IPO Process in Bangladesh

Submitted to:Md. Lutfur RahmanAssistant Professor,Department of Business Administration,East West University, Dhaka.

Submitted by:Name ID

Arafat Rauf 2009-2-10-345

FIN 335Section: 3Fall: 2011

Date of Submission: 15th December 2011

IPO Process in Bangladesh

IPO Process In Bangladesh

Executive Summary

This term paper gives us a practical experience while passing through the theoretical

understanding. The report is the result of our understanding about what are IPO and IPO listing

procedure in Bangladesh.

In the introduction, we have briefly discussed about IPO. What it is. In the next we have also

explained the methodology regarding this report. Secondary data and information have been used

in preparing this report. Then comes the Analysis part, where we have explained the listing

procedure. We have divide listing procedure in two Parts according to their behavior, one is

work before Consent and another in work after consent. In the whole listing procedure, the works

are separable like work before IPO consent and work after IPO consent.

Like all study, this report has also certain limitations which were in some cases unavoidable. In

the end we have concluded with a short discussion of overall analysis.

Page 2 of 10


Table of Content

Content Page Number

Introduction 4

Methodology of the Study 4

Analysis 5

Conclusion 9

Bibliography 10

Page 3 of 10


Initial public offering (IPO), also referred to simply as a "public offering" or "flotation," is when

a company issues common stock or shares to the public for the first time. They are often issued

by smaller, younger companies seeking capital to expand, but can also be done by large privately

owned companies looking to become publicly traded. In an IPO the issuer may obtain the

assistance of an underwriting firm, which helps it determine what type of security to issue

(common or preferred), best offering price and time to bring it to market. For the individual

investor, it is tough to predict what the stock or shares will do on its initial day of trading and in

the near future since there is often little historical data with which to analyze the company. For

minimize the risk and attract more investor to the market The IPO has three part as mention in

the following diagram. 10% Shares are restricted for mutual fund; another 10% shares are

restricted for Non Residence Bangladeshi (NRB); and rest of the 80% shares are allocated for the

general public.

We have used only secondary data source to conduct the study. The sources of secondary data

are:

Secondary information was collected from different web site related to IPO listing procedure in

Bangladesh. We have collected much of the information through the internet and those are

mentioned in the bibliography page.

Page 4 of 10

Introduction

Methodology Of The Study


An initial public offering or IPO is a mechanism for companies to make available for the first

time shares of their stock. Its purpose is to either raise capital for a new company or to fulfill a

desire by an existing company to make their shares available to the public. Whether it is a new or

existing company, the IPO process follows a fairly straight forward path with precise steps along

the way.

There are some instructions you have to follow to get consent from Securities Exchange

Commission. These instructions are mandatory for investors. Through this process Investor has

to organize all the relevant information. We have divide listing procedure in two Parts according

to their behavior, one is work before Consent and another in work after consent. In the whole

listing procedure, the works are separable like work before IPO consent and work after IPO

consent.

Works before Obtaining the Consent from Securities Exchange Commission

1) Selection of Advisors: Before applying for consent every company suppose to have

section of legal advisor. Legal Adviser is responsible for Security of internal information.

Local Organization usually appoints only Local Advisor and multinational organization

supposed to have two legal advisers both Local & Foreign.

2) Completion of Valuation and restructuring: Before getting consent Organization will

have to complete their total asset Valuation. Another important process is changing

organization’s employee management and also restructuring and obtaining Reports

thereon. Listed Organization’s all top level employee usually has to follow by the

Auditor.

3) Selection of Bankers to the Issue: Bankers Letter confirming opening of separate account

for IPO and accepting their appointment as such Rule -18 of Public Issue Rules 2006.

Bankers to the issue will be the important stake holder and they will be responsible for

deposit and withdraw money of investors.

4) Selection of underwriters: Selection of underwriters & completing underwriting

agreement is another essential process of IPO listing procedure. Underwriters are liable

for successful float of all the shares. If the shares under subscribed, then underwriter will

Page 5 of 10

Analysis


have to buy and hold that particular amount of shares. But, in case of Bangladesh Capital

Market History, It never happens besides applications are over subscribe more than 10

times of offer.

