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Thursday, March 19, 2009

Growth hinges on GP listing

As the Grameenphone initial public offering (IPO) prospectus awaits the green light from the Securities and Exchange Commission (SEC), its success will dictate the path to market growth.

Its triumphant floatation will not only attract others to be listed on the stock market, but also help the market draw foreign or portfolio investment into Bangladesh.

“Failure of the Grameenphone listing will have devastating effects and it will dampen market interests in the long run,” Faruq Ahmad Siddiqi says in an interview with The Daily Star.

“Furthermore, new companies, including multinationals, will hesitate to come in the market,” the immediate past chairman of the SEC points out. Several big companies are anxiously waiting to see the outcome of the Grameenphone listing, he says.

People close to the Grameenphone IPO move said Bangladesh's largest mobile phone operator has fulfilled all the requirements by the market regulator regarding the $65 million, or Tk 449 crore worth IPO in the last week of February this year.

Successful floatation of the Grameenphone shares will be a pivotal catalyst in the development of the Bangladesh stock market, he believes.

Career bureaucrat Siddiqi completes his three-year tenure as SEC chief on March 12. He joined the SEC as chairman on March 16, 2006.

Siddiqi says, instead of forcing or pressuring companies including multinationals to be listed on the stock exchanges, they should be encouraged to come in the market. “The environment prevailing in the market should be such that it lures multinationals and other big players into the market."

Listing of multinationals will enhance the supply side of the market and attract foreign direct investment, he observes.

“The government should immediately offload the stakes that it holds in different companies, including the foreign ones. The new government should pay more attention to this area, in the interest of the market,” he suggests.

In his three-year tenure, the Bangladesh stock market witnessed robust growth with volatility and manipulation efforts in some cases.

“The figures speak for themselves,” says Siddiqi, also a former secretary.

When he took up responsibility in 2006, the market capitalisation was only Tk 22,670.67 crore, turnover was Tk 15.44 crore, DSE General Index was at 1,555.82 points and the volume was 33,82,959.

On the contrary, on his last working day on March 12, 2009, market capitalisation stood at Tk 1,02,246.75 crore, turnover reached an all time high at Tk 611.98 crore, DSE General Index stood at 2,653.11 points and volume was 3,75,41,462.

What are the factors that contributed to such tremendous growth?

“There was a need for an environment that facilitated trade and commerce. We tried to create such an environment, especially through regular awareness programmes in association with the Dhaka and Chittagong bourses and other market stakeholders, all within the limited resources. And we succeeded,” Siddiqi recalls.

He says the public awareness programmes and the SEC's role as a facilitator, not as a regulator, helped the general investors regain confidence, which was shattered after the 1996's bubble and burst.

“The entry of new companies and fresh investors, expansion of brokerage activities across the country, issuance of rights and bonus shares as dividend by the existing companies, increasing investor confidence and an inflow of fresh liquidity also helped the market reach today's position,” he says.

Apart from rapid growth, he says, there were some problems such as volatility, manipulation, and liquidity gluts and crunches.

“A lack of appropriate manpower within the SEC is a major problem,” he says.

Referring to the resignation of several senior officials from the SEC, he says the existing pay scale could not suffice or attract professionals to work for the SEC.

He says the SEC is in need of professional people who can analyse the quality of financial disclosures, public issues, and monitor the market stakeholders and credit rating agencies.

“The commission has no people qualified enough to monitor the credit rating agencies. There are only two people in the surveillance department, which is an important, tough and demanding section,” he cites.

In order to build capacity of the market regulator by attracting skilled personnel, he recommends: “The SEC and other similar organisations should be kept outside the national pay scale.”

Siddiqi considers two issues as major achievements during his tenure. The first, forming guidelines for margin loans provided by merchant banks to their clients, and the second, book building for IPO pricing.

“Prior to the guideline, merchant bankers provided margin loans indiscriminately. The guideline helps the market stabilise,” he says.

The introduction of book building, a modern mechanism for IPO pricing, will encourage big and established companies, from both home and abroad, to be listed on the stock exchanges, as the book building method ensures a fair price of a company's stocks, he adds.

Commenting on the Dhaka Stock Exchange's recent move against listing securities with a face value of Tk 1, he says, “The DSE cannot take such a decision. The DSE may recommend or request the SEC to take steps to forbid the listing of securities with a face value of Tk 1.”

He, however, welcomes the DSE move on de-listing the Z category companies, which are not in operation or production or an existing status. “But such companies should be carefully identified,” he suggests.

In his concluding remarks, Siddiqi says the Bangladesh stock market has an opportunity to grow in the coming years.

Former SEC boss says in an interview with The Daily Star



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