Stock experts criticise direct listing decision

Stock market experts are strongly opposed to the recent government decision to deprive the established and profit-earning private sector companies of the direct listing opportunities. The decision what they said, would discourage the established private companies to come to the market.

They said it seems like that the government is discouraging the reputed private sector companies to float share when there is a dearth of good scrips.

The Securities and Exchange Commission (SEC) on December 02 last, following a government decision, asked the bourses not to allow companies, other than the state-owned ones, to be listed under direct listing regulations.

It is absolutely a negative decision so far as stock market development is concerned, former Dhaka bourse chief executive officer and professor of Dhaka University Salahuddin Ahmed Khan told the FE.

"The profitable and recognised companies will not be interested to float share without direct listing," he said.

Under the direct listing method, sponsors or the entrepreneurs get the amount raised from the market whereas under initial public offering (IPO) the amount goes to the company.

He said it is discriminatory that the government companies are only allowed to float share under the direct listing method.

The DU professor said the market is not matured enough and the mandatory 40 per cent IPO flotation system may not bring good results.

"Corporate culture is not established in Bangladesh and owners of the companies may not be interested to offload a big chunk of share and may lose the absolute ownership," he explained.

Echoing the same view, stock market expert and professor of economics department of DU Abu Ahmed said 'crude entrepreneurs' may take the advantage of 40 per cent IPO system.

"If company could fulfil its needs by floating 20 per cent of the shares and in that case why should it float 40 per cent?" he questioned.

The government cannot force a company to raise money from the market which it does not need, he said.

"It will also be difficult for big companies, say, which have paid up capital of over Tk 10 billion (1,000 crore), to float shares," he added.

The expert feared that dishonest entrepreneurs may inflate their financial statements to raise money and it can be used for other purposes.

About direct listing, he said, it is a bad decision as it will discourage the reputed companies to come to the market.

"The government could have allowed the direct listing, making the book building method mandatory," he said.

AIMS Managing Director Yawer Sayeed said the decisions are anti-supply and these will obstruct the private sector to float shares.

"The government has failed to differentiate why a company opts for IPO and another company for direct listing," he said.

When a company needs money, it raises the capital through IPO and when entrepreneurs want to sell a part of its ownership with big profit, they opt for direct listing, he explained.

"Usually big companies with reputed brand name and good image want to be listed under direct listing method," he said.