5) Collection of NOC from Lenders: Collection of No Objection Certificates (NOC) from

Lenders is a mandatory to get IPO approval. Lender should have to issue a letter that if

the Company change their existing capital structure then they will not have any objection.

If the company have loan from several banks, then it is necessary to collect NOC from all

the lenders.

6) Audit of Accounts: Organization supposed to have Audit of their accounts by authorized

Auditor duly signed on each page, by the issuer’s chief executive officer/managing

director, chief financial officer and issue manager according to the Rule -3 of Public

Issue Rules 2006. The audited account shall not be older than 120 days of the end of the

period for which the Financial Statement is prepared. 10 copies of Financial Statement

have submitted to SEC, one copy each to DSE and CSE.

7) Credit Rating Report: Generally it takes at least two months to complete the Credit

Rating after the Annual Audit is completed and credit report is mandatory for IPO listing

process. Rule 18 (21) of the Public Issue Rules 2006 says that the application for consent

shall be accompanied by some exhibits including Credit Rating Report. No issue of

shares at a premium or issue of right shares shall be made by a public company unless the

issue is rated by a credit rating company and declaration about such rating is given in the

prospectus or right offer document (Sec.3 of Credit Rating Companies Rule 1996).

8) Agreement with CDBL: Before submission of Application to SEC, it is mandatory to

complete agreement with Central Depository Bangladesh Limited (CDBL). CDBL

maintain online transaction of securities by taking some fees and they listed all the

investor in Stock Market. At present there are more than 1600000(sixteen lac investors)

in Bangladesh Capital Market. After completion of agreement now company will have to

take decision on depositing sponsors shares during Lock-in-Period with Custodial Bank

or with CDBL.

9) Approval from Sponsors: At this point of IPO process now it is necessary to take

approval from the sponsor and documentation the process, undertaking and information

from Sponsors/ Directors, Declarations, Due Diligence etc.

Page 6 of 10


10) Refund warrant guarantee: Company supposed to have opened a separate Bank Account

for refund warrant purpose. It also called Mother Accounts for Refund Warrant. Through

this account Company has to refund warrant money to the investor, who will not get the

share.

11) Draft Prospectus: Before applying for IPO Company will have to drafting the abridge

version of prospectus and dealing with Printers on printing of Prospectus, Forms, Refund

Warrants, Letter of Allotment etc.

12) Application Submission: Application has to submit to SEC for consent to Issue with

approved Prospectus and deposit the Govt. Fees of BDT 10,000. If the application is

incomplete the SEC shall inform the applicant within 28 days of receipt of application

and if the issuer fails to remove incompleteness within 30 days of communication, it shall

file fresh application. (Rule -17 of Public Issue Rules 2006)

13) Consent from SEC: if the application and information, documents are provided by the

applicant are reliable then SEC shall issue letter of Consent within 60 days of receipt of

complete application. (Rule -17(4) of Public Issue Rules 2006). If the application

submitted by the applicant is fresh and correct then usually it takes 45days to get IPO

consent.

Works After Obtaining the Consent from Securities Exchange Commission

1) Submission of prospectus: After getting approval from SEC the first step is to submit the

abridged version of prospectus in SEC for approval, usually before 10-15 days prior to

opening of subscription. And also have to submit signed copy of the Prospectus with

Registrar of Joint Stock Company (RJSC) on or before the date of publication of

prospectus in newspapers.( Section 138 of Companies Act 1994)

2) Announcement for the investor: Company will have to Publish of abridged version of

prospectus in 4 newspapers (2 English + 2 Bengali) within 3 working days of the

issuance of Consent Letter (Rule 5(1) of Public Issue Rules 2006). A paper clipping of

published Abridged Version of Prospectus has to submit to SEC within 24 hours of

publication in newspapers. Issuer Company will have to submit a diskette containing the

text of vetted prospectus to SEC, DSE, CSE and Issue Manager and will have to post the

Page 7 of 10


full prospectus vetted by SEC in Websites of Issuer, SEC, DSE, CSE & Issue Manager

within 3 working days of the issuance of Consent Letter (Rule 6(2) of Public Issue Rules

2006).

