IPO Process in Bangladesh

Submitted to:

Md. Lutfur Rahman Assistant Professor, Department of Business Administration, East West University, Dhaka.

Submitted by:

Name Arafat Rauf

FIN 335 Section: 3 Fall: 2011

ID 2009-2-10-345

Date of Submission: 15th December 2011

IPO Process In Bangladesh

Executive Summary This term paper gives us a practical experience while passing through the theoretical understanding. The report is the result of our understanding about what are IPO and IPO listing procedure in Bangladesh. In the introduction, we have briefly discussed about IPO. What it is. In the next we have also explained the methodology regarding this report. Secondary data and information have been used in preparing this report. Then comes the Analysis part, where we have explained the listing procedure. We have divide listing procedure in two Parts according to their behavior, one is work before Consent and another in work after consent. In the whole listing procedure, the works are separable like work before IPO consent and work after IPO consent.

Like all study, this report has also certain limitations which were in some cases unavoidable. In the end we have concluded with a short discussion of overall analysis.

Page 2 of 10

IPO Process In Bangladesh

Table of Content
Content Introduction Methodology of the Study Analysis Conclusion Bibliography Page Number 4 4 5 9 10

Page 3 of 10

IPO Process In Bangladesh

Introduction Initial public offering (IPO), also referred to simply as a "public offering" or "flotation," is when a company issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. For minimize the risk and attract more investor to the market The IPO has three part as mention in the following diagram. 10% Shares are restricted for mutual fund; another 10% shares are restricted for Non Residence Bangladeshi (NRB); and rest of the 80% shares are allocated for the general public.

Methodology Of The Study

We have used only secondary data source to conduct the study. The sources of secondary data are: Secondary information was collected from different web site related to IPO listing procedure in Bangladesh. We have collected much of the information through the internet and those are mentioned in the bibliography page.

Page 4 of 10

IPO Process In Bangladesh

Analysis An initial public offering or IPO is a mechanism for companies to make available for the first time shares of their stock. Its purpose is to either raise capital for a new company or to fulfill a desire by an existing company to make their shares available to the public. Whether it is a new or existing company, the IPO process follows a fairly straight forward path with precise steps along the way. There are some instructions you have to follow to get consent from Securities Exchange Commission. These instructions are mandatory for investors. Through this process Investor has to organize all the relevant information. We have divide listing procedure in two Parts according to their behavior, one is work before Consent and another in work after consent. In the whole listing procedure, the works are separable like work before IPO consent and work after IPO consent.

Works before Obtaining the Consent from Securities Exchange Commission 1) Selection of Advisors: Before applying for consent every company suppose to have section of legal advisor. Legal Adviser is responsible for Security of internal information. Local Organization usually appoints only Local Advisor and multinational organization supposed to have two legal advisers both Local & Foreign. 2) Completion of Valuation and restructuring: Before getting consent Organization will have to complete their total asset Valuation. Another important process is changing organizations employee management and also restructuring and obtaining Reports thereon. Listed Organizations all top level employee usually has to follow by the Auditor. 3) Selection of Bankers to the Issue: Bankers Letter confirming opening of separate account for IPO and accepting their appointment as such Rule -18 of Public Issue Rules 2006. Bankers to the issue will be the important stake holder and they will be responsible for deposit and withdraw money of investors. 4) Selection of underwriters: Selection of underwriters & completing underwriting agreement is another essential process of IPO listing procedure. Underwriters are liable for successful float of all the shares. If the shares under subscribed, then underwriter will

Page 5 of 10

IPO Process In Bangladesh

have to buy and hold that particular amount of shares. But, in case of Bangladesh Capital Market History, It never happens besides applications are over subscribe more than 10 times of offer. 5) Collection of NOC from Lenders: Collection of No Objection Certificates (NOC) from Lenders is a mandatory to get IPO approval. Lender should have to issue a letter that if the Company change their existing capital structure then they will not have any objection. If the company have loan from several banks, then it is necessary to collect NOC from all the lenders. 6) Audit of Accounts: Organization supposed to have Audit of their accounts by authorized Auditor duly signed on each page, by the issuers chief executive officer/managing director, chief financial officer and issue manager according to the Rule -3 of Public Issue Rules 2006. The audited account shall not be older than 120 days of the end of the period for which the Financial Statement is prepared. 10 copies of Financial Statement have submitted to SEC, one copy each to DSE and CSE. 7) Credit Rating Report: Generally it takes at least two months to complete the Credit Rating after the Annual Audit is completed and credit report is mandatory for IPO listing process. Rule 18 (21) of the Public Issue Rules 2006 says that the application for consent shall be accompanied by some exhibits including Credit Rating Report. No issue of shares at a premium or issue of right shares shall be made by a public company unless the issue is rated by a credit rating company and declaration about such rating is given in the prospectus or right offer document (Sec.3 of Credit Rating Companies Rule 1996). 8) Agreement with CDBL: Before submission of Application to SEC, it is mandatory to complete agreement with Central Depository Bangladesh Limited (CDBL). CDBL maintain online transaction of securities by taking some fees and they listed all the investor in Stock Market. At present there are more than 1600000(sixteen lac investors) in Bangladesh Capital Market. After completion of agreement now company will have to take decision on depositing sponsors shares during Lock-in-Period with Custodial Bank or with CDBL. 9) Approval from Sponsors: At this point of IPO process now it is necessary to take approval from the sponsor and documentation the process, undertaking and information from Sponsors/ Directors, Declarations, Due Diligence etc.

