Regulator finds flaws in Modern Poly offering

The stockmarket regulator has identified massive flaws in the IPO proposal of Modern Poly Industries Ltd, which has recently received regulatory approval for price build-up of its shares through institutional bidding.
The approval is, however, the primary one just allowing a company to build up prices under book building method. A final nod is needed from the Securities and Exchange Commission (SEC) after the price build-up.
The premier bourse also gave negative observation on the Modern Poly's initial public offering (IPO), officials said.
In the IPO prospectus, the company said it will use the IPO proceeds for the acquisition of 83.13 percent stakes in Modern Fibre Industries Ltd, whose paid-up capital is Tk 60 crore and the management is same as Modern Poly's.
The securities rules make it mandatory for a company to take permission from the SEC to increase its paid-up capital to Tk 10 crore. But, Modern Fibre did not have such permission.
A privately run company must turn into public limited if its paid-up capital exceeds Tk 40 crore, and if the capital base crosses the Tk 50 crore level, a company must go for IPO, according to the rules.
But, Modern Fibre was neither turned into a public limited company, nor it went for IPO, the officials concerned said.
This thing was to be examined by the issue manager, Alliance Financial Services Ltd, which was also responsible for apprising the SEC of any types of flaws or lack of transparency in the IPO prospectus.
Although the issue manager failed to do so, the flaws were identified by the SEC, which will take decision on the IPO issue at a meeting today.
Tapan K Podder, managing director of Alliance Financial Services, could not be reached despite repeated attempts.
SEC Chairman Ziaul Haque Khondker said the commission will look into the matter.
In the IPO prospectus, Modern Poly said it will buy 5.60 lakh shares of Tk 1,000 each of Modern Fibre at a price of Tk 3,880, including Tk 2,880 as premium. It shows that Modern Poly will need around Tk 217 crore to buy the stakes in Modern Fibre, and the total needed amount will be raised from public.
Modern Poly, a concern of TK Group, plans to float three crore ordinary shares of Tk 10 each under book building method.
The indicative price of each Modern Poly share has already been fixed at Tk 64. The eligible institutions will be allowed to quote 20 percent up or down from the indicative price for each share.
The Dhaka Stock Exchange in its observation strongly opposed the Modern Poly's IPO, saying that raising fund from public and using the amount in buying stakes in the same company's another subsidiary is a questionable matter.
Abul Bashar, chairman of Modern Poly Industries, claimed that they have so far complied with all the securities rules. "I can't remember any violation in the IPO process," he said. "However, if necessary, we will comply with other securities rules."