This report will be analyzing the operating procedure and the returns getting from the ipo’s

This report will be analyzing the operating procedure and the returns getting from the IPO’s EXECUTIVE SUMMARY

This report originated as requirement of thesis program of Business Administration curriculum of Stamford University, Bangladesh. The intern has take Dhaka Stock Exchange to complete the requirement, “IPO: An Appraisal of Operating Procedure and Recent Performance” The main focus of this report will be analyzing the operating procedure and the returns getting from the IPO’s. The aim of the report is to give a general situation of IPO’s in Bangladesh for the sample period 2003 to 2008 and this report provides an overall situation of IPO’s in Bangladesh from the sample period of 2003 to 2008 The present study provides a comprehensive analysis of the initial return and long term performance for the initial offering in Bangladesh. A total of 63 new issues are included in the sample, from the sample period 2003 to 2008. The initial return on IPO’s was especially higher for the firms during 2003 to 2008 in most of case the analyzing result, we can conclude that the initial return of IPO’s were much higher, in most of the case than the subsequent retune over the person from 2003 to2008, during 2004 and 2005 period most higher average return than other period. Exceptionally, very few companies were performing badly where investors got poor and negative return. The IPO’s are overprice in Bangladesh because price decrease overtime during the period 2003 to 2008 in our analysis. When price decrease, initial returns have been deteriorating over the period, because the shares are over price. In that case the issuer receives more than it should have from issuing the share. We will see next whether these companies were performing will or not after IPO’s (where we will analyze their post IPO’s performance in the letter section. We have to look forward to see what the long term performance of those IPO’s. We have scrutinized the long performance of those IPO’s. From our analysis, we have seen many IPO did will initially. But, they failed to perform to keep their price stability. From our observations, we saw that few companies (like insurance companies in the year 2005. see table) did will after the IPO though their initial return were lower than other companies ,which have initial higher return They should be aware that firm’s do not perform as will after going public. The weak performance of IPO‘s was partially attributed to irrational valuation at the time of IPO, which were connected over time. In addition it was partially attributed to the firms managers, who spent excessively and less efficient in managing the firms fund than they were before the IPO. An analysis of the cost of going public is also done in the present study. Furthermore the sequence of event leading to the rise and fall of the IPO market in Bangladesh are also described in details from the period 1991 through 1999 and despite the spectacular growth during the early to mid 1990s the market for new issues in Bangladesh is currently stagnant.

Overall state (Analysis) of IPO market in Bangladesh-The most of the companies comes for IPO are overvalued. The IPO’s are from unfamiliar and unexamined companies, which give initial return much higher from there offer price. In most case, investors are buying that share more than the offer price. By the analyzing most of investors characteristic, we can sat that they have a tendency to buy the new IPO by selling the existing shares of reputed companies to get the initial high return. For capitalization the initial IPO return, they invest in the unfamiliar company’s shares by withdrawing money from the secondary market. As result, market capitalization and price index have been a declining tendency after the immediate IPO offer.

Several inferences are developed in this study. Such as lack of investor’s knowledge, Market: drains of IPO are in the share, risks of investing in IPO’s and SEC’s Vigilance, Timing of IPO’s and paying dividends. So that the recommendation part try to gives certain suggestion regarding inferences and various problem that are very often confronted by related parties in the capita market with a view to overcome those tribulation are rejuvenate the capita market.

Introduction This project paper is an effort to appraise the functioning of the initial public offering (IPO) in Bangladesh in terms of operating procedure and performance analyses. The intention is to provide readers with the true picture of the current scenario regarding IPO that is prevailing in the marketplace.

1(a) Origin of the report As per for the completion of BBA degree, require to prepare a final project paper on a related topic. It is from this inspiration and according to instructor…………….Advice, chose to prepare my project on initial public offering (IPO) in the name of “IPO: An Appraisal of Operating Procedure and Recent Performance” . This is a very lucrative topic to learn about the real life implementation of new issues of stock in Bangladesh and found the topic very interesting and appealing.

1(b) Objective of the report The main focus of this report will be analyzing the operating procedure and the returns getting from the IPO’s. The aim of the report is to give a general situation of IPO’s in Bangladesh for the sample period 2003 to 2008.

Our objective is to provide a formal report on the IPO’s in Bangladesh to implement the theoretical knowledge learned in the class on real life perspective.

Our distinct objectives are: • •

To find out the initial return of IPO’s.

To analyze the long term performance of IPO’s.

• •

To provide the procedure of going public.

To find out background of IPO.

1(c) Scoop of the report This report provides an overall situation of IPO’s in Bangladesh from the sample period of 2003 to 2008. Its finds out the reason behind why initial returns of IPO’s are higher rather than succeeding return. While talking about the performance of IPO’s, the report also highlight the process of IPO Operation in Bangladesh, the historical background, problem of IPO operation etc.

1(d) Methodology of the report this report has been prepare on the basis of related articles, individuals interviewee, personal studies, data collected from different source, expert opinion. In the preparing the report, primary and secondary data have used. A total of 63 stocks (IPO) were issued during the period 2003to 2008. Hoover the present study covers 63 IPO’s. The offering price each of IPO , its first trading price and its closing price subsequently five month after IPO’s in the secondary market at the end of each month were collected from the DSE library.

Prospectuses for the IPO’s were collected from the SEC library in Bangladesh.

1(e) Limitation of report The target was to prepare exact report delivering the condition of IPO operation in our country.

But unavailable of information prove to be the most disturbing constrain in preparing the report.

Face some problem from the source because of their no cooperation. Data collection was proven to be most hazardous. This was not readily available. The gathered data from the DSE & CES library by visiting so many times. This was an exciting topic to prepare a standard term paper but there were not enough studies on this topic. But, tried level best to prepare this paper with sincerity. The effort will be a successful one when this paper will approach readers desired level.

Chapter one Literature Review and Theoretical Background IPO Mean The first sale of stock by a private company to the public. IPO’s are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.

In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market. IPO ( www.investopedia.com) An initial public stock offering (IPO) referred to simply as an "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.

An IPO can be a risky investment. 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. Also, most IPO’s are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value. (www.ipostocks.com/ - Cached - Similar) Investopedia explains Initial Public Offering – IPO’s can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future because there is often little historical data with which to analyze the company. Also, most IPO’s are of companies going through a transitory growth period, which are subject to additional uncertainty regarding their future values. (www.RenaissanceCapital.comIPO) Prospectuses: Publication of a prospectus is not a recommendation by Share Builder Securities Corporation that any particular investor should purchase the securities described or that the securities are a suitable investment for any particular investor. (www. sharebuilder com/ share builder/).

Dual-class IPOs; Long-Run Underperformance; Firm Valuation; Corporate Governance Mechanisms; Sweden- This study analyzes the effects of a dual-class share structure on firm long-run underperformance following an IPO. The sample consists of 204 IPO firms during 1998-2007, whereof 86 had a dual-class share structure and 118 had a one-share one-vote structure. When testing for long-run IPO underperformance we use Cumulative Abnormal Returns (CAR), mean Buy-and-Hold Abnormal Returns (BHAR) and the Calendar-Time approach. When using CAR we use value-weighted returns whereas when using the two latter methods we use both equally-weighted (EW) and value-weighted (VW) returns for our calculations. In line with what earlier has been found on the US equity market, we find no support that dual-class IPOs should perform worse than single-class IPOs in the long-run; however, we find some indications of the opposite relationship. In addition, regression results on price-to-book indicate that the Swedish market seems to take into account the positive long-run performance of dual-class IPO firms.( Author: Elisabet Åkesson; Tomi Lakkonen; -2008 ) IPO; Long-run underperformance; Private Equity backed; S This thesis examines the long-run underperformance of IPOs on the Swedish equity market during 1992-2005 and hence includes the post IT-era. We also investigate whether there is a difference in long-run performance between IPOs that are backed by professional private equity investors and those that are not. We use a sample of in total 271 IPOs of which 89 are private equity backed. In order to investigate the abnormal performance we use two different approaches; the event-time approach as well as the calendar-time approach. Under each of the approaches we use different measuring techniques as well as weighting methods, and control for size and book-to-market ratios. Our main contribution is that we introduce the FamaFrench three factor model in determining long-run IPO underperformance on the Swedish equity market. Our findings suggest that Swedish IPOs do underperforms during this time period when returns are equally weighted. However this performance disappears when

returns are value weighted. A deeper analysis point to the fact. (Gustav Björcke; Michael Menzel; 2007) IPO s; long run underperformace; measurement problem underpricing; Behavioural Explanations; The literature on IPO’s, in particular, its primary underlying reasons on long-run underperformance. The aim is to review theories regarding the long-run underperformance, and evaluate whether or not these theories can explain this phenomenon. A case study of Deutsche Telekom serves to assess the explanatory supremacy of the existing theories regarding the long-run underperformance of IPO’s. We find that one could not argue separately that the theories stated are the only explanation of the IPO characteristics; one has to take into consideration the potential affection of the measurement problem highlighted by Fama among others. However, the theories we conclude to be best applicable are the ones based on heterogeneous expectations, as illustrated with the case. We argue that the reality regarding the long-run underperformance of IPO’s is somewhere in between these to points of views and that it is important to have both of them in mind when examining any case.

(Mustav Björcke; Michael Menzel; -2007)

THEORETICAL BACKGROUNDN This part is designed to provide readers with the necessary understanding (definition reasoning types etc) of the term and languages that are related with IPO (initial public offering).after going through this part ,the readers hopefully be able to c0omprehend and relate the further proceeding of the paper relating to the fact of IPO. 1.1

Definition & Notes

1.1. 1 what is financial market?

The term financial market refers to conceptual “mechanism” rather than a physical location or pacific organization or structure. The financial market is being described as a system comprise of individual and institution, instrument and procedures that begin together borrows and savers, no market location. Above all, market in which financial asset or security such as bonds or stocks are traded is called financial market.

The financial markets in which funds are borrows or loaned for short periods (generally less than one year) or market which facilities the flows of short term funds are called money market.

The financial market in which funds are borrows or loaned for short periods (generally longer than one year) or market which facilities the flows of long term funds are called capital market.

