Fund raising by way of initial public offering plummeted this year as low interest rates made borrowing from banks a more attractive alternative.
A total of seven companies raised Tk 219 crore through IPO this year, in contrast to Tk 849 crore by 11 companies last year, according to data from the Dhaka Stock Exchange.
As of October, the average lending rate stood at 9.39, down from 10.03 percent a year earlier, according to data from the Bangladesh Bank.
The seven companies that raised capital in 2017 are: Shepherd Industries, Nurani Dyeing and Sweater, BBS Cables, Aamra Networks, Oimex Electrode, Nahee Aluminium Composit Panel and ICB AMCL First Agrani Bank Mutual Fund.
Of the companies, only Aamra Networks raised funds through the book-building method, while the rest opted for the fixed price method.
Under the fixed price, the company going public determines a fixed price at which its shares are offered to investors.
In contrast, under the book-building method, the company going public offers a certain price band on shares to investors, who then bid on the shares. The final price is settled once the bidding has closed.
The overhaul of the book-building methodology slowed down the IPO process in 2017, said M Khairul Hossain, chairman of the Bangladesh Securities and Exchange Commission.
Many did not agree with the price bidding process under the new methodology, he added.
IPOs became scarce in 2017 due to the drawn-out book-building method, said Mohammad Saleh Ahmed, chief executive officer of IIDFC Capital.
Most of the companies are interested in coming to the market through the book-building method as the process allows companies to take premium.
For instance, Aamra Networks took a premium of Tk 25 from the general public for each share of Tk 10.
“But the BSEC is not giving approval due to disputes in the price bidding process.”
About 30 companies are waiting for a year now to get the BSEC's approval, he said.
Though the main objective of raising fund through the IPO is to expand business activities, six of the companies -- save for ICB AMCL First Agrani Bank Mutual Fund -- raised funds to clear bank loans.
About 33 percent of the IPO proceeds of Aamra Networks' Tk 56.25 crore were used for loan repayment.
Nahee Aluminium used 26.67 percent of its total IPO proceed for loan repayment, Oimex 33.33 percent, BBS cables 20 percent, Nurani Dyeing 27.44 percent and Shepherd 22.23 percent, according to DSE.