Growing

Together

Opportunities in Initial Public

Offering (IPO)

LankaBangla Finance
Limited
October 9, 2015

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Contents
Major Functions of Stock Exchanges
Role of Secondary Market
Functions of Primary Market
Job opportunities through Primary Market
Initial Public Offering
Possible ways to get listed with Stock Exchanges
IPO Pricing Methods in Bangladesh
Basic Requirements for IPO (under Fixed Price Method)
Prerequisites for Book-building Method
Prerequisites for Direct Listing
Greenfield IPOs
Comparison Matrix of IPO Methods
Process Flow of IPO
Distribution Mechanism in IPO
Primary Market Performance
Comparison of Regional Market
Bank Borrowing vs Equity Financing
Comparison Matrix of Subscription Period
Opportunities in IPO
Benefits of Listing

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Major Functions of Stock Exchanges

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Listing of Companies (As per Listing Regulations).

Providing the screen based automated trading of listed Securities.
Settlement of trading (As per Settlement of Transaction Regulations).
Gifting of share / granting approval to the transaction/transfer of share
outside the trading system of the exchange (As per Listing Regulations
42).
Market Administration & Control.
Market Surveillance.
Publication of Monthly Review.
Monitoring the activities of listed companies (As per Listing
Regulations).
Investors grievance Cell (Disposal of complaint bye laws 1997).
Investors Protection Fund (As per investor protection fund Regulations
1999).
Announcement of Price sensitive or other information about listed
companies through online.

Role of Secondary Market

Economic Barometer
Pricing of Securities
Safety of Transactions
Contributes to Economic Growth
Spreading of Equity Cult
Providing Scope for Speculation
Liquidity
Better Allocation of Capital
Promotes the Habits of Savings and Investment

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Functions of Primary Market

Issue Management
IPO/Direct
Listing/Rights
Offering/RPO

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Underwriti
ng

Primary
Market

Corporate
Advisory
Capital
Raising/Private
Placement

Job opportunities through Primary Market

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PRIMARY MARKET CREATES JOB OPPORTUNITIES IN

DIFFERENT SECTORS
The Issuer

Engagement of
more human
capital for the IPO
process

Future Growth
enables more
people to engage in
those business

Stakehold
ers

Regulato
rs

Merchant
Banks

Related
Parties

Auditors

Consultanc
y

Brokerag
es

IT &
Publications

Banks &
NBFIs

Initial Public Offering

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The capital market can encourage broader ownership of

productive assets by small savers to enable them benefit from
Bangladesh's economic growth.
The capital market can provide avenues for investment
opportunities that encourage a thrift culture critical to increase
domestic savings and investment ratios that are essential for
rapid industrialization.
Equity financing through the capital market can reduce the
debt level of businesses.
An IPO in which a company sells its unissued securities and
receives all the proceeds in the form of additional capital is
called a primary offering.

Possible ways to get listed with Stock Exchanges

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Listing through Initial Public Offering (IPO) under the

Regulations of Bangladesh Securities and Exchange
Commission
Direct Listing through offloading of shares of existing
shareholders of the Issuer Company under the Listing
Regulations of Stock Exchanges

IPO Pricing Methods in Bangladesh

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Application for consent under these Rules may be based on any of

the following pricing methods:(a) Fixed price method;
(b) Book-building method.

Basic Requirements for IPO (under Fixed Price Method)

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Must be a Public Limited Company by shares registered with RJSC.

Minimum paid up capital (existing + proposed) requirement for Initial
Public Offering (IPO) shall be BDT 30 Crore.
Minimum size of IPO shall be BDT 12 Crore, but that shall not be less
than 10% (ten percent) of the Total Paid-up Capital (existing +
proposed).
Shall have no accumulated loss at the time of application.
Commercial operation for at least immediate last three years is
preferable.
All Sponsors/Promoters and Directors shall all time jointly hold minimum
30% shares of the paid-up capital of the company.
Number of the board members of the company shall not be less than 5 and
more than 20.
At least one fifth (1/5) of the total number of directors in the companys
board shall be Independent Directors.
Each Director other than Independent Director (s) of any listed company
shall hold minimum 2% (two percent) shares of the paid up capital.