The primary market Are market where security are initially issued or in which corporation raise funds by issuing securities or it is a market in which new issues of securities are first offered to the public. These first offering go directly the issuer. Our consideration is on IPO, which h is under the jurisdiction of primary market.

Secondary market are market in which securities and other financial assets are traded among investor after they have been issued by the corporation and public agency such as municipalities or it is market in which an investor purchase a security from another investor rather than the issuer. Subsequent to the original issuance in the primary market. It also called after market.

1.1. 2 What is stock exchange?

A stock market is a palace where stocks (shares) can be bought and sold .An stock exchanges facilities the trading of stocks and shares. A quoted company’s shares can traded on the stock exchanges. In Bangladesh we have two exchanges Dhaka stock exchanges (DSE) and Chitagong stock exchanges (CSE).stock exchanges can be traditionally divided two types 1) Organized Stock exchanges (2) Over the counter exchanges (OTC).

Organized Stock exchanges: It is formal organization with Physical Location where auction markets are conducted designated (listed) securities.

Over the counter exchanges: It is a large collactio0n of brokers and dealers , connected electronically by telephones and Inter net that provides for trading in securities not listed on the organized exchanges or securities exchanges commission Both the exchanges in our considered as organized as organizes exchanges, but chitagong exchanges are considered more or less as OTC. 1.1.3 What is securities and exchanges commission (SEC)?

Securities and exchanges commission is a regulatory body that regulates the issuance and trading of stocks and bonds. The securities and exchanges commission was established on 18th June ,1993 under the securities exchanges commission Act, 1993.The chairmen and member of commission are appoint by the Government and have overall responsibility to administer securities legislation .The commission ,at present has three full time members ,excluding the chairman .The commission is a Statutory body and attached to the ministry finance.

Member Perform Following Function: a. serves as the member of the commission and supervise its management. b. Provide policy direction to industry and stuff and promulgate legally binding rules. c. Act of administrative tribunal for decision on t6he capital market..

Mission of the SEC is to: a. protect the interest of the securities investor b. Develop and maintain fair, transparent and efficiency of the security markets. c. Ensure proper issuance of securities and compliance with security law.

Commission main functions are: Commission’s Main Functions are: 1.

Regulation the business of stock exchange and any other security market

2. Registering and regulating the business of stock-brokers share Transfer agents, merchant bankers and managers of issues, trustee of Trust deeds, registrar of issue, underwriters, portfolio managers, Investment advisers and other intermediaries in the securities market..

3. Registering, monitoring and regulation of collective investment scheme including all from of mutual funds.

4. Monitoring and regulating all authorities’ regulatory organization in the securities market.

5. Prohibiting fraudulent and unfair practices relating to the securities trading in any Securities markets.

6 promoting investor, education and providing for intermediary of the securities market 7. Prohibiting insider trading in securities.

8. Regulating the substantial acquisition of share and take-over of companies.

9. Undertaking investigation and inspection, inquiries and audit any issuer or dealer of securities, the stock exchanges and intermediaries and any self regulatory organization in the securities market. Beside these conducting research and publishing information.

1.2 What is IPO? “IPO” stand for an “Initial Public Offering” of securities. IPO is the first time a company sale its stocks to the public. A company that has previously been owned privately issues IPO in order go to public or in other words, we can say IPO is the first sale securities by a privet company go to public.

IOP are often desired by smaller, younger companies seeking capital to expand their business. A common first step for a going firm is to obtain privet equity funding form venture capitalist firms, which seek to invest in firm that offer high potential for growth over time. This venture capitalist firm typically prefers an investment period of two to five years.

Therefore an IPO is commonly used not only to obtain new funding but also to offer ventures capitalist firms a very to cash in their investment. Many venture capitalist firms sell their shares in the secondary market between 6 and 24 month after the IPO. IPO also sometimes knows as” growing public”. Generally in our country IPO are associated with huge first day gains.

A public offering can be hugely complicated affair. it is usually something that is not undertaken by a company until.

The company has had change to prove itself and profitability model that will scale to much operation no a regional, nationwide or international level.

The company must also have a strong business plan in place with clear objective why it wants to go public. This objective may include raising million of dollars / TK of capital to found an expansion and growth of a very profitability business model. The very first sale of stock to the public is call initial public offering (IPO), and occurs on the primary market.

If a brand new company or a company already in existence, but with no shares listed on the stock exchange, decides to invite the public to buy its shares, it is called an Initial Public Offering or an IPO. Since it is the first time the company is approaching the public for money, it is also referred to as 'going public'.

If a company that is already listed (its shares are available for buying and selling on the stock exchange) is coming out with a fresh lot of shares, it is called the new issue.

Here are six terms commonly associated with an IPO that you, as an investor, must be aware of.

1.2. 1 Why go public?

Basically going or participation in an IPO is the process in which a business owned but several or one individual is converted into a business owned by many. It involves the offering part of ownership of the company to the through the sale of debt or more commonly equity securities (stock). Going public raising cash and usually a lot of it. Being publicly traded also open many financial doors.

Because of increased securities and competitive environment in capital market., public company very often have to pay better rates where they issue debt. As long as there a market demands, a public company can always issues more stock. Beside these, the most common reason for going public is that capital raised through an IPO does not have to be repaid, whereas debt securities such as bond must be repaid with interest. Thus mergers and acquisition are easier to do because stock can be issued as apart of deal.

Thus the primary reason for a company going public is to raises money, usually for capital to funds growth of the business or to pay down existing debt. Usually, the companies owners have invest there personal funds in the company up to this point, and its portions of there personal stock that will sold in the public.

But there is trade-off for this way of raising money. After issuing as IPO, the company is subject to the demands of its shareholder and board director. It must also adhere to the strict roles and regulation of the Securities and Exchange Commission and endure public security.

Again being on a major stocks exchange carries considerable amount of prestige. In the past, only privet companies with strong fundamentals could qualify for an IPO and it wasn’t easy to get listed.

1.2. 2 Advantage and Disadvantage of IPO:

An initial public offering (IPO) is the first sale of stock by a company. Small companies looking to further the growth of their company often use an IPO as a way to generate capital nodded to expand fund. Although further expansion is a benefit to the company, there are both advantages and disadvantages that arise when a company goes public. The decision take a company public in the initial public offering should not be considered lightly. There are several advantage and disadvantage to being a public company, which should thoroughly be considered. This memorandum will discuss the advantage and disadvantage of conducting an IPO and will briefly discuss the steps to be taken to register an offering for sale to the public.

The purpose of this memorandum is ton provide a thumbnail sketch of the process. The reader should understand that the process is very time consuming and complicated and companies should undertake this process only after serious consideration of the advantage and disadvantage and discussions with qualified advisors.

1.2. (2). (A) Advantage: There are many advantages for a company going public. As said earlier, the financial benefit in the form of raising capital is the most distinct advantage. Capital can be used to fund research and development, fund capital expenditure or even used to pay off existing debt.

Another advantage is an increased public awareness of the company because IPO’s often generate publicity by making their products known to a new group of potential customers.

Subsequently this may lead to an increase in market share for the company. An IPO also may be used by founding individuals as an exit strategy. Many venture capitalists have used IPO’s to cash in on successful companies that they helped start-up. Even with the benefits of an IPO, public companies often face many new challenges as well. One of the most important changes is the need for added disclosure for investors. Public companies are regulated by the Securities Exchange Act of 1934 in regard to periodic financial reporting, which may be difficult for newer public companies. They must also meet other rules and regulations that are monitored by the Securities and Exchange Commission (SEC). More importantly, especially for smaller companies, is the cost of complying with regulatory requirements can be very high. These costs have only increased with the advent of the Sarbanes-Oxley Act. Some of the additional costs include the generation of financial reporting documents, audit fees, investor relation departments and accounting oversight committees. Public companies also are faced with the added pressure of the market which may cause them to focus more on short-term results rather than long-term growth. The actions of the company's management also become increasingly scrutinized as investors constantly look for rising profits. This may lead management to perform somewhat questionable practices in order to boost earnings. Before deciding whether or not to go public, companies must evaluate all of the potential advantages and disadvantages that will arise.

This usually will happen during the underwriting process as the company works with an investment bank to weigh the pros and cons of a public offering and determine if it is in the best interest of the company.

(1) Increased capita: A public offering will allow a company rise to capital to use for various corporate purposes such as working capital, Company expansion, acquisition, research and development, expanding plan. New equity may be available in an amount greeter than, or at cost less than to private financing. Moe fund are available for expansion, to repay debt and interest,

working capital, acquisition of business or technology and other purpose. Potentially higher valuation is there than available in private offering, increasing net worth of the compound facilities future debt and equity financing. It helps to get future access to public markets. If a company needs to raise capital, it can sell stock or it can issue bonds. An initial equity offering can bring impeded proceeds to a company. Once public, a company’s financings alternatives are increase. A public traded company can return to the public markets for additional capita via a bond or convertible bond issue or secondary equity offering, a public status can also provide favorable terms for alternative financing from public and private investor. Besides these growing companies constantly access to new capital. Going public is one way to obtain that capital but it take time and money quite a lot of both IPO some strategic advantages.

(2) Liquidity: To sell the stock of private company, a stockholder must find other individuals that are interested in owning shares. This is very difficult, especially for the minority position. By going public, creates a market for its stock in which buyers and seller participation. In general stocks in a public company are more liquid than private enterprise. Liquidity is created for the investor, institution, founder, owners and venture capital professionals. Investor of the company may be able to buy or sell the stock more readily upon completion of the public offering.

This liquidity can elevate the value of the corporation. The stock liquidity is contingent on a Varity of factors including registration rights, lock-up restriction and holding periods. A public company has a greater opportunity to sell shares of stock to investor. Liquidity can also provide an investor or company owner an exit strategy, portfolio diversity and flexibility of asset allocation. On of the important benefits of public offering is the fact that the company’s stock eventually becomes liquid, offering reward and financial freedom for founders and employees.

