The country's capital market is going through a very low number of Initial Public Offering (IPOs). Currently, only five companies are reportedly waiting for the Bangladesh Securities and Exchanges Commission's approval for IPOs.
Capital market experts believe that the capital market regulatory authority, BSEC, has been experiencing this situation since 2010.
The Business Standard spoke to Abu Ahmed, a former economics professor at the University of Dhaka and stock market analyst to know of his perspective on the low number of IPOs and dwindling portfolio investment.
The Bangladesh Securities and Exchange Commission is seeing a very low number of IPOs recently. Why do you think new IPOs are not coming to our capital market?
The Bangladesh Securities and Exchange Commission is not approving all the IPOs it receives and it is because the authority is not receiving applications from accreditable companies. If the government wants to bring such companies into the market, it will have to give out incentives to non-listed companies. I also believe that there is no point in bringing bad companies into the capital market.
Despite making promises, the government does not give out incentives. Giving out incentive means the government will have to reduce the corporate tax for the listed companies. Otherwise, why will they want to enter the capital market?
When a company comes to the capital market, it needs to submit its financial reports. It needs to come under accountability and has to pay a dividend to its shareholders.
Why will they come here then? For this reason, the government will have to compensate in other ways. And one such way is lowering the tax for the listed companies.
In the past, the government lowered the corporate tax for the listed companies by 2.5%. At the same time, corporate tax for non-listed companies was brought down by 2.5% too.
The difference between imposed tax on listed and non-listed companies once stood at 10%, which stands at 7.5% now. I would say that the tax difference should be at 15%, for at least five years at a time. I think the government should address the issue at the earliest. To do so, the Ministry of Finance has to come forward to address the issue.
If asked, multinational companies will not come to the capital market to raise funds to their portfolio saying they do not need to. But In India and in Pakistan, multinational companies have to come to the market even if they do not need additional funds. In Bangladesh, however, multinational companies are giving lame excuses to that effect. In truth, our capital market is not serving its purpose.
The corporate tax should be further reduced by 5% for listed companies, which now stands at 22.5%. Recently, the Dhaka Stock Exchange sat with non-listed and multinational companies and listened to their views but the government has not yet solved the main problems.
There is another tool the government can use to hook in non-listed companies into the capital market. It is by enacting a law to force them to come to our capital market. But I do not support this tool because I believe it is not right to force them in an open market economy.
The government should increase the corporate tax levied on non-listed companies so that they are drawn out to the capital market. Family-owned as well as multinational companies are financed by banks with long-term loans.
The banking sector has been traditionally giving different companies long-term loans. As a result, non-listed companies do not feel the need to raise capital through the capital market. As long as the banks' doors for long term loans remain open, non-listed companies will not come to the capital market to raise their funds. But there is a problem too. You cannot force shut the banks' doors either. They are waiting for their clients with money too.
The Ministry of Finance can dissuade the banking sector from giving out non-listed companies with long-term loans. If I were the finance minister, I would tell bankers not to do so, since Bangladesh Bank is there to do it, should the need arise.
Not only the family-owned businesses, but many state-owned enterprises also do not come to the capital market like Sadharan Bima Corporation and Jibon Bima Corporation, for example. The government needs to take initiatives to bring them into the capital market.
In recent years, portfolio investment in Bangladesh's capital market is dwindling. What do you think the reason behind it is?
Portfolio investment is decreasing because foreign investors are not finding reliable companies to invest in. On the other hand, foreign investment is going to India, Pakistan, Sri Lanka and Singapore's capital markets. Naturally, people will invest their money in the markets where they will find the rate of return better. They will not wait for a capital market like ours.
In the past, they did invest in our capital market when they found it was feasible. Now they may think that the market is not that profitable anymore. They may think that the price of shares is overvalued. To bring in foreign investment, I think the only way is to improve corporate governance and bring accreditable companies into the capital market.
Foreign investors will not buy any shares of a dying or defrauding company. How many companies are out there with quality fundamentals? There are 300 plus companies in the Dhaka Stock Exchange, but most of them are junk. The Ministry of Finance will have to take that into consideration.
If asked, foreign investors will say that there are fundamentally strong companies in Bangladesh's economy, but not in the capital market.