Basic Requirements for IPO (under Fixed Price Method) contd.

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The company and none of the Sponsors/Shareholders/Directors must not be

a bank defaulter as per CIB report.

Financial statements must be prepared in accordance with Bangladesh

Accounting Standards (BAS), Bangladesh Financial Reporting Standards
(BFRS) as applicable in Bangladesh Securities and Exchange Rules
1987, Companies Act, 1994 and other application laws and regulations of
Bangladesh.
Shall audit at least its latest financial statements by a firm of chartered
accountants from the panel of auditors of the Commission.
The issuer company must be regular in holding Annual General Meeting.

The Company shall appoint a Chief Financial Officer (CFO), a Head of

Internal Audit (Internal Control and Compliance) and a Company Secretary
(CS) as per provision of Corporate Governance Guideline of Bangladesh
Securities and Exchange Commission.
Shall comply with the Corporate Governance Guideline of Bangladesh
Securities and Exchange Commission Notification dated August 07, 2012.

Prerequisites for Book-building Method

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The Issuer Must have at least Tk. 30 crore net-worth;

Shall offer at least 10% shares of paid up capital (including intended
offer) or Tk. 30 crore at face value, whichever is higher;
Shall be in commercial operation for at least immediate last three
years;
Shall have profit in two years out of the immediate last three
completed financial year;
Shall have no accumulated loss at the time of application;
Shall be regular in holding Annual General Meeting;
Shall audit at least its latest financial statements by a firm of chartered
accountants (must be foreign affiliated) from the panel of auditors of
the Commission;
Shall appoint separate person as Issue Manager and Registrar to the
Issue for managing the offer; and shall comply with all requirements of
these Rules in preparing prospectus.

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Prerequisites for Direct Listing with Stock Exchanges

shall have minimum paid up capital of Tk.
30 crore ;
shall have no accumulated loss;
shall be in commercial operation for at
least immediate last 5 (five) years;
shall have profit in 3 (three) years out
of the immediate last 5 (five) completed
accounting/financial years with steady
growth pattern;
is regular in holding of AGM ;
has not raised capital (excluding bonus
issue) within preceding 2 (two) years;
has not issued the same class of securities
in any manner other than bonus issue
within the preceding 2 (two) years of
submitting application of listing;

shall have positive net current assets (at the

end of immediate preceding 3 (three)
financial years;
shall have net positive cash flows from its
operating
activities
for
immediate
preceding
3
(three)
accounting/financial years;
shall comply with the provisions of
Corporate Governance Guidelines;
any of its sponsors/directors is not a bank
defaulter;
has been assigned rating by a credit
rating company;
has prepared its financial statements in
accordance with the Requirements of the
Securities and Exchange Rules, 1987 as well
as the provisions of IFRS /IAS as adopted in
Bangladesh and audited the same as per
Bangladesh Auditing Standard (BAS).

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Greenfield IPOs

GREENFIELD PROJECTS NEED TO BE PROMOTED FOR

Facilitates
Investment for
Development

Save Capital
Intensive
Companies

Ensuring Better
Governance for
New Projects with
Huge Capital
Expenditures

Saving Growth
Company from
Debt Burden

Comparison Matrix of IPO Methods

Fixed Price Method
Issuer, with the help of its lead
managers, fixes a price according to
BSEC (Public Issue) Rules, 2006, which
Pricing
has to be approved by the regulator
BSEC. It can be at par or with
premium.
Expenses include Issue Management
fee,
Underwriting
and
Bankers'
Expenses
commission, Prospectus publication
fee, regulatory fees etc.
Pre-IPO Must be a minimum of BDT 18.00
Paid Up Crore