A public market for the stock also provides a potential exit strategy and liquidity to the investor. A psychological sense of financial success can be added benefit of going public. A going public can enhance the personal net worth of a company’s shareholder (3) Increased prestige and Image: Public companies often are better known and more visible than private companies, this enables them obtain a large market for their good and services. Public companies are able to access larger pools of capital. Public companies can help a company gain prestiges by creation a perception of stability. A company’s founders and managers gain an enormous amount of personal prestige from being associated with a client that go public. Prestige can be very helpful in recruiting key employees and marketing products and service. When sharing ownership with the public, you spread the company’s reputation and increase its business opportunities. By selling stock on an exchange your company can gain additional exposure and become batter known. This exposure may lead to improved recognition and business operations.

(4) Valuation:

Public trading of a company’s shares sets a value for the company that is set by the public market and not through more subjective standards set by a private valuation. This is helpful for a company that is looking for a merger or acquisition. It also allows the shareholder to know the value of the shares. Once a company is public and the market for its stock established, the stock can be considered as valuable as cash when acquiring other business. A successful IPO can have a dramatic effect on a company’s profile, perceived competitiveness and stability.

(5) Increased wealth: The founders of the company often have sense of increased wealth as a result of the IPO. Prior to the IPO these shares were illiquid and had more subjective price. These shares now have an ascertainable price and after any lockup period these shares may be sold public, subject to limitation of the country’s law. Beside theses, it gives the ability to use stock incentive plans to attract and retain key employees. The newly created value can become part of an estate providing value not only for the founders but also for the generations to come.

1.2. (2). (B) Disadvantage: (1) Time and expense: Conducting an IPO is the consuming and expensive. A successful IPO can take up to a year or more to complete and a company can expect to spend several hundreds of thousand of taka on attorneys, account, and printers. In addition, there are considerations for underwriter’s fee which are a substantial part of the value of the offering. Due to the time and expense of preparation of the IPO many companies simply cannot afford the time or spare the expense of preparing the IPO. There are expenses like underwriters discount and commission and offering expenses, including legal and accounting fees, printing costs, transfer agent fees, stock exchange listing fees. Compliance with SEC reporting requirements will increase significantly the company’s general and administrative costs. Management will spend significant time in public relations and in informing the investment community about the company may have to expense outlays incurred prior to termination of the offering. Such outlays may be substantial depending on when the decision to terminate is made.

(2) Disclosure: The SEC disclosure rules are very extensive. Once a company is a reporting company it must provide information regarding compensation of senior management, transaction with parties related to the company, conflict of interest, competitive position, how the company intends to develop future products, material contracts, and lawsuits. In addition, once they offering statement is effective, a company will be required to make financial disclosures required by the securities and exchange rules 1987. It requires public companies to file non audited financial statements and audited financial statements periodically. These statements must also contain updated information regarding no financial matters similar to information provided in the initial regarding statement. This usually entails retaining lawyers and auditors to prepare these statements. In additional, a company must report certain material events as they arise.

This information is available to investors, employees, and competitors. He offering prospectus and SEC filing will reveal information about the company that would not otherwise be available, giving competitors potential advantages.

(3) Falling stock price and market pressure: If the shares of the company’s stock fall, company may lose market confidence, decreased valuation of the company may affect lines of credits, secondary offering pricing, the company’s ability to maintain employees, and the personal wealth of insiders and investors.

Beside these, marketplace pressure may cause the company to focus too much on short-term results to maintain stock prices, forgone risks necessary for future success. Public shareholders may demand dividend, even though management believes reinvestment of earnings is better.

(4) Regulatory review and restriction on management: The Company will be open to review by the SEC to ensure that the company is making the appropriate filings with all relevant disclosures. The company may not be able to act as quickly as it when it was private because of the need to comply with SEC proxy rules when obtaining shareholder votes. Insiders and others are subject to civil and criminal liability if they trade company stock on the basis of material nonpublic information. Management must exercise extreme caution in dealings with the investment community to ensure no selective disclosure of material nonpublic information.

(5) Vulnerability: If a large portion of the company’s shares are sold to the public, the company may become a target for takeover, causing insiders to lose control. A takeover bid may be the result of shareholders being upset with management or corporate raiders looking for an opportunity.

Defending a hostile bid can both expensive and time consuming.

(6) Others: The current shareholders percentage ownership of the company will be diluted in a public offering. Control of the company may shift and the company could face an attempted unfriendly takeover. The market may view certain a takeover devices as unacceptable in an initial public offering. Earning per share will be diluted. The public marker for new securities can be fickle. An understanding of the “window” of opportunity is critical. There may be urgency of the need for additional funds and the availability and cost of alternative sources of financing. Besides there, going public may require organizational structure change – e.g. from a partnership to corporation.

So, there are the advantages and disadvantages of IPO’s. Before investing in IPO’s investors should understand the different dimensions of IPO’s thus proceed further.

1.3 IPO Basics The process of IPO: Relevant notions In the sometimes mundane world of investing, initial public offerings are shrouded in mystique. The world of newly public companies, after all, remains off limits for most individual investors, although that is slowly beginning to change. Apart from the potential for big returns, however, investing in IPO’s risky business. Obviously, investors need to get beyond the allure and hype of IPO’s and become educated about the facts.

Following are some definitions of terms commonly used in the IPO market.

Once the company determines how much money it wants to raise and the type of securities it will sell, the next step is to find an underwriter who guarantees the money by buying the stock offered and then reselling it to the public., The details of the offering are disclosed in an underwriting agreement. The underwriter also files a registration statement with the Sec, along with a statement on how the company will use the money raised in the IPO – individuals can being buying stock in the company.

The internet is a great place to learn about conducting an IPO, risks for investors, and current stock price for IPO’s progress. One can also find consultants who will help structure once company in the beat manner to facilitate an IPO. But in Bangladesh this process is still not popular.

Underwriting: Underwriting is the process of insuring someone or something. It is an act of guaranteeing a specific price to the initial issuer of securities or in other words, we can say that underwriting is a way of placing newly issued securities. Should they not be able to find enough investors, then they end up holding some securities themselves.

The process of bringing a new security issue to the market, by reselling the issue to the public for a profit, underwriting is one of the main activities of an investment banker.

When a corporation decides that it is time to go public, issuing stock to investors, it must hire an investment banking firm to help sell the corporation’s stock. Basically, what happening is the investment banker is acting as the middle-man between the public and the corporation?

Now in most cases, the underwriter will buy the stock from the corporation and sell it at a higher price to the public. The difference between the price that the underwriter pays for the stock and the price the public pays for the stock is known as the underwriting spread. Also, because some corporations are selling huge amount of shares at the IPO they will from an underwriting syndicate, which is other investment bankers who co-purchase the stock in a set in a set of allotments. This reduces some of the risk that the investment banker takes from

buying all of the shares; the underwriting process is really complicated because of all the rules and regulations imposed by the SEC. Another thing that syndicates can do is bid on the stock price during the offering in order to “stabilize� the stock price. Basically, the stabilizing process is to secure the syndicates purchase and to allow the price of the stock to rise due to demand. When the syndicate bids on the stock price it must be less then or equal to the offering price, this regulates the syndicate from making the price too high and then selling it off quickly. He syndicate must also notify the public that it is bidding on the stock, that way the public is aware the syndicate is trying to stabilize the stock. Moreover, the SEC also requires that the underwriter investigate that company who is going public. This protects the public from buying shares of a company that has no intention of making money, but that just wants to profit on the offering of its stock price. The process of investigation the company going public is referred to as due diligence.

Underwriting refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage or credit). The name derives from the insurance market.

Financial bankers, who would accept some of the risk on a given venture (historically a sea voyage with associated risks of shipwreck) in exchange for a premium, would literally write their names under the risk information that was written on a Lloyd's slip created for this purpose.

Risk, exclusivity, and reward: Once the underwriting agreement is struck, the underwriter bears the risk of being able to sell the underlying securities, and the cost of holding them on its books until such time in the future that they may be favorably sold.

If the instrument is desirable, the underwriter and the securities issuer may choose to enter into an exclusivity agreement. In exchange for a higher price paid upfront to the issuer, or other favorable terms, the issuer may agree to make the underwriter the exclusive agent for the initial sale of the securities instrument. That is, even though third-party buyers might approach the issuer directly to buy, the issuer agrees to sell exclusively through the underwriter.

In summary, the securities issuer gets cash up front, access to the contacts and sales channels of the underwriter, and is insulated from the market risk of being unable to sell the securities at a good price. The underwriter gets a nice profit from the markup, plus possibly an exclusive sales agreement.

Also, if the securities are priced significantly below market price (as is often the custom), the underwriter also carries favor with powerful end customers by granting them an immediate profit (see flipping), perhaps in a quid pro quo. This practice, which is typically justified as the reward for the underwriter for taking on the market risk, is occasionally criticized as unethical, such as the allegations that Frank Quattro acted improperly in doling out hot IPO stock during the dot com bubble.

Types of Underwriting: There are many types of underwriting arrangements in which a stock can be done. One is where the underwriter acts as an agent and tries to sell as much of the stock it can at the

current market price. This is known as the best effort arrangement. In a best effort arrangement, the investment banker does not guarantee that the securities will be sold or that the company will get the cash it needs. Another type of arrangement is called firm commitment arrangement where the underwriter is compelled to buy the unsold securities.

There are also many other types of arrangement is called firm commitment arrangement where the underwriter is compelled to buy the unsold securities. There are also many other types of arrangements when issuing stock. The main thing to know is that the terms in which stocks are issued are usually a contract between the company going public and the investment banker/ syndicate that is bringing the stock to the market. The most important thing to know about the underwriting process is that it is highly regulated by the SEC and that it can be an opportune time to for young investors to research good companies and make long-term investments.

Underwriting spread: It is the difference between the price at which an investment banking firm expects to sell securities and the price it is willing to pay to the issuing firm. The difference between an IPO’s offering price and the price the members of the syndicate pay for the shares. Also called the underwriting discount.

Securities underwritingSecurities underwriting is the way business customers are assessed by investment houses for access to either equity or debt capital.

