IPO market losing lustre

The primary share market is losing its shine as a good number of companies listed in the recent times failed to draw considerable response.
The lacklustre performance of the primary market is mainly due to a sluggish secondary market.
Unique Hotel and Resorts Ltd, the owner of The Westin Dhaka, is one of them that made its trading debut on the stock exchanges yesterday, and the price of each share of the five-star hotel rose by only Tk 3.5 or 4.76 percent on the first trading day.
The IPO (initial public offering) of Unique Hotel was Tk 75, including Tk 65 as premium. Its price rose as high as Tk 90 and as low as Tk 77.50 during the four-hour trading on the Dhaka Stock Exchange.
But the picture was different even a few months back when the stock prices of newly listed companies jumped manifold on their first trading day.
On its trading debut on April 19 this year, the price of each GPH Ispat share soared by 143 percent or by Tk 42.90. The IPO price of GPH Ispat was Tk 30, including Tk 20 as premium.
But since then there is hardly any company that saw such a rise. Even the stock price of a company, Saiham Cotton Mills, came down to below its IPO offer price on the first trading day.
On June 24 on its first trading day, each Saiham Cotton share, offer price of which was Tk 20 including Tk 10 as premium, closed at Tk 19.90.
The primary market deals with the issuance of new securities. Previously issued securities and financial instruments in the primary market such as stocks, bonds, options and futures are bought and sold in the secondary market.
“The primary and the secondary markets are inter-related. It is very usual that the primary market will remain attractive as long as the secondary market is attractive,” said Faruq Ahmad Siddiqi, a former chairman of the Securities and Exchange Commission, the stockmarket regulator.
As the secondary market is not performing well right now, it is obvious that it will leave an impact on the primary market as well, he said.
Since the price debacle in the secondary market in January last year, a downward trend continues in the price indices.
DGEN, the benchmark index of the Dhaka bourse, saw a sharp fall yesterday too, declining 190 points or 4.15 percent.
Siddiqi said the SEC should now be very careful about allowing new IPOs, especially with a premium value.
“If the SEC allows higher premium, it may increase the risk of investors, and on the other hand, companies may not be willing to come in the market if they do not get proper price,” he added.

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