FE Report (January 21, 2011)
The Dhaka Stock Exchange (DSE) won't allow overpriced companies to get listed on the premier bourse and has demanded a probe into firms which manipulated the Book Building method to jack up their share prices.
DSE President Shakil Rizvi spelled out the bourse's stand at a press briefing Thursday saying the companies have window-dressed their balance sheets and misused the price discovery system to fleece ordinary investors.
Mr. Rizvi said these companies are partly to blame for the current liquidity crisis that sent stocks to a free-fall since last month, as they have already soaked up huge fund from the market by inflating share prices artificially.
"Before they have even come into the stock market, a number of companies have made way with a lot of money by manipulating the Book Building method," Rizvi told reporters.
"We are demanding full investigation against the firms, especially those which already have completed road shows to go public through the BB method. We suspect they have window-dressed their balance sheets," he said.
He said the country's premier bourse would bar these overpriced companies to get listed with the market although several of these firms have raised billions through pre-placement, he added.
"In no way such companies will be allowed to float their shares in the stock market from now on. We are taking this stern measure to protect the market and the innocent investors," he said.
The DSE president also demanded probe against the issue managers who lured a lot of companies with poor fundamentals to the stock market by dangling moolahs of easy money.
"Investors confidence has plummeted due to poor performance of these companies. They came to the market by cooking up books and their directors have made quite a lot of money by selling stakes," Rizvi said.
According to the DSE, some 48 companies have completed their road-shows to go public under the Book Building method.
"The government should probe these companies and find out whether the firms are going public with genuine balance sheets. Our suspicion is that most of these firms have made up figures to get better pricing," Rizvi said.
"Companies are welcome to the stock market as long as no cover-ups are detected in their books. But, the authorities must take tough action if any window-dressing is found," he said.
He also urged the regulator to reduce the period of IPO (initial public offering) subscription so that the stock market does face liquidity crisis in an event of big listing.
"About 25 billion taka has been blocked due to the Mobil Jamuna Lubricant (MJL) IPO. The issue manager should quickly release the refund warrants of the company so as to boost liquidity," the DSE president said.
His comments came as analysts raised questions about the indicative price of MJL's shares fixed at Tk 152.40 each through the book building method although the company's earning per share (EPS) was a meagre Tk 2.45.
As a result of this inflated pricing, the price-earning (P/E) ratio of the MJL stands at 62 before even the company goes public next month. A price earning ratio of 16 is considered the standard across the globe.
The EPS of Unique Hotel and Resort, which recently received the SEC nod to go public, is Tk 4.80 and its indicative price has been fixed at Tk 185. As such, the P/E ratio of the company stands at 38.50.
Most of the companies recently went public through the book building price discovery method have their P/E ratios around 40.
Officials said the government has already decided to abandon the latest price discovery method - normally used in the world's top performing stock markets - after analysts raised hues over its manipulation in the country.
DSE President Shakil Rizvi spelled out the bourse's stand at a press briefing Thursday saying the companies have window-dressed their balance sheets and misused the price discovery system to fleece ordinary investors.
Mr. Rizvi said these companies are partly to blame for the current liquidity crisis that sent stocks to a free-fall since last month, as they have already soaked up huge fund from the market by inflating share prices artificially.
"Before they have even come into the stock market, a number of companies have made way with a lot of money by manipulating the Book Building method," Rizvi told reporters.
"We are demanding full investigation against the firms, especially those which already have completed road shows to go public through the BB method. We suspect they have window-dressed their balance sheets," he said.
He said the country's premier bourse would bar these overpriced companies to get listed with the market although several of these firms have raised billions through pre-placement, he added.
"In no way such companies will be allowed to float their shares in the stock market from now on. We are taking this stern measure to protect the market and the innocent investors," he said.
The DSE president also demanded probe against the issue managers who lured a lot of companies with poor fundamentals to the stock market by dangling moolahs of easy money.
"Investors confidence has plummeted due to poor performance of these companies. They came to the market by cooking up books and their directors have made quite a lot of money by selling stakes," Rizvi said.
According to the DSE, some 48 companies have completed their road-shows to go public under the Book Building method.
"The government should probe these companies and find out whether the firms are going public with genuine balance sheets. Our suspicion is that most of these firms have made up figures to get better pricing," Rizvi said.
"Companies are welcome to the stock market as long as no cover-ups are detected in their books. But, the authorities must take tough action if any window-dressing is found," he said.
He also urged the regulator to reduce the period of IPO (initial public offering) subscription so that the stock market does face liquidity crisis in an event of big listing.
"About 25 billion taka has been blocked due to the Mobil Jamuna Lubricant (MJL) IPO. The issue manager should quickly release the refund warrants of the company so as to boost liquidity," the DSE president said.
His comments came as analysts raised questions about the indicative price of MJL's shares fixed at Tk 152.40 each through the book building method although the company's earning per share (EPS) was a meagre Tk 2.45.
As a result of this inflated pricing, the price-earning (P/E) ratio of the MJL stands at 62 before even the company goes public next month. A price earning ratio of 16 is considered the standard across the globe.
The EPS of Unique Hotel and Resort, which recently received the SEC nod to go public, is Tk 4.80 and its indicative price has been fixed at Tk 185. As such, the P/E ratio of the company stands at 38.50.
Most of the companies recently went public through the book building price discovery method have their P/E ratios around 40.
Officials said the government has already decided to abandon the latest price discovery method - normally used in the world's top performing stock markets - after analysts raised hues over its manipulation in the country.
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