This is a way of placing a newly issued security, such as stocks or bonds, with investors. A syndicate of banks (the lead-managers) underwrite the transaction, which means they have taken on the risk of distributing the securities. Should they not be able to find enough investors, they will have to hold some securities themselves. Underwriters make their income from the price difference (the "underwriting spread") between the price they pay the issuer and what they collect from investors or from broker-dealers who buy portions of the offering.

When a Deale Sponsorship underwritingUnderwriting may also refer to financial sponsorship of a venture, and is also used as a term within public broadcasting (both public television and radio) to describe funding given by a company or organization for the operations of the service, in exchange for a mention of their product or service within the station's programming.

Aftermarket PerformanceUsed to describe how the stock of a newly public company has performed with the offering price as the typical-benchmark.

All or noneAn offering which can be canceled by the lead underwriter if it is not completely subscribed.

Most best-effort deals are all or none.

Book-

Lists of all buy and sell orders put together by the lead underwriter.

Break issueTerm used to describe a newly issued stock that falls below its offering price.

CompletionAn IPO is not a done deal until it has been completed and all trades have been declared official. Usually happens about five days after a stock starts trading. Until completion, an IPO can be canceled with all money returned to investors.

Direct public Offering (DPO)An offering in which a company sells its share directly to the public without the help of underwriters. Can be done over the internet, thought in Bangladesh it is not popular.

Liquidity or the ability to sell shares, in a DPO is usually extremely limited.

Indications of interestGathered by a lead underwriter from its investor clients before an IPO is priced to gauge demand for the deal. Used to determine offering price.

Offering priceThe price that investors must pay for allocated shares in an IPO. Not the same as the opening price, which is the first trade price of a new stock.

Opening priceThe price at which a new stock starts trading. Also called the first trade price. Underwrites hope that the opening price is above the offering price, giving investors in the IPO a premium.

OversubscribedDefines a deal in which investors apply for more shares then are available. Usually it is a sign that an IPO is a hot deal and will open at a substantial premium.

Penalty bidA fee charged to brokers by the lead underwriter for having to take back shares already sold.

Meant to discourage flipping.

PipelineA term used to describe the stage in the IPO process at which companies have registered with the SEC and are waiting to go public.

PremiumThe difference between the offering price and opening price. Also called an IPO’s pop.

ProxyAn authorization, in writing, by a shareholder for another person to represent him/ her at a shareholder’s meeting and exercise voting rights.

Quiet periodThe time period in which companies in registration are forbidden by the Securities and Exchange Commission to say anything not included in their prospectus, which could be interpreted as hyping an offering. The intent and effect of a quiet period have been hotly debated.

Road showA tour taken by a company preparing for an IPO in order to attract interest in the deal.

Attended by institutional investors, analysts, and money managers by invitation only.

Members of the media are forbidden.

Selling stockholdersInvestors in a company who sell part or their entire stake as part of that company’s IPO. Usually considered a bad sign if a large portion of shares offered in an IPO comes from selling stockholders.

SyndicateA group of investment banks that buy shares in an IPO to sell to the public. Headed by the lead member and disbanded as soon as the IPO is completed.

Private placementsA private placement is an offering in which the company sells to private investors and not to the public. Private placements do not have registration fees. It is a process in which a corporation sells new securities directly without using underwriting service.

Preemptive RightWhen a public company issues more of its stock, it must first offer that stock to existing shareholders; that is their preemptive right. A stand by is the public sale of whatever stock the existing shareholders have not yet purchased.

The lock up periodWhen a company goes public, the underwriters make company officials and employees sign a lock up agreement. Locks up agreements are legally binding contracts between the underwriters and insiders of the company, prohibiting them from selling any shares of stock

for a specified period of time. The period can be anything from 3 to 24 months. But the lock up specified by underwriters can last much longer.

FlippingSome investors who know about the unusually high initial returns on IPO’s attempt to purchase the stock at its offer price and sell the stock shortly afterward. This strategy is referred to as flipping. Investors who engage in flipping have no intention of investing in the firm over the long run and are simply interested in capitalizing on the initial return that occurs the market price of the stock to decline shortly after the IPO. Thus underwriters are concerned that flipping may place excessive downward pressure of the stock price.

ProspectusProspectus is a pamphlet that discloses relevant financial data on the firm and provisions applicable to the security. It is a formal legal document describing details of a corporation.

The prospectus is generally created for a proposed offering (especially in case of IPO), but it can still be obtained from existing businesses as well. The prospectus includes company facts that are vitally important to potential investors. The prospectus includes all financial data for a company for the past five years, information on the management team, and a description of a company’s target market, competitors, and growth strategy. There is a lot of other important information in the prospectus, and the underwriting team goes to great lengths to make sure it’s all accurate.

In other word’s we can say that prospectus can be a formal summary of a proposed venture or project or it can be document describing the chief features of something, such as a business, an educational program, or especially a stock offering for prospective buyers, investors, or participants. But here we are concerned with prospective relating to IPO. The information that is required in the prospectus is monitored and set by the SEC. The company has to abide by the rigid requirements imposed by the market regulating authority. In our country, generally prospectus is consists of on average 40-50 pages. For a new company prospectus requires five years projected financial statements and in case of an existing company last five years financial statements are required. Subsequent part of this paper will provide us with detail requirement that are inflicted by the SEC. Best effort — A deal in which underwriters only agree to do their best to sell shares to the public, as opposed to much more common bought, or firm commitment, deals.

Bought deal — An offering in which the lead underwriter buys all the shares from a company and becomes financially responsible for selling them. Also called firm commitment.

Green shoe — Part of the underwriting agreement which allows the underwriters to buy more shares — typically 15% — of an IPO. Usually done if a deal is extremely popular or was overbooked by the underwriters. Also called the over allotment option. Gross spread — The difference between an IPO's offering price and the price the members of the syndicate pay for the shares. Usually represents a discount of 7% to 8%, about half of which goes to the broker who sells the shares. Also called the underwriting discount.

Initial public offering (IPO) — the first time a company sells stock to the public. An IPO is a type of a primary offering, which occurs whenever a company sells new stock, and differs from a secondary offering, which is the public sale of previously issued securities, usually

held by insiders. Some people say IPO stands for "Immediate Profit Opportunities." More cynic it’s Probably Overpriced."

Lead underwriter — the investment bank in charge of setting the offering price of an IPO and allocating shares to other members of the syndicate. Also called lead manager.

S-1 — Document filed with the Securities and Exchange Commission announcing a company's intent to go public. Includes the prospectus; also called the registration statement.

Spinning — The practice by investment banks of distributing shares to certain clients, such as venture capitalists and executives, in hopes of getting their business in the future.

Outlawed at many banks.

Venture capital — Funding acquired during the pre-IPO process of raising money for companies. Done only by accredited investor.

All-hands-A company that is thinking about going public should start acting like a public company as much as two years in advance of the desired IPO. Several steps experts recommend include preparing detailed financial results on a regular basis and developing a business plan. Once a company decides to go public, it needs to pick its IPO team, consisting of the lead investment bank, an accountant, and a law firm. The IPO process officially begins with what is typically called an "all-hands" meeting. At this meeting, which usually takes place six to eight weeks before a company officially registers with the Securities and Exchange Commission, all the members of the IPO team plan a timetable for going public and assign certain duties to each member.

Selling the dealThe most important and time-consuming task facing the IPO team is the development of the prospectus, a business document that basically serves as a brochure for the company. Since the SEC imposes a "quiet period" on companies once they file for an IPO -- which generally lasts until 25 days after a stock starts trading -- the prospectus will have to do most of the talking and selling for the management team. The prospectus includes all financial data for a company for the past five years, information on the management team, and a description of a company's target market, competitors, and growth strategy. There is a lot of other important information in the prospectus, and the underwriting team goes to great lengths to make sure it's all accurate. We take a closer look at the prospectus in part three of this series. Once the preliminary prospectus is printed and filed with the SEC, the company has to wait as the SEC, the National Association of Securities Dealers (NASD), and other relevant state securities organizations review the document for any omissions or problems. If the agencies find any problems with the prospectus, the company and the underwriting team will have to make fixes with amended filings. In the meantime, the lead underwriter must assemble a syndicate of other investment banks that will help sell the deal. Each bank in the syndicate will get a certain number of shares in the IPO to sell to clients. The syndicate then gathers indications of interest from clients to see what kind of initial demand there is for the deal.

Syndicates usually include investment banks that have complementary client bases, such as those based in certain regions of the country.

Let the games begin-

Once the offering price has been agreed on -- and at least two days after potential investors receive the final prospectus -- an IPO is declared effective. This is usually done after a market closes, with trading in the new stock starting the next day as the lead underwriter works to firm up its book of buy orders.

The lead underwriter is primarily responsible for ensuring smooth trading in a company's stock during those first few crucial days. The underwriter is legally allowed to support the price of a newly issued stock by buying shares in the market or selling them short (which means selling shares it doesn't have in its account). It can also impose penalty bids on brokers to discourage flipping, which is selling shares in an IPO soon after the stock starts trading.

This ability to control the price of an IPO somewhat is one reason investors feel it's such a negative when a stock quickly falls below its offering price.

An IPO is not declared final until about seven days after the company's market debut. On rare occasions, an IPO can be canceled even after a stock starts trading. In such cases, all trading is negated and any money collected from investors is returned.

A look at the prospectusAll-handsAdequate research is, without a doubt, the most effective way to identify and stay away from the IPO disasters waiting to happen. The prospectus, which contains nearly all aspects of a company's business and game plan, is the first place any investor interested in purchasing a new issue should look.

Finding an online prospectus is a snapGetting a prospectus is easy. If you're reading this online, you should be able to electronically download a prospectus without any problem. Prospectuses for all US companies are available for free from the Securities and Exchange Commission's Web site, FreeEDGAR.com, or on a delayed basis from EDGAR Online.

If you don't have access to a computer -- or your access is too slow for downloading a prospectus (which is an extremely long document) -- you can also obtain a prospectus by calling the investment banks that are involved in selling the shares of an IPO. Calling the company will also work.

The fine printA confusing read WarningA prospectus is not an easy read. Written mostly by lawyers, they are laden with confusing jargon.

