Funds raised through rights issue double

Sarwar A Chowdhury

Funds raised by listed companies from rights shares more than doubled in fiscal 2014-15 from a year earlier.
Five listed firms netted around Tk 1,446 crore from 60.20 crore rights shares, with state-run Investment Corporation of Bangladesh (ICB) accounting for three-fourths of the fund, according to data from Dhaka Stock Exchange.
Of the firms, four were from the financial sector and one from textile.
In fiscal 2013-14, six listed companies raised Tk 681.38 crore, according to DSE statistics.
A rights issue is an issue of additional shares by a listed company to raise capital from existing shareholders.
With a rights issue, existing shareholders get the privilege to buy a specified number of new shares from the firm at a particular price within a specified time.
A rights issue is not the same as an initial public offering, where shares are offered to the general public through a stock exchange.
Of the funds, ICB raised Tk 1,054.68 crore by issuing 21.09 crore ordinary shares of Tk 10 each, in addition of Tk 40 as premium.
The purpose of issuing the rights shares was to raise its paid-up capital for investment in primary and secondary markets and to pay off loans, according to the prospectus of the state-run investment bank.
Four other listed companies issued the rights shares at par or face value.
The financial sector companies issued rights shares either to reach their capital adequacy ratio or to strengthen their capital base in line with regulatory requirements, said Md Moniruzzaman, managing director of IDLC Investments, a merchant bank.
Companies from other sectors were not interested in raising funds by issuing rights shares as the regulator was conservative in allowing listed companies with premium, he said.
Conservative pricing is good for existing shareholders but not attractive to the company, Moniruzzaman added.
The Bangladesh Securities and Exchange Commission imposed some conditions on rights issue rules in October last year to make the capital raising mechanism more transparent.
No listed company can offer rights shares within two years of publication of an IPO prospectus, or before full utilisation of the funds raised through an IPO or repeat public offering or previous rights, according to the modifications.

IMF loan scheme ushers in an era of reforms

The lender's three-year ECF loan ends on a positive note

Rejaul Karim Byron

The International Monetary Fund's Extended Credit Facility loan, which ushered in some major reforms in the economic field, is nearing the end of its three-year term this month.
Still, two more instalments amounting about $280 million remain to be dispatched and IMF officials are likely to place the relevant report before the board on July 22.
The multilateral lender deferred the sixth of the seven-part instalments for the $1 billion loan in November last year after the government failed to meet two of its pertinent conditions -- both related to the VAT law.
At that time, the IMF said it would release the final two instalments together, provided the conditions were met.
A finance ministry official said the two conditions have somewhat been fulfilled and the government is hopeful that the IMF board will now approve the last two instalments.
One of the conditions was that the amended VAT law has to be approved in the cabinet meeting, and the cabinet on June 29 gave it the green light.
Another condition was that the government would assign a vendor to implement the tax automation system.
An official of the National Board of Revenue said a proposal was sent to the cabinet committee but due to objections from some members of the purchase committee a fresh tender was floated.
The new tender is now being evaluated by the technical committee and will soon be placed before the cabinet committee on purchase.
Approved in April 2012, the ECF programme has enforced a number of major reforms in the economic sector.
One of them was the amendment to the Banking Company Act to heighten the power of the central bank.
For instance, the central bank governor now has the authority to remove managing directors of state-owned banks.
The amendment also put a ceiling on investment by banks in the stockmarket, a major cause for the crash in 2011.
As per IMF's advice, the government also brought about stockmarket demutualisation, a process that separates the bourses' ownership from their management.
To deter the government from taking on too much of high-cost external borrowing, the IMF set a ceiling for it.
And to increase the government's revenue earning potential, the IMF was insistent on implementing the VAT law, due to take effect from July next year.
Under the law, a 15 percent VAT will be imposed at any stage.
Businesses with annual turnover of up to Tk 30 lakh are likely to be excused from paying VAT. Also, some new commodities, deemed to be basic needs, were included in the list of items enjoying VAT exemption.
Besides, many other small reforms were carried out, including bringing the state-owned banks under a strict regulation.
The IMF did a mid-term review in 2013 and found that the reforms increased foreign currency reserves, decreased non-food inflation, raised tax revenue and curbed poorly-targeted energy subsidies.
The country achieved GDP growth of above 6 percent during the period.
The finance ministry official said the IMF programme played a positive role in maintaining macroeconomic stability.
Several officials said, after the present programme is concluded, the government is likely to seek another round of ECF programme to help maintain economic stability in the coming years.

Small industries should get more incentives: economist

Star Business Report

The small and medium industries that serve the domestic market should get more incentives in the seventh five-year plan to meet the needs of the consumers whose incomes are rising by the day, an economist said yesterday.
“The government has been giving incentives to the export-oriented sectors for many years now. It's time to give incentives to the industries involved in producing goods for the domestic market,” said Mustafizur Rahman, executive director of the Centre for Policy Dialogue.
The government should also prioritise the industries linked to agriculture as those could be good segments for the domestic and external markets, Rahman said.
The potato chips industry, for example, has been growing fast, serving the domestic market and earning foreign currencies through exports, he said.
The government should incentivise the chips industry along with other such agro-industries, he said.
“I do not support wholesale liberalisation of the trade policies, as we have to protect our growing industries as well. Rather, the government should adopt strategic trade policies.”
A strategic trade policy means bringing changes to a policy to serve a specific sector without liberalising all the policies.

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Rahman spoke at a consultation meeting of the seventh five-year plan (2016-2020) at the National Economic Council in Dhaka. Shamsul Alam, a member of the Planning Commission, moderated the discussion.
The commission has been seeking opinions from exporters, economists, government representatives and other stakeholders to prepare the plan.
Rahman also suggested taking appropriate policies for the growing export-oriented leather and leather goods, footwear and ICT sectors, which could generate numerous jobs and earn a lot of foreign currencies.
He also stressed the need for boosting regional connectivity through trade pacts to establish a strong value chain.
The US-led proposed Trans-Pacific Partnership among 12 Asian and Pacific nations will be a challenge for Bangladesh, as Vietnam—a major garment producer—is a member of the treaty, he said.
Commerce Minister Tofail Ahmed said Bangladesh has limited scope to liberalise its trade policies as the country needs to safeguard its own industries.
Bangladesh has become sufficient in cold-rolled coil, paper and cement industries with the help of the protected trade policies, he said. Ahmed suggested giving incentives to the sectors, which add high value. “The services sector is very important for us.”
In the 1972-73 period, the contribution of agriculture to the GDP was 78 percent, which came down to 15 percent now, as the manufacturing and services sectors are contributing more to the national economy.
Mashiur Rahman, economic affairs adviser to the prime minister, suggested formulation of industrial policies in accordance with the World Trade Organisation.
He also suggested shifting the industries to the northern districts to make best use of the available lands.
In the plan, the Planning Commission cut the targeted contribution of agriculture to the GDP to 12.9 percent from 16.1 percent achieved in the sixth five-year plan in 2014.
For the industrial sector, the target has been set at 33 percent, up from 27.6 percent in the previous year while for manufacturing it increased to 21.5 percent from 17.4 percent.
The contribution of the services sector has been fixed at 54.1 percent from 56.3 percent in 2014, according to a document from the Planning Commission.