Download under Fixed Price Method

Growing Together…
Opportunities in Initial Public Offering (IPO)
LankaBangla Finance Limited
October 9, 2015
Growing Together…
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
03 - 03
04 - 04
05 - 05
06 - 06
07 - 07
08 - 08
09 - 09
10 - 11
12 - 12
13 - 13
14 - 14
15 - 16
17 - 18
19 - 20
21 - 22
23 - 24
25 - 25
26 - 26
27 - 27
28 - 28
Growing Together…
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.
Growing Together…
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
Growing Together…
Functions of Primary Market
Issue Management
Underwriting
IPO/Direct Listing/Rights
Offering/RPO
Corporate Advisory
Capital Raising/Private
Placement
Primary
Market
Growing Together…
Job opportunities through Primary Market
PRIMARY MARKET CREATES JOB OPPORTUNITIES IN DIFFERENT SECTORS
The Issuer
Engagement of more
human capital for the
IPO process
Stakeholders
Regulators
Merchant
Banks
Related
Parties
Auditors
Consultancy
Future Growth enables
more people to engage in
those business
Brokerages
IT & Publications
Banks &
NBFIs
Growing Together…
Initial Public Offering
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.
Growing Together…
Possible ways to get listed with Stock Exchanges
 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
Growing Together…
IPO Pricing Methods in Bangladesh
Application for consent under these Rules may be based on any of the following
pricing methods:(a) Fixed price method;
(b) Book-building method.
Growing Together…
Basic Requirements for IPO (under Fixed Price Method)

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 company’s 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.
Growing Together…
Basic Requirements for IPO (under Fixed Price Method) contd.