In addition, the tone of these documents is decidedly negative. Companies have to be completely honest about all of their warts in order to avoid future lawsuits. Thus, bullish statements are often followed by cautionary disclaimers, and there's an entire section titled "Risk Factors" dedicated to what may go wrong at the company.

Before you get scared off from investing in an IPO, however, you should realize that many of these risk factors and disclaimers are included in every prospectus. Then again, just because they're boilerplate doesn't mean you shouldn't pay attention.

Following is a list of some warning signs that prospective IPO investors should pay close attention to. In general, they're listed in order of where one would find them in the prospectus, from the front of the document to the end.

Again, this is only a partial list, and in the final analysis, what's most important is that an investor feels comfortable with a company, its business, its market position, its growth strategy, and its management.

Second-tier investment banks – Investment banks hired by a company to handle an IPO must do a fair amount of due diligence, so it's always comforting when the names on the front of a prospectus are wellknown and well-regarded. Of course, even the best banks take out some turkeys. Plus, a number of small regional banks have solid reputations. Just be a little more careful if the name of the investment bank doesn't ring a bell. Found on bottom of front page.

Recent developments – This section, usually added to amended filings, updates any recent notable events, often how a company performed in its most recent quarter. Make sure this section is mainly good news.

Usually found in "Recent Developments" (not always there).

Selling stockholders – It's usually a bad sign when a large number of shares in an IPO come from selling stockholders, meaning pre-offering investors who are cashing out. Not only does it mean that the company won't receive the money from the sale of those shares, but it also should make one wonder why investors would want to sell their shares so quickly if a company's prospects are strong. In fact, investors usually prefer that management retain a sizable stake in the firm after the offering is completed. The number of selling stockholders is found in a section called "The Offering," while management's total stake can be found in "Principal and Selling Stockholders."

Use of proceeds – If a company is majority of the money to pay off debt or dole out a huge dividend to pre-IPO investors, watch out. That means people buying shares in the IPO are in essence paying for the company's past, not its future. Also be careful when a company says it's allocating most of the money for general corporate purposes. It's comforting if a company has more specific ideas about where your money will be invested -- acquisitions, advertising, capital formation, research and development, etc. Found in "Use of Proceeds Declining revenue – If revenue for a company's most recent fiscal year is down from the year-ago period, it may be time to run as far away as possible. Revenue for companies looking to go public should be

growing rather significantly. Even slowing revenue growth is a warning sign. At the very least, read a company's explanation for the revenue slowdown, found later in the prospectus.

Revenue totals can be found in "Summary Consolidated Financial Data" or "Selected Consolidated Financial Data." The explanation behind the results is found in "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Declining margins – Along the same lines as declining revenue, declining operating margins are not a good sign. It means the company is becoming less and less profitable. However, if a company is in a fastchanging, highly competitive industry, it may need to sacrifice profitability for market share and brand equity. Again, read the explanation behind the shrinking margins. Margin totals found in "Summary Consolidated Financial Data" or "Selected Consolidated Financial Data."

Explanation behind results can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Working capital deficit – This is when a company's liabilities, or debts, are greater than its assets. This is not uncommon for a new issue, but it should be explained and should disappear on an "as adjusted" basis after the completion of the offering. Details can be found in "Summary Consolidated Financial Data" and an explanation is in "Liquidity and Capital Resources."

Other financial red flags – A number of other problems can be found on a company's balance sheet or income statement.

Things such as inventories or accounts receivable rising more rapidly than revenue, high interest expenses, or extraordinary charges should be explained. Found in "Selected Consolidated Financial Data" with more detail in the "Index to Consolidated Financial Statements."

Over-reliance on one customer – A clear danger sign. Several IPO’s have imploded after the companies announced they were losing one of their major customers. Of course, like all of these warning signs, there are exceptions. Found in "Risk Factors."

Supplier reliance – A company can be too reliant on its suppliers as well as its customers. Make sure a firm can switch from one supplier to another rather easily. Suppliers that double as competitors are another danger. Found in "Risk Factors."

Competition – Given that monopolies are illegal, competition will always be there, but you better watch out if some well-run, well-capitalized firms are on the list. One name that jumps quickly to mind: Microsoft. Found in "Risk Factors" and "Business."

Other risk factors – Patent disputes, heavy indebtedness, and litigation are just some of the other more dangerous risks. Read the entire "Risk Factor" section carefully, but don't get overly discouraged.

Too-small pie – No matter how effective a company is at selling widgets, there needs to be enough people willing to buy those widgets at high-enough prices. A company's target market should be large and rapidly growing. This information can be found in the "Business" section.

Declining valuation – Pre-offering an IPO be priced so they get a huge return on their initial investment, often as much as 10 times. You can find out what those original investors paid on average for their shares in the section entitled "Dilution." Compare that to the offering price. If the two prices are close, then you can bet pre-IPO investors at one point were too optimistic about the valuation for the company. While it may seem like a good deal to buy a company for about the same price as earlier investors, there's a reason for the lower valuation. On very rare occasions, IPO investors can actually pay less on average than the company's pre-offering backers.

Overvaluation – A lot of factors go into determining an IPO's offering price and not all of them have to do with the price-to-sales or price-to-cash flow multiples that determine the value of most other stocks. Unfortunately, professional investors are at an advantage since they can often find out a company's sales and earnings projections. As a regular retail investor, you won't get any future estimates until analysts start covering the new issue about 25 days after the stock starts trading. Still, you can compare how companies are valued to past results. Just take the number of shares outstanding after the offering, multiply it by the expected offering price (take the midpoint of the listed pricing range), and find out what the market value of the company will be. Then, divide that figure by the firm's revenue and profit for the past four quarters. Hopefully, these multiples, although rough calculations, will be comparable to similar publicly traded companies. Number of shares outstanding is found in "The Offering," expected offering price range is usually found on the front page (but it is not always there), and quarterly sales results are usually found in "Selected Consolidated Financial Data" (if quarterly results are not available, use results from the most recent fiscal year).

Overcompensated or overmatched management – You usually don't want members of the management team in a newly public firm to be making hundreds of thousands of dollars in base salary. Rewards are fine, but make sure most of them are in the form of stock options. That way, management will only be rewarded if the shareholders are.

Look for a management team that has extensive experience in the industry and/or with other public companies. A chief financial officer with little experience running a public company could be overwhelmed by the duties. In addition, watch out for an executive team or board of directors filled with relatives. Nepotism rarely makes for solid management. Found in "Management" and "Executive Compensation."

"Going concern" statement – If a company's accountant says that the firm's business results raise "substantial doubt about the firm's ability to continue as a going concern," watch out. It usually means that a company needs the IPO pretty badly to continue paying off its obligations. Many companies avoid getting plagued with this scarlet letter by raising money immediately prior to the IPO. Found in “Report of Independent Auditors”.

Play the gameMany investors fret they'll miss the next big thing because they have no access to the IPO market, but study after study has proven that IPO’s historically under perform the broader markets.

This fact should come as no surprise considering that new issues are high-risk, high-reward investments. Pick the right stock and you could score big, but the more likely scenario is that your hot IPO will be languishing below its offering price in a few years.

This series of IPO Basics includes a definitions of terms found on financial statements, covers the basic definitions needed to understand the IPO process, and looks at the prospectus. In this final report, we discuss investment strategy.

The ground floorObviously, one of the best ways to invest in an IPO is to buy shares at the offering price from one of the banks managing the deal, before the stock starts trading. New issues are usually reasonably priced by the lead underwriter, which typically hopes for a 15% premium above the offering price when the stock starts trading.

For your average retail investor, however, buying shares at the offering price before the stock starts trading is a difficult task. But it's a bit easier now that banks have made an effort to reach out to the retail investor community through alliances and mergers.

To buy an IPO at the offering price, you'll need to have an account with a broker that has access to that deal, meaning one of the banks that is part of the selling syndicate. These will be brokers that also have corporate finance divisions, such as Merrill Lynch, Wit Capital, or Salomon Smith Barney, or discount brokers that have signed a distribution alliance with a traditional investment bank, such as E-Trade or Schwab or DLJ Direct. The names of the banks on the syndicate for any given deal can be found by looking at the "Underwriting" section in a company's SEC registration.

Tell your broker-

Then, it's just a matter of letting your broker know how much you would like to invest in the IPO. Whether you're successful depends on many factors: how many shares are being offered in the deal (the more, the merrier), how large an allocation your broker's bank is getting (the lead underwriter will have the largest allotment), how large your account is, how much trading you do, how close your relationship is with your broker, how well your broker knows the business, how successful your broker is, etc.

Many brokers, especially the greener ones, don't even realize they could get IPO allocations for clients. Brokers get fat commissions for selling shares in new issues, so they're usually reserved for the best, most industrious salespeople.

If you want to invest in an IPO but don't have a relationship with one of the managing banks, you can also try to start an account, making it a condition that you receive some shares in the new issue you're interested in, but you may not have much luck with this tactic. IPO shares are saved to reward a firm's biggest, most active, and longest-standing customers.

With an electronic brokerage that's participating in an IPO, the allocation process is more objective, although no less difficult. Some firms, such as DLJ Direct, only give shares to customers with a certain account size; others allocate shares based on statistics such as trading frequency to reward their best and most profitable customers.

Wit Capital uses a quasi first-come, first-served system, allocating shares via a random lottery to all investors who respond to their solicitation e-mails within a certain time frame.

Of course, even investors able to get shares in an IPO will not be able to sell those shares right after the stock starts trading, a process called flipping that is often employed by institutional investors to boost returns. Try to flip and you'll probably never get an allocation in an IPO again, at least not from the same broker.

Electronic brokers are particularly harsh against quick sellers. Wit Capital, for instance, says it puts those who sell their IPO shares in the first 60 days at the bottom of the priority list in upcoming deals, while E-Trade also punishes flippers by restricting allocations in the future.

Patience is a virtueIf you can't get in on an IPO at the offering price, what's the next best time to invest?

Analysts have differing opinions on this, but most agree on one point: You must be patient.

