Академический Документы
Профессиональный Документы
Культура Документы
in Bangladesh
By
Mahmood Osman Imam Ph.D., FCMA
Professor and Ex-Chairman
Department of Finance
and
Executive Director
Center for Corporate Governance and Finance
Studies
University of Dhaka
IPO Rationale:
mechanism for assisting the firms initial shareholders in
diversifying their holdings.
assist managers (often the firms founder[s]) in
procuring the necessary funding for undertaking new
projects.
The IPO enables these individuals to sell a portion of
their holdings in the firm and utilize the funds generated
from the sale of stock to diversify their investment risk
(Rock, 1986).
Both goals can be simultaneously achieved.
Arkebauer (1991) found that the need to generate funds
to pursue new projects dominated portfolio
diversification.
For many entrepreneurial ventures, an IPO enables firm
management to pursue growth opportunities that would
otherwise be impossible to fund.
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IPO in Primary Market New Issue Management
Second, it may enable the original owners of the firm to realize part of
their investment, and thus can serve as an important exit route for the
entrepreneur or venture capitalists.
Fourth, once the stock is traded, this enhanced liquidity allows the firm to
raise additional capital via secondary issues..
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IPO in Primary Market New Issue Management
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IPO in Primary Market New Issue Management
IPO Process:
Upon deciding to undertake an IPO, firm management must
first secure the services of a issue-manager (& lead
underwriter as well).
The issue-manager assist firms managers in preparing the
extensive paperwork involved in complying with SEC
guidelines, including the registration statement, of which the
prospectus is a part.
Prospectus/IM is these materials that serve as the primary
marketing tool for the firms securities.
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IPO in Primary Market New Issue Management
IPO Process:
The IPO marketing process is punctuated by what is called a
road show.
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IPO Issue Management , Pricing and Price Performance
Behavior in the Aftermarket
IPO Process:
Upon completion of the road shows, and just prior to the actual first
day of trading, firm managers and the underwriters shepherding the
process will set the initial offering price.
It is this initial stock price that forms the basis for underpricing given
that underpricing represents the difference between the initial stock
price set by IPO firm managers and the underwriters and the price of
the stock at the close of the first day of trading.
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IPO Issue Management , Pricing and Price Performance
Behavior in the Aftermarket
Book Building Method
Issuer shall invite for interest for indicative price offer from the eligible
institutional investors through proper disclosure, presentation, document,
seminar, road show, etc;
The issuer, in consultation with the issue manager, shall quote its own
indicative price in the draft prospectus based on the indicative prices so
obtained from the eligible institutional investors;
Provided that the issuer and the issue manager shall send the
Information Memorandum to eligible institutional investors (EIIs) without
mentioning the indicative price.
The Indicative Price should be disclosed by the Issuer and Issue Manager
after the quotation received from the EIIs.
The said indicative price should be supported by at least 20 EIIs including
at least 3 (three) quotations from each of the following category:
Merchant Bankers
Commercial Banks
Asset Management Companies
Non-Banking Financial Institutions (NBFIs)
Insurance Companies
Stock Dealers
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IPO Issue Management , Pricing and Price Performance
Behavior in the Aftermarket
General investors, which include mutual funds and NRBs, shall buy at the
cut-off price.
The Company and The Issue Manger shall submit the status of bidding
and the Cut Off price along with the final draft prospectus, simultaneously
to the Commission and the stock exchanges within 5 working days from
the closing day of the bidding.
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IPO Issue Management , Pricing and Price Performance
Behavior in the Aftermarket
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IPO Issue Management , Pricing and Price Performance
Behavior in the Aftermarket
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IPO Issue Management , Pricing and Price Performance
Behavior in the Aftermarket
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IPO Issue Management , Pricing and Price Performance
Behavior in the Aftermarket
Price Stabilization:
Price stabilization support is provided by the underwriters in
US in the one month aftermarket. If the price will tend to go
below the subscription price, underwriter support price
pegging at the issue price.
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IPO Issue Management , Pricing and Price Performance
Behavior in the Aftermarket
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IPO Issue Management , Pricing and Price Performance
Behavior in the Aftermarket
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Fund Raising through Equity Market
Year No of new IPO IPO Issue Size (BDT Mn) Year Right offer (BDT Mn)
2006 7 3727 2006 1673.62
2007 14 10057 2007 598.79
2008 12 8270 2008 2112.32
2009 18 19047 2009 2439.87
2010 18 28653 2010 17601.14
2011 14 16899 2011 18589.51
2012 17 18175 2012 4979.09
2013 12 16640 2013 1803.04
2014 20 13141 2014 20630.45
Total 132 134608.86
Sources of the Chart : A presentation by Mohammed Nasir Uddin Chowdhury, MD &CEO, LankaBnagla
Finance
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Steady Progression of Foreign Portfolio
Participation in Bangladesh
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Trends in Foreign Portfolio Investment
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IPO Anomalies
Short-run Price Behavior Underpricing
the high initial returns investors earn between subscription
and the first trading day in the aftermarket known as the
"underpricing" phenomenon.