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Book-building Method
It is a mechanism where, during the period for
which the book for the offer is open, the bids are
collected from investors at various prices, which
are within the price band specified by the
indicative
price
collected
from
Eligible
Institutional Investors.
Other than the expenses incurred in Fixed Price
method, additional expenses include Road Show
arrangement,
Information
Memorandum
publication and circulation.
Must have at least BDT 30 Crore net-worth

Capital
Minimum size of IPO shall be BDT 12
Crore, but that shall not be less than
Offer Size
10%
of the Total Paid Up Capital
(existing + proposed)
No strict requirement;

Profitabilit
y

Shall offer at least 10% shares of Post-IPO paid

up capital or 30 Crore at face value, whichever is
higher
Shall be in commercial operation for at least
immediate last 3 years (1 Year for Gas & Power
producers)
Shall have profit in two years out of the

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Comparison Matrix of IPO Methods (contd.)

Fixed Price Method

Book-building Method
Prospects

Fewer Regulations to comply

Relatively lower cost
Common norm of application in the
market
Less Dilution due to option to issue
less number of shares

Less time between application and

subscription due to shortened queue
The price is discovered through bidding,
so higher chance to achieve higher price

Challenges

Longer time between application

and subscription to public
Price is at BSECs discretion (BSEC
will value according to NAVPS and

EBVPS methods)

Must issue at least 3 Crore Shares, so

dilution can be higher
No accumulated loss during the time of
application
The indicative price must be supported
by at least 20 EIIs with at least 3
quotations from 6 categories covering
10% of the issue size

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Approx. 48 weeks required

Process Flow of IPO (under Fixed Price Method)

Preparation
Stage

Due Diligence,
Preparation of
Prospectus
and IPO
Application

Review
Process and
Issuance of
Deficiency
Letter

BSEC Approval
for Subscription
and Publication
of Prospectus

Final Review by
Regulators and
Process the file
for Approval

Reply on
Deficiencies

Subscription
and Listing
Process

Process Flow of IPO (under Book-building Method)

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Inviting the
EIIs for
Road Show for
Price Discovery

Road Show &

Getting the
Price
Quotations

Setting the
indicative price

Determination
of the
Weighted Avg.
Price for EIIs
and Cut-Off
Price for
General
Investors

Electronic
Bidding
through
Automated
System of the
Stock
Exchanges

Approval from
BSEC to
commence
Bidding and
Obtain
Permission from
DSE for
conducting
Bidding

Submission of
Draft
Prospectus
with the
Indicative Price

Submission of
final
Prospectus to
BSEC with the
Weighted Avg.
and Cut-off
Price

Consent of
BSEC for Public
Subscription

Subscription of
General
Investors &
EIIs

Listing with
Stock
Exchanges

Preparing IM
without
mentioning
Indicative price

Approx. 60 weeks required

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Distribution Mechanism in IPO

Under Fixed Price Method
Issue Size in
Face Value

Affected
Small
Investors

Mutual
Fund

NRB

General
Public

Tk. 12 Crore and

above

20%

10%

10%

60%

Issue Size in Face

Value
Tk. 30 Crore - Tk.
50 Core
Over Tk. 50 Crore Tk. 100 Core
Over Tk. 100 Crore

Under Book-Building
MethodGeneral Investors Quota
EIIs Quota

Mutual
Fund

NRB

General
Public

40%

15%

10%

35%

50%

15%

10%

25%

60%

15%

10%

15%

Distribution Mechanism in IPO (Proposed)

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For stabilizing the new IPOs in the capital market special

quota can be introduce

High Net Worth

Individuals

Foreign
Individuals

Eligible
Institutions

Foreign
Institutions

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Primary Market Performance in last 10 years

FUND RAISED (BDT Crore)

NUMBER OF IPOS APPROVED

Considering September 30, 2015 as

cut off date.