It may be incredibly exciting to watch a stock like Netscape or theglobe.com soar on the first day of trading, but it's a potentially dangerous way to invest, especially if you're planning to be in for the long term.

When a stock first starts trading, its price will nearly always rise to an artificially high level.

First of all, investor demand is often unusually heavy because of the hype surrounding an IPO and the strong selling effort employed by the syndicate In addition, the lead underwriter is legally allowed to support the stock price of a newly public company, either by buying shares in the open market or by imposing harsh penalty bids on brokers who return shares in a new issue.

While this early momentum can last for several days or longer, it ALWAYS ends, at least temporarily. "Within three months or four months the stock price (of an IPO) will usually sag," said Kathy Smith, an analyst at the Greenwich, Connecticut-based Renaissance Capital, an IPO research firm that manages the IPO Fund. "A wait-and-see approach can really pay off."

For example, ABC .comb’s stock gained a bunch on its first day of trading but it was actually trading at less than its offering price a week later. Amazon's a bit of an unusual case, but most new issues will show some significant price weakness within the first six months of trading.

The research reportAnother benefit of waiting a bit before investing in a new issue is the analyst research report, which comes out about 25 days after a stock starts trading. Because the analysts who first start covering a new issue work at the banks that helped bring the company public, these "rah-rah" reports nearly always include a "buy" or "strong buy" rating and rarely make much of an impact on a stock price. However, they do provide some food for thought as well as revenue and earnings estimates which can help an investor decide on an appropriate valuation.

If you're determined to get in on an offering on the first day, always use limit orders, which allow you to set the maximum amount you're willing to spend. Limit orders may not always get filled, but you may get saddled with a wildly overvalued stock if you use a regular market order.

Struggling IPO marketJust like all markets, the world of IPO’s goes through cycles. When it's in a downturn, as it was in the spring of 1996, deals that are lucky enough to get out are often priced at bargainbasement prices. That's when the smart investor is looking hardest to jump in.

Take, for instance, the March 1996 debut of Internet auctioneer on sale, which could barely find any bidders at a lower-than-expected $6 offering price; the stock was below $5 within weeks. Later in the year, when the market turned around for Internet stocks, on sale’s price surged more than 500%.

A first-class jockeyAnother strategy analysts recommend is buying on the strength of the underwriter. Year in and year out, deals from Goldman Sachs, Merrill Lynch, and Morgan Stanley Dean Witter perform near the top of the list.

Along the same lines, say analysts, stay away from the small underwriters or the tiny deals.

Renaissance Capital's Smith defines a small underwriter as a bank that does not do its own research and only sells to individual investors. "Institutions may be deal hogs, but they demand research and provide credibility," she says.

A small deal is an IPO which places a company's market value (shares outstanding times offering price) at less than $50 million, Smith adds.

Funds and (gasp!) shortingIf you don't have the time to do adequate research for your own stock picking, you may want to consider putting money in a growth-oriented mutual fund that invests heavily in new issues. Renaissance Capital has started such a fund, and you can contact Morningstar for others out there that fit the bill.

Finally, an investor may want to consider shorting a new issue, which is when an investor sells borrowed stock in hopes of buying it back at a lower price and pocketing the difference.

Shorting a hot IPO is a dangerous strategy that Smith says requires a “stomach of steel,” but if timed right (waits until all the initial momentum has faded), the opportunities are large. In order to short a stock, you'll have to find shares to borrow, which isn't easy in a new issue, and you'll need a margin account with your broker.

Generally prospectuses include but are not limited to the following: • • • • • • •

Offering price Legal opinions about the issue Underwriting method The history of the company Other costs related to investing in the stock The management team The handling of proceeds

The prospectus must be provided to customers before they complete any transactions. It must also include the SEC’s disclaimers that it does not approve or disapprove of the stock being offered, and that it does not judge the prospectus statements for accuracy.

1.4 WAY AN ISSUE MAY BE ADVERTISED BEFORE IT IS SOLD A new issue of stock is allowed to be advertised before it is actually sold, although it may not be sold during the actual registration period.

Registered representatives are allowed to accept oral solicitations from clients. They are not allowed to sell any shares of the new stock. Either are they allowed to affirm any offers of sale?

Registered representative may send Preliminary prospectuses, to clients. Information in these documents will discuss why the stock is being sold and the offering timetable. Preliminary prospectuses are only issued for information purposes.

Advertisement has to be given at least two daily Newspapers to announce the new stock.

Their sole purpose is to function as communication.

1.5 Newly Issued Stocks: Getting the Names Straight

Tow aspects of IPO’s deserve special attention: hot issues and the so-called “when, as, and ifissued” stocks. A hot issue is a security sold by broker- dealers on the secondary market just after it is first issued.

New stock may not be sold until after the registration period has expired. If the stock has not been issued by that time, it may be sold conditionally as a “When, as, and if-issued” stock.

Should it fail to be issued, all buys, sells, earnings and losses will be canceled.

1.6 Firm’s Capital Raising and its Expressions: The total amount of capital that a company is authorized to issue is known as authorized capital. The total amount of capital that a company issues at a single setting is known as the issued capital and the amount of capital that is sold is known as subscribed capital. The amount of money paid by shareholders in excess of the par value of the share is known as paid in capital.

1.7 Ratio Analysis: Various devices are used in the analysis of financial statement data to bring out the comparative and relative significance of the financial information presented. Among these various devices ratio analysis is one of them. According to the Securities and Exchange Commission’s (SEC) law, the company that is going public need following ratios to be furnished in the prospectus.

1.7. (1) Liquidity Ratios: It measures the enterprise’s short-term ability to pay its maturing obligations.

1) Current Ratio: Measures short-term debt paying ability.

Current Ratio= Current Assets/ Current liabilities.

2) Quick Ratio: Measures immediate short-term liability.

Quick Ratio= Cash, marketable securities and receivables/ Current Liabilities.

3) Time Interest Earning Ratio: Measures ability to meet interest payments as they come due.

Time Interest Earned= Income before interest changes and taxes/ Interest Charges 4) Debt to Equity Ratio: The Debt to Equity Ratio measures how much money a company should safely be able to borrow over long period of time. In other words, it indicates what proportion of equity and debt the company is using to finance its assets.

Debt to Equity Ratio= Total Liability / Shareholder’s Equity.

1.7. (2) Operating Ratio: It measures how effectively the enterprise is using the assets employed.

5) Accounts Receivable Turnover Ratio: Measures the liquidity of Receivables.

Receivable Turnover= Net sales / Average trade receivables (net).

6) Inventory Turnover Ratio: Measures the liquidity of inventory.

Inventory Turnover= Cost of goods sold / Average inventory.

7) Asset Turnover Ratio: Measures how efficiently assets are used to generate sales.

Asset Turnover= Net sales / Average total assets.

1.7. (3) Profitability Ratio: It measures the degree of success or failure of given enterprise or division for a given period in time.

8) Gross Margin Ratio: It measures the percentage of sales dollars remaining (after obtain or manufacturing the good sold) available to pay the overhead expenses of the company.

Gross Margin Ratio = Gross Profit / Net Sales 9) Operating Income Ratio: The operating margin measures the management’s efficiency. It compares the quality of a company’s operations to its competitors. A business that has a higher operating margin then its industry’s average tends to have lower fixed costs and a better gross margin.

Operating Income Ratio= Operating Income / Net sales X 100(%).

10) Net income Ratio: Measures net income generated by each taka of sales.

Net Income Ratio=Net income / Net sales.

11) Return on Asset Ratio: Measures overall profitability of assets.

Return on Asset= Net income / Average total assets.

12) Return on Equity Ratio: Measures the profitability of the owner’s investment.

Return on Equity= Net Income less preferred dividends / Average common stockholder’s equity.

13) Earnings-per-Share Ratio: Measures net income earned on each share of common stock.

Earning-per-Share= Net income less preferred dividends / Weighted shares outstanding.

These are some of the fundamentals of understanding the operation of IPO. I hope the above discussion will enable readers to clutch the future proceeding of this paper.

Chapter Two Operation procedure of IPO

This part provides readers with the information of the overall procedures of IPO operation including the rules set for IPO operation by SEC. Besides these, the histories of IPO operation the institutional settings for the market for new issues in Bangladesh are also disclose.

2.1 Background of stock market in Bangladesh: The history of the Dhaka Stock Exchange (DSE) dates back to 1952 when the local government deemed it necessary to establish a stock exchange because Pakistani shares and securities were prohibited from being bought or sold on the Calcutta Stock Exchange (CSE).

Up until this point, Pakistan had been trading quite profitably on the CSE and had no need to establish their own stock exchange department. In response to the prohibition the Provincial Industrial Advisory Council made the decision to establish a stock exchange in Eastern Pakistan.

Initially it was suggested that instead of creating an independent stock exchange, a branch of the Karachi Stock Exchange be opened at Dhaka. However this proposal was very unpopular with representatives from East Pakistan who felt that it was necessary to create a completely new stock exchange in Dhaka. This is what eventually happened with different members of the stock exchange purchasing membership cards at the price of RS.2000. There were two proposed locations for the stock exchange – Dhaka and Chittagong – but in the end it was decided that Dhaka was the most suitable location. An organizing committee was established to further set up the DSE and invitations were sent out to determine what sort of interest there would be in the proposed stock exchange. The response was overwhelming and on the 7th of July 1953 a meeting was held with roughly 100 interested persons attending. Of these, eight men were selected to promote the stock exchange the DSE was officially formed shortly afterwards. The DSE was moved to its current location in 1959.

Currently the main functions of the DSE are the listing of companies, the settlement of trading, the providing of a screen based automated trading of listed securities, market administration, market surveillance, market control, the production of a monthly review publication, the granting of approval to transactions, the monitoring of activities of listed companies to ensure that they stay in line with listing regulations, the investigation of grievances, the announcement of information about listed companies and the maintenance and use of the investors protection fund.

