Of late, the Bangladesh Securities and Exchange Commission (BSEC), the securities regulator, seems to be moving more carefully toward protecting stock investors' interest. Investors saw it in a positive way when the regulator ordered a re-audit of a listed textile company which sold Initial Public Offering (IPO) at more than two-time premiums of the par value. The company also took additional money by offering two right shares against a share within one and a half year of the IPO marketing. But the re-audit found that the company performed poorly in business and was far below the performance it promised both in IPO prospectus and right issue documents. The company, it was feared, might have diverted the money to other uses other than the purposes for which it took money from the stock investors.
This company is not alone in playing foul with investors' money. There are many others which did the same thing; they use the money from the IPO sales for some purposes other than the ones permitted by the regulator.
Why and how do they dare to do so with the public money? Because, nobody, after taking money through IPO sales, takes note of what the issuers or the concerned companies are doing with the money they take from the stock investors. They use the money in a carefree way or in the way the bosses of these companies want.
Investors only know when quarterly reporting - that too in a very skeleton way - is presented. There is no way to know what difference the companies make in business after taking the investors' money as the simple-minded ordinary investors only see what earning per share the companies make and whether those earnings go up or down. If EPS (earnings per share) go up, they become happy; if the same go down, they become gloomy. By the time investors expect that the full result of infusion of additional money from sales of the IPOs will come up in the next few years, the sponsors start selling their own holdings and in some cases, bring their holdings down less than one-third of the total equities.
Once the investors see that the very sponsors on whom they repose their confidence give up their stock holdings, they become more disappointed. At the end, they also give up the hope that their companies will show any increased EPS in future and they also start selling the stocks apprehending that in future, the companies will only lose.
Most of stocks of companies, especially those in the textile sector, are being traded at far below the premium values when they take those from the investors through their IPO sales. In effect, in those companies, the sponsors already become minority shareholders after their share sales, but they continue to sit on the management.
Herein lies the crux of the problem: with a minority shareholding, the sponsors simply do not care about where the companies' business will go. Why will such companies show everything in their financial reporting when they place the same before stock investors and the BSEC? The auditor signs the financial statement as a routine work. He signs because he is paid for it. If the BSEC wants to make anyone accountable for the deteriorating financial results of companies, it should also make accountable the auditors who sign the companies' financial reports and also the issue managers who prepare the so-called disclosure-based prospectus and make future forecasting of the companies' businesses. The fact is that the auditors certify the false statements and the issue managers also prepare nice papers saying everything about the companies is good. The investors, believing those documents certified by auditors and prepared by the issue managers, are simply cheated.
Most of the IPOs that hit the market in the last two years were overvalued. The so-called disclosure-based IPO pricings turned out to be wrong in most cases. The most agonising thing for the investors is share sale by the sponsors within a few months of the listing of the stocks with the bourses.
Why do the sponsors become so eager to sell their shares? When they see that the shares are being traded at much above the prices of what they expect, they fail to hold back the temptation. There is a phrase in stock market literature called shareholders' democracy. In Bangladesh's market, democracy exists in name only. The ordinary shareholders who subscribe the IPOs or purchase stocks from the secondary market lose almost every right. Now-a-days, they are not even given annual reports of the companies whose stocks they hold. The shareholders lose all interest in attending the companies' annual general meetings. Hardly any voting takes place to elect companies' management board. In the absence of stock holders' vigilance, the sponsors of the companies, who routinely sit on the management board even with minority share holdings, run the companies in whatever way they like. In fact, the sponsor-directors in Bangladesh's stock market are accountable to none, neither to the stock holders, nor to the regulator BSEC. The regulator turns the other way in the face of irregularities that are taking place in the management of the companies.
The very mentality of the sponsor-directors in Bangladesh is pushing the stock investors again and again to a condition of despair wherefrom they seldom recover. It seems sponsors sell the stocks to the investors not to pay anything called dividends but to make abnormally high gains for themselves by selling the remaining stocks of the companies to the not-informed investors. The stock investors fail to stand up for their own rights. They now look to the regulator to come out to protect their interest in whatever way it deems fit. One way of saving their interest is to put a lock-in at least for a period of three years since the date of listing with bourses.
The writer is Professor of Economics, University of Dhaka