2006

372.7

2007
2008

1,005.7

14

827.0

12

2009

18

2010

18

2011

1,689.9
1,817.5

17

1,664.0

12

2014
2015

2,865.3

14

2012
2013

1,904.7

20
14
Total No. of IPOs: 146
through IPO: BDT 14,511 Crore

1,314.1
1,050.1
Total Fund Raised

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Primary Market Performance in last 10 years (contd.)

Considering September 30, 2015 as

cut off date.

FUND RAISED FROM RIGHTS OFFERING (BDT Crore)

2015
0
2014
2013

2063.04
180.3

2012

497.9

2011

1858.95

2010
2009
2008
2007
2006

1760.11
243.98
211.23
59.87
167.36
Total Fund Raised through Rights Offering: BDT 7,043
Crore

Comparison of Regional Market

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# of IPOs PER YEAR

Average IPO Per Year: 15

Avg. Amount Raised From IPO: BDT 1,570.92
Crore

Average IPO Per Year: 47

Avg. Amount Raised From IPO: Rs.
14,483.36 Crore

Comparison of Regional Market (contd.)

CAPITAL MARKET CONTRIBUTION IN GDP
PER CAPITA

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Bank Borrowing vs Equity Financing

BANK FINANCING VS ISSUED CAPITAL IN STOCK MARLET (Amount in BDT Crore)

Bank financing has been the major

source for companies despite the
long-term benefits of fund raising
from capital market. Till September
2015, total issued (equity)
capital of all listed companies
share is BDT 48,171 Crore and
Bank outstanding balance is
BDT 573,669 Crore.
Year

70,000

67,219

64,641

60,319 61,650

60,000

45,874

50,000
40,000

30,261

30,000
20,000
4,625

10,000

Outstanding Bank Incremental Bank

Credit (BDT Crore) Credit (BDT Crore)

2010

3,549

2011

2,315

2012

Incremental Bank Credit

Total Issued
Capital (BDT
Crore)

1,844

2013

3,377

2014

1,050

2015

Total Issued Capital

IPO Issue Right Issue

Size (BDT Size (BDT
Crore)
Crore)

2010 310,924

67,219

4,625

2,865

1,760

2011 371,243

60,319

3,549

1,690

1,859

2012 432,892

61,650

2,315

1,818

498

Comparison Matrix of Listing Period

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Listing Period in Bangladesh

Name of the Company
OLYMPIC ACCESSORIES
LIMITED
AMAN FEED LIMITED

Date of Publication
of Prospectus

Date of Listing

Duration
(Days)

March 19, 2015

June 06, 2015

79

April 29, 2015

August 18, 2015

111

Listing Period in India

Name of the Company

Date of Publication
of Prospectus

PENNAR ENGINEERED
BUILDING SYSTEMS LIMITED

August 13, 2015

P. B. FILMS LIMITED

August 17, 2015

Date of Listing
September 10,
2015
September 22,
2015

Duration
(Days)
28
36

As per Listing Regulation of Stock Exchanges, 2015; Subscription & Listing

Period will be around 50 days.

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Opportunities in IPO
Least cost
source of
fund

New
opportunities
will create

Economic
Growth

Uses the
money for
expansion

Creates more
employment
opportunity

For
supporting
the
companys
business

Tax Benefit

Leaves the
company with
more residual
income

Money
utilized for
more
diversification

Benefits of Listing
Fund Raising and Exit Route to

Investors

Tax Benefit
Reduced Reliance on Debt Finance
Build market awareness

Wealth Creation

Opportunities for Merger/Acquisitions

Deliver value to existing shareholders

Provide liquidity for original

stockholders
Broaden the Corporate Governance
Structure
Timely Disclosure of Corporate
Information
Supervision and Control of Trading in
Securities

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Marketability of Securities
Fair Value and Collateral Value
of Securities
Strengthen Image & Brand
Value Creation
Attract Foreign Investment
Self Esteem and Social
Recognition
Further Capital Raising Option
Better Succession Planning
Retain talent

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Thank You!