Bangladesh witnessed a spectacular growth of its capital markets starting in the early 1990s that, however, subsequently crashed in late 1996. Although a history of the organized exchange can be traced back to 1954, the capital market in Bangladesh ‘reemerged’ only in late 1980s. There were only 9 companies listed in Dhaka Stock Exchange (DSE) in 1976, the

first year of operation since independence of the country in 1971. The interest and related activity in the stock market started to grow very gradually during the period 1976 through 1982. At the end of 1982, the number of listed companies was 29. However, the number of listed companies started to grow at a significant rate since 1983. Investor’s interest and activity in the local stock market peaked during the period of 1991-1996 primarily due to the liberalized economic policies initiated by the government during the 1990s. A second stock exchange, Chittagong Stock Exchange, was incorporated on April 1, 1995 and become operational on October 10, 1995. All these new developments helped the capital markets in Bangladesh receive substantial attention from investors around the world despite its small size.

The stock markets in Bangladesh were among the top performers in the world in 1996. By September 1996, the capital market of Bangladesh was recognized as one of the fourteen Frontier markets of the world by then International Finance Corporation. The market capitalization in Bangladesh increased by 244% (Compared to the previous year) and stood at $4.6 billion at the end of 1996. Foreign investment in Bangladesh capital market reached about $1.5 billion by the end of 1996, which gradually declined thereafter and virtually nonexistent now since the market crash in late 1996.

Vision of DSE a. To be a leading brokerage firm in Bangladesh by providing our clients a full range of investment products- including stocks, bonds, mutual funds, and CDs. b. To be the premier provider of investment advisory and financial planning servicesincluding sales, research, underwriting and trading for individuals and institutions.

2.2 The Institutional Settings of the Market for New Issues: Companies registered under the Company Act 1913 (revised in 1994) as a public limited company or set up under a statute with a minimum paid-up capital of Tk.10 million are eligible to apply for listing in the stock markets. Companies wanting to go public applied for approval from the Controller of capital Issue (Under Ministry of Finance), up its establishment on June 8, 1993, started to administer the process. The institutional detail related to the IPO process during the pre SEC era is neither clear nor available. A formalized subsequently (Securities and Exchange Commission Public Issue Rules, 1998). A typical public issue is underwritten by a consortium of financial institutions, insurance companies, brokerage house and member of the stock exchange in some ‘predetermined’ ratio. The issuing company contracts underwriters on a ‘firm commitment’ basis to ensure a successful public offering and in case the added to the base commission of the underwriting consortium is designated as the ‘manager to the Issue’. The manager to the Issue typically service as the go between the issuing company and the SEC regulations, etc. of going public for a stated percentage of the public offer as fee. The issuing company also designates a number of financial institutions, mostly commercial bank, as ‘Banker to the Issuer’. The Banker to the Issuer handles share applications and collects money from investors. On average, fifty percent of the total issued capital is retained by the insiders (directors/ sponsors) of the company intending to go public and the remaining portion is distributed to three partiesinstitutional investors (Generally, the Investment Corporation of Bangladesh, ICB), employees of the company going public and the general investors (both foreign and domestic).

2.3 Historical Background: The rise and fall of the IPO Market ID Bangladesh The IPO market in Bangladesh got more and more active as the years progressed within period 1991 through 1997 before the sample period of the current study. Aggressive market reform measures initiated at the turn of the last decade initiated this magnificent of the reforms was the opening of Bangladesh securities markets to non-resident / foreign investors during the 1991-1992 Fiscal Year (FY).

However, international investors / institutions were allowed to participate in the primary (IPO) market only in the 1992-1993 FY subject to some ceiling which were, however, withdrawn in the subsequent years. Allowing the foreigners to invest in stocks had a tremendous impact on the activity of the local markets. The flow of capital into the stock markets by non-residents stood at Tk.387.50 million at the end of 1992-1993 FY. But by the end of 1993-1994 FY this amount shot up to a record of Tk. 3101.80 million followed by a fresh injection of another whopping Tk.2982.70 Million in the 1994-1995 FY. Significant steps were taken to ease the process of repatriation of capital gains and dividends by foreigners during the 1993-1994 FY. Capital gains tax on securities transaction was abolished altogether during the same FY. Simultaneous to these reform measures the investment Corporation of Bangladesh (ICB), at the turn of the past decade, start disbursing loan for investors for investment in the securities market with the objective of encouraging liquidity and growth of the market. The total amount of loan disbursed by the ICB for this purpose during the FY 1992-1993 was Tk. 19.40 million, which shot up to Tk. 1561.60 million by end of the 1996-1997 FY. Furthermore, the (central) bank rate was lowered to 5.5% in March 1994. This decline in bank rate caused the interest rates on time and saving deposits offered by the commercial banks to fall, which in turn was expected to generate more investment in the securities market by the local investors. Entry of foreigners into the market and the consequent inflow of capital period with the aggressive market reforms, significant amount of loans disbursed by the ICB for investment in securities, and lowering of interest rates on time and saving deposits in commercial banks triggered euphoria of some sort among local investors. The average investing population in Bangladesh, lacking any investment related skills, started to pour their money into the stock markets thinking investment in equity market is a one way street (it can only go up) and thereby, creation the speculative bubble. The companies going public from the stock market during 1995 and 1996 raised a record amount of money. On July 7, 1996 the all share price index crossed the 1000 level for the first time and reached the all time high, 3648.75 on November 5, 1996.

The institutional framework regulating the stock market, however did not keep pace with the continuous record rise of the stock market. There were serious drawbacks in the area of enforcement of contracts, settlement procedures law related to insider trading, transparency, accounting standards and ethical standards of accounting firms that audited and certified the financial statements of the companies going public. The SEC of Bangladesh turned a blind eye to several irregularities that led to massive market manipulations. Trading of fictitious shares and fake bulk trading went unhindered. It is alleged that a number of big trading houses arranged trades among themselves and thereby creating an illusion of strong demand for certain stocks.

Thousands of dealers bought and sold shares in the unauthorized / illegal ‘kerb’ market.

Share prices in the ‘kerb’ market, on the average were about 20% higher compared to the prices on the exchange floor during the later part of 1996 and reputed brokerage houses of the country were reported to have been involved in buying shares from the trading floor of the DSE and selling them illegally on the ‘kerb’ market for huge profit. The of huge amount of money disbursed to the general public by the ICB, intended to provide liquidity and growth of the stock market, contributed further to the speculative activities in the market. When the ‘lock-in’ period of one year for the foreign investors, adopted in the 1994-1995 was removed in 1996 it simply made the speculation and the process of disinvestments easier for foreigners.

Foreign and some select few local investors took profit and closed out their positions in the market sensing instability. The non-resident investors were reported Tk. 63321 million out of the stock markets during the FY 1996-1997. By January 25, 1997 the all share price index slid down 1874 points from the record of 3648.75, on November 5, 1996 the speculative bubble began to burst. Then another policy was promulgated in 1997 under which people were allowed to invest money in the market without being asked about its source in exchange of the commitment to pay tax at the rate 7.5% and retain the amount so invested in the securities markets for one year. Although no empirical evidence is provided in this study the possibility that this new policy contributed further to the down slide of the share market is real. This new policy was obviously too tempting for the local corrupt elites. It is alleged that under this new policy, the local corrupt elites poured ‘black money’ into the stock markets ‘white washed’ it and then withdrew it from the market –the all share price index was at 516.94 in December 1998 and 487.77 in December 1999 compared to level of 1111.47 in June 30, 1997.

2.4.1 Operating Procedure of IPO in Bangladesh: This part will discuss about the operating procedure of IPO in Bangladesh. In doing so, different pertinent factors such as allotment procedure, determination of offering price, estimation of the cost of going public, rules and regulation set forth by the SEC, process of buying share in the primary market etc. have been discussed.

Structure of IPO Procedure from figure 1.1 (Appendix-A ) 2.4 (1) Allotment Procedure: An interesting feature of the allocation of IPO’s in Bangladesh is that the issuers favor small over large investors. Allotment for general public during the sample period of the present study, after preferential allocation for the ICB a company employees, typically followed a schedule mentioned below: 1. 50% to 55% of the share is offered to the applicants for 50 shares.

2. 10% of the share is offered to applicants for exceeding 50but up to 500 shares.

3. 10% of the shares are offered to applicants for exceeding 500 but up to 1000 shares.

4. 10% of the shares are offered to applicants for exceeding 1000 but up to 5000 shares.

5. 15% to 20% of the shares are offered to applicants for over 5000 shares for local institutional investors only.

In case of over-subscription allotment is made by lottery proportionate to each of the above five categories.

2.4 (2) determining the Offering Price: Officially the issuing company in consultation with the manager to the issue determines the offer price and the number of securities to be offered. But in reality the SEC has to agree with this process before the offering is announced and often imposes restriction. The guideline from the SEC dictates that the company and the Manager to the issue determine the value of the company using a method known as the ‘project Cost’ basis. Project cost is determined by summing the total fixed assets and initial net working capital total fixed assets includes historical cost of all fixed assets like land and land development, building and other construction, machinery and equipment, contingencies, security deposit, preliminary or preoperating expenses etc. Once the project cost is estimated the next step is to determine the sources of financing. The issue Manager and the company decide how much of this cost will be finance by debt and how much through issuance of equity. The part of the project cost to be financed by issuing equity is then divided by the pre-determined number of common stock the company intends to issue estimate the ‘par’ value of the IPO’s. Companies going public, typically, set the offer price at ‘par’.

2.4 (3) Offering at ‘par’ Vs ‘Premium’: If an issuing company intends to set the price above their par, calculated as per the description in the preceding paragraph, the company is said to be offering stocks at premium.

The management of the company and the issue Manager has to convince the SEC (such as BATA as convinced the SEC to be kept highest premium, which is Tk. 100 and Face value is Tk. 10) that the stock they are about to float deserves to be priced at ‘premium’ looking at the policies that determine whether a company deserves to price its IPO at premium it seems that only companies offering seasoned IPO’s can entertain this option. Officially the issuing company (or the Manager to the Issue on its behalf) is supposed to take the average market price per share or net asset value per share or earning based value per share to the SEC to negotiate (or approval of) the ‘premium’ on the new issue. The average market price per share is calculated by taking the average of past three month’s price of stocks outstanding in the secondary market prior to the new issue. The net asset value per share is calculated by dividing the difference between total assets and total liabilities of the company by the total number of common stocks outstanding prior to the new issue plus the proposed new offering of common stocks. He cwt….ing based value per share, on the ether hand is calculated by dividing the estimated net income after taxes in the first year following they earlier issue of common stocks by the total number of shares outstanding including the proposed public offering.

