies by way of rights issues fell sharply in the outgoing calendar year, hitting a five-year low.

Only one listed firm — Pragati Life Insurance — netted about Tk 230.27 million by issuing more than 15.35 million rights shares at a price of Tk 15 each, including Tk 5.0 as a premium, in 2020, according to the Dhaka Stock Exchange (DSE) data.

The life insurer issued one rights share against one existing share to facilitate the business growth and strengthen the capital base of the company as well as meet the regulatory requirements.

However, on December 15, the stock market regulator — Bangladesh Securities and Exchange Commission (BSEC) — approved the National Polymer’s application to raise Tk 547.38 million through rights offering.

The company will issue more than 36.49 million rights shares at a price of Tk 15 each, including Tk 5.0 as a premium. One rights share will be offered against one existing share.

The rights issue is an offer of new shares by a company to its existing shareholders in proportion to the shares they already own usually at a discount to the market price.

The companies intend to issue fresh equity shares to either strengthen their capital structure or use funds for business expansion and loan repayment.

Market operators said the securities regulator’s ‘go-slow’ policy in giving approvals to rights issues and insufficient documents submitted by the companies were the major factors behind the sharp fall in fundraising via rights issue.

The pandemic-induced closure of the stock market for two months (from March 26 to May 30) as well as the bearish trend in the secondary market in the first half of the year also led to a low fund collection through rights issue, said an analyst at a leading brokerage firm.

Meanwhile, the stock market regulator also cancelled rights offer applications of three companies — IFIC Bank, Dragon Sweater and Western Marine Shipyard — in 2020 for various reasons, including insufficient documents and failure to appoint an underwriter.

The securities regulator turned down the rights offer proposal of IFIC Bank because of its inability to appoint an underwriter.

The BSEC rejected Western Marine’s rights application, as the shipbuilder failed to submit requisite documents and explanations to the BSEC on time.

A BSEC top official said the commission will not allow anything that hurts general investors’ interest.

In 2019, two listed firms — IPDC Finance and Golden Harvest Agro Industries — raised about Tk 2.31 billion by issuing more than 207.73 million rights shares.

The IPDC Finance raised Tk 1.41 billion by issuing more than 117.80 million rights shares at an issue price of Tk 12, including a premium of Tk 2.0 per share, to cope with the business growth and strengthen the capital base of the company.

The non-bank financial institution issued one rights share against two existing shares.

Golden Harvest raised a capital of Tk 899.32 million through the issuance of 89.93 million rights shares for expansion of existing production and distribution channels of the company and pay off bank loans.

The food and allied sector company issued three rights shares against four existing shares (3R:4) at an offer price of Tk 10 each.

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