Page 6 of 10

IPO Process In Bangladesh

10) Refund warrant guarantee: Company supposed to have opened a separate Bank Account for refund warrant purpose. It also called Mother Accounts for Refund Warrant. Through this account Company has to refund warrant money to the investor, who will not get the share. 11) Draft Prospectus: Before applying for IPO Company will have to drafting the abridge version of prospectus and dealing with Printers on printing of Prospectus, Forms, Refund Warrants, Letter of Allotment etc. 12) Application Submission: Application has to submit to SEC for consent to Issue with approved Prospectus and deposit the Govt. Fees of BDT 10,000. If the application is incomplete the SEC shall inform the applicant within 28 days of receipt of application and if the issuer fails to remove incompleteness within 30 days of communication, it shall file fresh application. (Rule -17 of Public Issue Rules 2006) 13) Consent from SEC: if the application and information, documents are provided by the applicant are reliable then SEC shall issue letter of Consent within 60 days of receipt of complete application. (Rule -17(4) of Public Issue Rules 2006). If the application submitted by the applicant is fresh and correct then usually it takes 45days to get IPO consent.

Works After Obtaining the Consent from Securities Exchange Commission 1) Submission of prospectus: After getting approval from SEC the first step is to submit the abridged version of prospectus in SEC for approval, usually before 10-15 days prior to opening of subscription. And also have to submit signed copy of the Prospectus with Registrar of Joint Stock Company (RJSC) on or before the date of publication of prospectus in newspapers.( Section 138 of Companies Act 1994) 2) Announcement for the investor: Company will have to Publish of abridged version of prospectus in 4 newspapers (2 English + 2 Bengali) within 3 working days of the issuance of Consent Letter (Rule 5(1) of Public Issue Rules 2006). A paper clipping of published Abridged Version of Prospectus has to submit to SEC within 24 hours of publication in newspapers. Issuer Company will have to submit a diskette containing the text of vetted prospectus to SEC, DSE, CSE and Issue Manager and will have to post the

Page 7 of 10

IPO Process In Bangladesh

full prospectus vetted by SEC in Websites of Issuer, SEC, DSE, CSE & Issue Manager within 3 working days of the issuance of Consent Letter (Rule 6(2) of Public Issue Rules 2006). 3) Provide full prospectus: Issuer Company will have to submit 40 copies of printed prospectus to SEC and also submit printed copies of abridged version Prospectus and application forms to Bangladesh Embassies by EMS of postal departments within 5 working days from the date of publication of abridged version of prospectus in newspapers. 4) Application for listing: At this point Applicant should apply to all Stock Exchanges in Bangladesh and submit the vetted prospectus to the Stock Exchanges within 7 working days from the date of issuance of the Consent Letter (Rule 17 of the Public Issue Rules 2006). 5) Subscription period: Subscription List shall be opened and sale of securities commence after 25 days of publication of Abridged Version of Prospectus. (Rule - 5 of Public Issue Rules 2006) Subscription List shall be closed after remain open for 5 consecutive banking days. By NRB be made to the Issuer Company within the closing date so as to reach the Company by the closing date plus 9 days. 6) Transaction rate: To apply spot buying rate (TT Clean) in US $ and UK pound and Euro of Sonali Bank for subscription of NRBs. Spot buying rate to be collected from Sonali Bank on the date of opening of subscription. 7) In case of under subscription: In case of under subscription, Issuer shall notify the underwriter to take up underwritten shares. The time limitation is within 10 days of close of subscription date. Full payment is to be made by the underwriter of underwritten amount within 15 days of Issuers notice. 8) Application to Stock Exchanges for Listing: For application for Listing issuer has to submit it to SEC attested copies of applications filed with Stock Exchanges within 7 working days of issuance of consent letter (Application shall be made by the Company at least 10 days prior to issue of first Prospectus (Regulation 3 (2) of DSE Listing Regulations). 9) Approval of listing: Granting of listing applications by DSE and CSE for issuing the share. The Exchange shall decide the question of granting permission within a maximum

Page 8 of 10

IPO Process In Bangladesh

period of 6 weeks from closure of subscription lists. (Regulation 3(3) of DSE Listing Regulations)

Conclusion The first thing a company must do before issuing stock is file a registration with the Securities and Exchange Commission (SEC.) Since the SEC has the power of nullifying any attempt to go public After (and sometimes before) the registration statement is finished, companies engage the services of one or more investment bankers. The role of any investment banker(s) is mostly twofold. First, it is to distribute the companys prospectus to prospective buyers of the stock. The second function of an investment banker or underwriter is to buy the companys shares and resell them to the public. After SEC approval and usually a day or so before the actual public offering, the company and the investment banker agree on a share price and the number of shares to be sold. The offering is complete when the company receives the money and delivers the shares to the underwriter. Underwriters do extensive research before committing to buy a companys securities. They take on a calculated risk, essentially betting that the price per share they pay out to a company will be less than what the market is willing to pay for it. Opportunities for huge profits -and losses- exist in this environment.

Page 9 of 10

IPO Process In Bangladesh

Bibliography
1. Working report on IPO consent and listing procedure in Bangladesh, see http://www.2dix.com/document-pdf/ipo-project-report-pdf.php accessed 9th December 2011 2. Process of listing with DSE, see http://www.bdtradeinfo.com/business/listing_dse.asp accessed 9th December 2011 3. Ipo Process In Bangladesh, see http://www.oppapers.com/essays/Ipo-Process-In-Bangladesh/591709 accessed 9th December 2011 4. Going Public Experts, see http://www.goingpublicexperts.com/?gclid=CJfv0LOyg60CFY4a6wodd1xFTA accessed 9th December 2011 5. IPO consent and listing procedure in Bangladesh see http://www.sb.iub.edu.bd/intern_report_asaduz_zaman.pdf. accessed 9th December

Page 10 of 10