The securities regulator, though in a belated move, is contemplating, according to a report published in this paper last week, incorporation of a few new provisions in the listing rules to make things transparent for new companies wanting to go public. The provisions in question would make it mandatory for the companies to get their financials audited by any of the 36 chartered accountancy (CA) firms approved by the Bangladesh Securities and Exchange Commission (BSEC) for doing the job. Earlier, only the listed issues were required to use the services of the CA firms on the BSEC panel.
The reason for incorporating the new requirement in the case of companies willing to float their initial public offerings (IPOs) is understandable. There have been many allegations of hoodwinking the investors through doctored financial statements by a section of IPO-issuing companies. Usually, such companies portray a robust financial health in their IPOs with a view to luring the investors. But, in most cases, the investors who retain the shares of these companies with a hope of fetching attractive returns, get cheated since the financial picture given in the IPOs are far from the situation on the ground.
The securities regulator has until recently been indifferent to allegation of malpractices against a section of companies while floating IPOs. The lack of faith generated by the unscrupulous behaviour of such new IPO issuers could be the reason why the investors do not retain for a long time the shares of the newly listed issues. The heavy transaction of stocks of newly floated issues soon after their listing demonstrates the lack of faith of investors, in terms of long-term investment. The latest move on the part of the BSEC is expected to bring about a change in the situation.
Against the backdrop of the ongoing controversy over the adoption of the Financial Reporting Act (FRA), it would not, however, be out of place to mention the necessity for formation of the panel of auditors by the securities regulator. The formation of the panel by the BSEC does itself indicate that all the audit firms operating in the market are not scrupulous, both ethically and professionally, in carrying out their business. It is expected the auditors included in the panel would be the best ones and they would not make compromise with their professional integrity under any circumstances. The BSEC would be doing a fine job by subjecting the financials of new IPOs to a thorough scrutiny by such audit firms.
The BSEC is also reportedly considering to incorporate another provision to keep a quota for foreign investors in new IPOs. Presently, certain portion of stocks of new issues is kept reserved for investors affected by the 2010 market collapse, mutual funds and non-resident Bangladeshis (NRBs). The Bangladesh capital market could hardly attract the foreign portfolio investors the way it is witnessed in some of its neighbouring markets. The performance of the Bangladesh economy is a positive factor. But the depth of the market, coupled with the mood of local investors, is thought to be major factor in motivating the foreign investors to put in their fund in any market. Bangladesh is not apparently prepared well in such areas. It remains to be seen whether the reserved quota in IPOs acts as a motivator or not.