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.
Growing Together…
Prerequisites for Book-building Method
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.
Growing Together…
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).
Growing Together…
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
Growing Together…
Comparison Matrix of IPO Methods
Pricing
Expenses
Fixed Price Method
Book-building Method
Issuer, with the help of its lead managers, fixes
a price according to BSEC (Public Issue) Rules,
2006, which has to be approved by the
regulator BSEC. It can be at par or with
premium.
Expenses include Issue Management fee,
Underwriting and Bankers' commission,
Prospectus publication fee, regulatory fees etc.
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.
Pre-IPO Paid Must be a minimum of BDT 18.00 Crore
Up Capital
Offer Size
Minimum size of IPO shall be BDT 12 Crore, but Shall offer at least 10% shares of Post-IPO paid up capital or
that shall not be less than 10% of the Total Paid 30 Crore at face value, whichever is higher
Up Capital (existing + proposed)
No strict requirement;
Profitability
Must have at least BDT 30 Crore net-worth
• 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 immediate last
three completed financial year and no accumulated loss at
the time of application
Growing Together…
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 BSEC’s 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
Growing Together…
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
Growing Together…
Process Flow of IPO (under Book-building Method)
Preparing IM
without mentioning
Indicative price
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
Approx. 60 weeks required
Growing Together…
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%
Under Book-Building Method
General Investors’ Quota
Issue Size in Face Value
EIIs’ Quota
Tk. 30 Crore - Tk. 50 Core
Mutual Fund
NRB
General Public
40%
15%
10%
35%
Over Tk. 50 Crore - Tk.
100 Core
50%
15%
10%
25%
Over Tk. 100 Crore
60%
15%
10%
15%
Growing Together…
Distribution Mechanism in IPO (Proposed)
For stabilizing the new IPOs in the capital market special quota can be introduce
High Net Worth
Individuals
Eligible Institutions
Foreign Individuals
Foreign Institutions
Growing Together…
Primary Market Performance in last 10 years
FUND RAISED (BDT Crore)
NUMBER OF IPOS APPROVED
2006
372.7
7
Considering September 30, 2015 as cut off date.
2007
1,005.7
14
2008
827.0
12
2009
18
2010
18
2011
1,904.7
2,865.3
1,689.9
14
2012
1,817.5
17
2013
1,664.0
12
2014
20
2015
14
Total No. of IPOs: 146
1,314.1
1,050.1
Total Fund Raised through IPO: BDT 14,511 Crore
Growing Together…
Primary Market Performance in last 10 years (contd.)
Considering September 30, 2015 as cut off date.
FUND RAISED FROM RIGHTS OFFERING (BDT Crore)
2015
-
2014
2013
2,063.04
180.30
2012
497.90
2011
1,858.95
2010
1,760.11
2009
2008
2007
2006
243.98
211.23
59.87
167.36
Total Fund Raised through Rights Offering: BDT 7,043 Crore
Growing Together…
Comparison of Regional Market
# of IPOs PER YEAR
Year
2007
2008
2009
2010
2011
2012
2013
2014
2015
Bangladesh
No. of IPOs IPO Issue Size (BDT Crore)
14
1,005.70
12
827.00
18
1,904.70
18
2,865.30
14
1,689.90
17
1,817.50
12
1,664.00
20
1,314.10
14
1,050.06
Average IPO Per Year: 15
Avg. Amount Raised From IPO: BDT 1,570.92 Crore
Year No. of IPOs
2007
104
2008
36
2009
21
2010
64
2011
37
2012
25
2013
37
2014
45
2015
54
India
IPO Issue Size (Rs Crore)
33,946.22
18,339.92
19,306.58
36,362.18
6,043.57
6,865.94
1,645.87
1,479.68
6,360.28
Average IPO Per Year: 47
Avg. Amount Raised From IPO: Rs. 14,483.36 Crore
Growing Together…
Comparison of Regional Market (contd.)
CAPITAL MARKET CONTRIBUTION IN GDP PER CAPITA
Market
DSE
KSE
BSE
Philippine SE
Thailand SE
Singapore Exchange
Bursa Malaysia
Taiwan SE Corp.
Tokyo SE
Hong Kong Exchanges
Listed Companies
(August 2015)
325
576
5753
263
630
771
904
888
3490
1810
Per Capita GDP (USD)
1,172
1,343
1,627
2,865
5,445
5,445
10,804
22,598
36,332
39,871
Market Cap/GDP
(July 2015)
24.95%
29.99%
71.05%
85.87%
102.54%
238.58%
130.52%
153.89%
118.40%
1111.27%
Growing Together…
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.
70,000
60,000
50,000
40,000
30,000
20,000
10,000
-
67,219
60,319
45,874
30,261
3,549
4,625
2010
2011
2,315
2012
Incremental Bank Credit
Year
2010
2011
2012
2013
2014
2015
Outstanding Bank Credit Incremental Bank Credit
(BDT Crore)
(BDT Crore)
310,924
67,219
371,243
60,319
432,892
61,650
478,767
45,874
543,407
64,641
573,669
30,261
64,641
61,650
3,377
1,844
2013
2014
1,050
2015
Total Issued Capital
Total Issued Capital IPO Issue Size Right Issue Size
(BDT Crore)
(BDT Crore)
(BDT Crore)
4,625
2,865
1,760
3,549
1,690
1,859
2,315
1,818
498
1,844
1,664
180
3,377
1,314
2,063
1,050
1,050
-
Growing Together…
Comparison Matrix of Listing Period
Listing Period in Bangladesh
Name of the Company
Date of Publication of
Prospectus
Date of Listing
Duration (Days)
OLYMPIC ACCESSORIES LIMITED
March 19, 2015
June 06, 2015
79
AMAN FEED LIMITED
April 29, 2015
August 18, 2015
111
Listing Period in India
Name of the Company
Date of Publication of
Prospectus
Date of Listing
Duration (Days)
PENNAR ENGINEERED BUILDING
SYSTEMS LIMITED
August 13, 2015
September 10, 2015
28
P. B. FILMS LIMITED
August 17, 2015
September 22, 2015
36
As per Listing Regulation of Stock Exchanges, 2015; Subscription & Listing Period will be around 50 days.
Growing Together…
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
company’s
business
Tax Benefit
Leaves the
company with
more residual
income
Money utilized for
more
diversification
Growing Together…
Benefits of Listing
 Fund Raising and Exit Route to Investors
 Marketability of Securities
 Tax Benefit
 Fair Value and Collateral Value of Securities
 Reduced Reliance on Debt Finance
 Strengthen Image & Brand Value Creation
 Build market awareness
 Attract Foreign Investment
 Wealth Creation
 Self Esteem and Social Recognition
 Opportunities for Merger/Acquisitions
 Further Capital Raising Option
 Deliver value to existing shareholders
 Better Succession Planning
 Provide liquidity for original stockholders
 Retain talent
 Broaden the Corporate Governance Structure
 Timely Disclosure of Corporate Information
 Supervision and Control of Trading in Securities
Growing Together…
Thank You!