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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 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!