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IPO Anomalies
Short-run Price Behavior Underpricing
Initial Return:
Initial Return without or with market-adjusted
Raw return or Abnormal Return
First Day Return -- Return calculated from the offer price
to first-day aftermarket trading closing price
(debut day price).
Initial Return on equilibrium price day Return calculated
from the offer price to the equilibrium price
adjustment event day deducted by market
return for the period
Hot Issue Wave temporal variations of IPO return and
volume
Long-run Price Performance IPO Underperformance in the
long period of three to five year vis--vis market and matched
portfolio (by sized and industry)of seasoned firm
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Even Study Methodology used documenting
Underpricing phenomenon associated with IPO
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Findings of Underpricing and Asymmetric Information
associated with IPO
90.00
Abnormal returns
88.00
86.00
84.00 84.29 84.46
82.83 83.03
82.00 81.90
80.00
78.00
76.00
1 15 (EQ Day) 16 17 18 19
Event Trading day
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Findings of Underpricing of IPO
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Findings of determinants of underpricing
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The use of
Methodology of documenting
Long-run Price Performance of IPO
The average abnormal return for month t following the IPO
is:
nt
arit
1
AR t =
nt i=1
(1 + arit ) 1]
1
CAR s, T =
n i =1 i=s
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Methodology of documenting
Long-run Price Performance of IPO
Since such a portfolio strategy is difficult to implement, we
also analyze buyand-hold returns alternatively. The buy-
and- hold return for firm is defined as:
(1 + rit ) 1
min( T ,delist )
RiT =
t =1
where is the earlier of its delisting date or the end of the five
year window. For firms that went public near the end of our
sample period, the delisting date is no later than April, 2011,
since the return interval is truncated on this date.
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Findings of Lon-run Underperformance of IPO
30.0
% Average CAR or Excess HP return
20.0
10.0
0.0
-10.0
-20.0
-30.0
-40.0
-50.0
-60.0
0 10 20 30 40 50 60
Month of Seasoning
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Findings of Lon-run Underperformance of IPO
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Findings of Lon-run Underperformance of IPO
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Conjectures of causing Lon-run Underperformance of IPO
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Inefficiencies in primary market
Initial Public Offerings (IPO) There have been several challenges in the
primary market and in the process of IPO. Some of them are listed below:
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IPO Price in the aftermarket fails to reflect values
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Initial Return and Short-run Price Performance of recent IPOs
Price return of IPO 2014
First day return on Return till year
Companies
offer price end
Hamid Fabrics Limited 60.3% -27.8%
Khan Brothers PP Woven Bag Industries Limited 666.0% -50.7%
Western Marine Shipyard Limited 79.1% -11.4%
Saif Powertec Limited 138.0% 10.8%
Ratanpur Steel Re-Rolling Mills Limited 93.3% -10.1%
Shurwid Industries Limited 382.0% -28.9%
Far East Knitting & Dyeing Industries Limited 68.1% -31.1%
Tung Hai Knitting & Dyeing Limited 178.0% -23.2%
Khulna Printing & Packaging Limited 271.0% 10.0%
Shahjibazar Power Co. Ltd. 46.0% 482.0%
FAR Chemical Industries Ltd. 426.0% -34.5%
The Peninsula Chittagong Limited 22.3% -27.2%
Hwa Well Textiles (BD) Limited 341.0% -14.3%
Matin Spinning Mills Limited 13.2% 0.0%
Emerald Oil Industries Limited 400.0% -20.2%
AFC Agro Biotech Limited 550.0% -17.1%
Mozaffar Hossain Spinning Mills Ltd 353.0% -22.7%
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Use of Proceeds of recent IPOs
The observation that most of the IPOs that came in 2013 and
2014 are significantly and heavily using the proceeds of IPOs to
repay bank/NBFI debt is counter intuitive for raising funds for
further expansion and growth.
The BSEC has imposed new conditions to the issue of capital, right issue,
and the usage of money raised through initial public offering (IPO).
- No share money deposit before consent from BSEC for Raising Capital.
- Shares transferred by a sponsor/director to any person within preceding 12
months of submitting IPO application shall be locked for 3 years from the date of
issuance of IPO prospectus.
- An issuer of a listed security cannot issue rights shares within 2 years from the
date of publication of IPO prospectus and before full utilization of fund raised
through IPO or previous rights issue or repeat public offering (RPO).
- A listed company cannot utilize more than one-third (1/3) of the fund raised
through IPO for the purpose of loan repayment.
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Earnings Management of IPO firms
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THANK YOU ALL
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