3) Provide full prospectus: Issuer Company will have to submit 40 copies of printed

prospectus to SEC and also submit printed copies of abridged version Prospectus and

application forms to Bangladesh Embassies by EMS of postal departments within 5

working days from the date of publication of abridged version of prospectus in

newspapers.

4) Application for listing: At this point Applicant should apply to all Stock Exchanges in

Bangladesh and submit the vetted prospectus to the Stock Exchanges within 7 working

days from the date of issuance of the Consent Letter (Rule 17 of the Public Issue Rules

2006).

5) Subscription period: Subscription List shall be opened and sale of securities commence

after 25 days of publication of Abridged Version of Prospectus. (Rule - 5 of Public Issue

Rules 2006) Subscription List shall be closed after remain open for 5 consecutive

banking days. By NRB be made to the Issuer Company within the closing date so as to

reach the Company by the closing date plus 9 days.

6) Transaction rate: To apply spot buying rate (TT Clean) in US $ and UK pound and Euro

of Sonali Bank for subscription of NRB‟s. Spot buying rate to be collected from Sonali

Bank on the date of opening of subscription.

7) In case of under subscription: In case of under subscription, Issuer shall notify the

underwriter to take up underwritten shares. The time limitation is within 10 days of close

of subscription date. Full payment is to be made by the underwriter of underwritten

amount within 15 days of Issuers notice.

8) Application to Stock Exchanges for Listing: For application for Listing issuer has to

submit it to SEC attested copies of applications filed with Stock Exchanges within 7

working days of issuance of consent letter (Application shall be made by the Company at

least 10 days prior to issue of first Prospectus (Regulation 3 (2) of DSE Listing

Regulations).

9) Approval of listing: Granting of listing applications by DSE and CSE for issuing the

share. The Exchange shall decide the question of granting permission within a maximum

Page 8 of 10


period of 6 weeks from closure of subscription lists. (Regulation 3(3) of DSE Listing

Regulations)

The first thing a company must do before issuing stock is file a registration with the Securities

and Exchange Commission (SEC.) Since the SEC has the power of nullifying any attempt to go

public

After (and sometimes before) the registration statement is finished, companies engage the

services of one or more investment bankers. The role of any investment banker(s) is mostly

twofold. First, it is to distribute the company’s prospectus to prospective buyers of the stock.

The second function of an investment banker or underwriter is to buy the company’s shares and

resell them to the public.

After SEC approval and usually a day or so before the actual public offering, the company and

the investment banker agree on a share price and the number of shares to be sold. The offering is

complete when the company receives the money and delivers the shares to the underwriter.

Underwriters do extensive research before committing to buy a company’s securities. They take

on a calculated risk, essentially betting that the price per share they pay out to a company will be

less than what the market is willing to pay for it. Opportunities for huge profits -and losses- exist

in this environment.

Page 9 of 10

Conclusion

Bibliography


1. Working report on IPO consent and listing procedure in Bangladesh, see http://www.2dix.com/document-pdf/ipo-project-report-pdf.php accessed 9th December 2011

2. Process of listing with DSE, see http://www.bdtradeinfo.com/business/listing_dse.asp accessed 9th December 2011

3. Ipo Process In Bangladesh, seehttp://www.oppapers.com/essays/Ipo-Process-In-Bangladesh/591709 accessed 9th December 2011

4. Going Public Experts, seehttp://www.goingpublicexperts.com/?gclid=CJfv0LOyg60CFY4a6wodd1xFTA accessed 9th December 2011

5. “IPO consent and listing procedure in Bangladesh” seehttp://www.sb.iub.edu.bd/intern_report_asaduz_zaman.pdf. accessed 9th December

Page 10 of 10

http://www.goingpublicexperts.com/?gclid=CJfv0LOyg60CFY4a6wodd1xFTA

http://www.oppapers.com/essays/Ipo-Process-In-Bangladesh/591709

http://www.bdtradeinfo.com/business/listing_dse.asp

http://www.2dix.com/document-pdf/ipo-project-report-pdf.php

Documents

IPO Process in Bangladesh