MJL listing runs into debate

The listing issues of MJL Bangladesh Ltd and MI Cement Ltd have triggered a debate, as compensation offers by the companies do not match the existing rules.
The two companies said they will compensate the retail investors as per clause 57 (2) C of the Companies Act, if their share prices go below the IPO prices within six months of trading.
The clause 57 (2) C states: “The share premium account may be applied by the company in writing off the expenses of, or the commission paid or discount allowed, on any issue of shares or debentures of the company.”
It means, a company can compensate or write off when it issues shares or debentures at a discount price. For example, if share price is Tk 100, and it is sold at a discount price of Tk 90 -- the company can compensate Tk 10 from its account.
But, here it does not mean that the company can compensate for secondary market investors, who are liable for losses or profit from share investment. And it is not also a company's liability if its share prices go up or down than the IPO price in the secondary market.
Following the two companies' offers, the Securities and Exchange Commission has asked the bourses to take necessary steps about the listing of the two companies in line with the listing rules.
But the stock exchanges are yet to take any decision, as they also found complexities.
The Listing Committee of the Dhaka Stock Exchange will sit again today to find a proper solution. Earlier on Tuesday, the committee sat on the issue and primarily came up with a conclusion that if the two companies are now listed in line with the SEC directive, huge complexities will arise.
The companies and the stockbrokers will face problems to manage several lakhs of beneficiary owners' accounts, if their share prices come below the IPO prices, said a member of the listing committee.
“The only simple way would be to buy back,” said a member of the listing committee.
However, a senior official of the SEC said the companies can offer compensation, if share prices go below the IPO price, in line with the Companies Act.
He said there is no complexity in the compensation package. The bourses will have to record who sells shares below the offer prices within six months of listing.
If the bourses want more time to resolve the complexity, then the commission can extend the time of listing under the commission's special power, he added.
Salahuddin Ahmed Khan, a professor of finance at Dhaka University, said listing with compensation package is not a good idea. “It will create more complexities.”
“The issuer company may appoint some dealers who will always give buy order at certain prices so that the price cannot come down,” he said.
Professor Mahmud Osman Imam, another teacher of finance at Dhaka University, said the companies' go public to collect fund from the capital market, not to pay the compensation.
It is an international practice that the issue manager and under writer give money to compensate to the IPO investors on condition, and so the SEC should follow the international trend of compensation, said Osman.
He also said the issue manager and underwriter should place a price same as the offer price through a merchant bank or a brokerage house so that the prices of shares do not cross the offer price.
If MJL Bangladesh and MI Cement cannot be listed within March 29, the two IPOs will be scrapped as per listing rules.

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