There are some other methods to set the price. These are given below: 1. Accounting method.

2. Discounted cash flow.

3. Average future earning.

Above This method example calculation are some comparisons given, form Calculation some method to set price 1.1 (Appendix –D)

2.4(4) Estimation of the Cost of going Public: Out-of-pocket expense is reported in the prospectuses as ‘preliminary Expenses’ and is inclusive of brokerage commission, underwriting commission, commission to the Bankers to the issue, auditors fee, the fee paid to the issue Manger etc. The prospectuses typically stipulate the upper limit for preliminary Expenses and consequently, this upper limit is taken as a proxy for out-of-pocket expenses. This out-of-pocket expense is first expressed as percentage of total issued capital net of insiders share. Next the wealth loss from going public, the under pricing as calculated using the methodology specified in the preceding section is then added to it to arrive at the cost of going public. Finally, this cost of going public is compared between the small and large firms, divided on the basis of the size of the issued capital. Cost can vary considerably depending upon an individual company’s history, size and complexity.

The following costs are considered minimums and many large offering will have costs that greatly related with: Legal Accounting Audit Printing Fees Plus underwriter commission and expenses as well as numerous expenses on the part of the company.

Above discussions give us an idea regarding the different relevant and major aspects of issuing IPO in Bangladesh. The next part will illustrate the rules set by SEC for public issues in Bangladesh under the SEC ordinance of 1969 and also process of buying share in the primary market.

2.5 Securities and Exchange Commission (Public Issue) Rules, 2006 1. Short title. – These rules may be called the Securities and Exchange Commission (Public Issue) Rules, 2006.

2. Definitions. – (1) in these rules, unless there is anything repugnant in the subject or context,-

(a) “Associate” means any partner, employee, officer of a company, and a related body corporate over which the directors and subscribers to the Memorandum of Association and Articles of Association can exercise significant influence; (b) “Banker to the issue” means any bank so named in the prospectus to collect money for share subscription; (c) “Commission” means the Securities and Exchange Commission (SEC) established under section 15 of the Securities and Exchange Commission (SEC) law, 1993 (d) “Commission” means any money paid to any person in connection with the public offering of securities under these Rules; (e) “Initial public offering (IPO)” means first offering of security by an issuer to the general public; (f) “Merchant banker” means a merchant banker as defined in the, 2001; (g) “Public issue” means public issue of security through initial public offering and repeat public offering; (h) “Prospectus” means any document prepared for the purpose of Communicating to the general public a company’s plan to offer for sale of its securities under these Rules; (i) “Repeat public offering” means further issuance of security through public offering by an issuer which has raised capital through initial public offering earlier; (j) “Subsidiary company” is an enterprise that is controlled by another enterprise (known as the parent company).

(2) Words and expressions used herein and not defined, but defined in the Insurance Act, 1938 (of 1938), the Securities and Exchange Ordinance, 1969 (XVII of 1969), under the section 14 Bank company law 1991), Financial institution under section 15 of the Securities and Exchange Commission (SEC) law 1993 shall have the same meanings respectively assigned to them in the said Acts and the Ordinance, and the Rules and Regulations issued there under.

3. Conditions to be fulfilled prior to making a Repeat Public Offering. – An issuer of a listed security may make repeat public offering, subject to compliance with the following:(1) Information concerning the repeat public offering shall be disseminated as price sensitive information immediately upon Board decision as well as upon approval at the general

meeting and approval of the Commission, in accordance with the relevant notifications issued by the Commission.

(2) There should be an explicit announcement while disseminating the information under subrule (1) that the repeat public offering shall be subject to approval of the Commission.

(3) Such offering and price thereof have been approved by the Board, the shareholders in a general meeting, and the consent to which is obtained from the Commission.

(4) The proceed of either initial public offering or previous rights issue, as the case may be, has been utilized fully and relevant reports were duly submitted to the Commission.

(5) Annual general meeting has been held regularly.

(6) The issue has been fully underwritten on a firm commitment basis by the underwriter.

(7) The financial statements of the issuer is prepared as per International Accounting Standards (IAS) as applicable in Bangladesh, and audited as per International Standards of Auditing (ISA) as applicable in Bangladesh; (8) The issuer or any of its directors is not a bank defaulter.

4. General requirements for filing application for consent to an issue of capital through public offering.- For obtaining consent to an issue of capital under these Rules, an issuer shall apply to the Securities and Exchange Commission along with the following documents:(1) Ten copies of the prospectus, duly completed, together with all annexes thereto, duly signed on each page, by the issuer’s chief executive officer/managing director, chief financial officer and issue manager. All the directors, including the chief executive officer, shall sign a declaration as prescribed in Annexure- A. (2) Any amendment to the prospectus, signed by the said persons, shall also have to be filed with the Commission, in accordance with sub-rule (1).

(3) All stock exchanges shall be supplied simultaneously by the issuer with one copy each of the said prospectus, together with its annexes, and the amendments thereto, if any, duly signed by the persons who have signed prospectus that is submitted to the Commission.

(4) The audited financial statements of the issuer must be submitted to the Commission along with the prospectus and that the said statement shall not be older than 120 days of the end of the period for which the said financial statements is prepared.

5. Publication of prospectus and opening of subscription list.(1) Upon receiving the consent of the Securities and Exchange Commission to the issue of capital under this Rules, the abridged version of the prospectus, as approved by the Commission, shall be published by the issuer in four national daily newspapers (in two Bengali and two English), within the time specified in the letter of consent issued by the

Commission. The full prospectus shall, however, be posted on website of the SEC, Stock exchanges, issuer and the issue manager.

(2) The subscription list shall be opened and the sale of securities commenced after twenty five days of the publication of the abridged version of the prospectus and shall remain so open for the period as specified by the Commission.

(3) Upon completion of the period of offering of securities as mentioned in sub rule (2), the issuer shall inform the Commission and the stock exchanges, within five working days of closure of such completion, in respect of the following matters, namely: (a) Total number of securities for which subscription has been received; (b) Amount received from the subscription; and (c) Amount of commission paid to the banker to the issue.

6. Prospectus delivery requirements. – (1) Sufficient copies of prospectus shall be made available by the issuer so that any person requesting a copy may receive one.

(2) The issuer shall post the prospectus vetted by the Securities and Exchange Commission in the issuer’s websites and also put on the web sites of the Commission, stock exchanges, and the issue manager within three working days from the date of according consent and shall remain posted till the closure of the subscription list. The issuer shall submit to SEC, stock exchanges and the issue manager a diskette containing the text of the vetted Prospectus in “MS-Word” format.

(3) A notice shall be placed on the front of the application form distributed in connection with the offering informing interested persons that they are entitled to a prospectus, if they so desire, and that copies of prospectus may be obtained from the issuer and the issue manager.

(4) The subscription agreement shall indicate in bold type that no sale of securities shall be made, nor shall any money be taken from any person, in connection with such sale until twenty five days after the prospectus has been published.

7. Limitation on the use of the prospectus. – (1) A prospectus may be used to offer the securities until any of the following events occur, namely; (a) There are material changes in any of the information included in the prospectus; and (b) Any transaction or event which is material to affect or change the conditions under which the public offering is being made as per the contents of the prospectus and which should have otherwise been required to be reported to the Commission.

(2) If any of the above events occur, the offering shall stand suspended until an amendment duly signed by all the directors of the issuer, the chief executive officers of both the issuer

and the issue manager to the prospectus furnishing the appropriate information has been filed with and declared effective by the Securities and Exchange Commission.

(3) The occurrence of any of the events mentioned in sub-rule(1)shall be notified to the general public after such declaration has been made effective by he SEC in four national daily newspapers in which the abridged version of the prospectus was published prior to the date of the opening of the subscription: Provided that in case of there is any necessity for amendment to the prospectus during the subscription period in that case the subscription may be suspended by the Commission and the subscriber who have already deposited money to the banker to the issue may decide either to withdraw his application Or continue with it.

(4) A declaration under sub-rule (3) shall state in detail the nature of change or event which has occurred after the publication of the prospectus and shall be signed by all the directors of the company and the manager to the issue and a copy of the said declaration shall be submitted to the Commission.

8. Format and contents of the prospectus. – A. Material Information: (1) In addition to the information specifically required by these Rules, the prospectus shall contain all material information necessary to enable investors to make an informed assessment of the business engaged in, or to be engaged in, by the company, its assets and liabilities, its financial position, its profits and losses and its future prospects and the rights attaching to the securities being offered and, in case of more than one project being included in the Proposed public offering, separate full disclosure for each project.

(2) The Commission may require disclosure of additional information in the prospectus as it considers appropriate in a particular offering, and the issuer shall comply it.

(3) If the Commission requires such information it shall inform the issuer of the additional information in writing.

B. Information to be included in the prospectus.(1) Cover Page of Prospectus: On the front cover page of the prospectus, the following information and statements shall be given, namely: (a) Name of the issuer company; (b) Amount and type of securities being issued; (c) Offering price of the securities on a per unit and aggregate basis; (d) Opening and closing date of subscription including for NBRs; (e) Names and addresses of the underwriter; (f) Issue date of the prospectus; (g) The following statement: “If you have any query about this document, you may consult issuer, issue manager and underwriter”; and

(h) The following statement in bold type face: “Consent of the securities and exchange commission has been obtained to the issue/offer of these securities under the securities and exchange ordinance, 1969, and the securities and exchange commission (public issue) rules, 2006. It must be distinctly understood that in giving this consent the commission does not take any responsibility for the financial soundness of the issuer company, any of its projects or the issue price of its securities or for the correctness of any of the statements made or opinion expressed with regard to them. Such responsibility lies with the issuer, its directors, and chief executive officer/chief financial officer, issue manager, underwriter and/or auditor."

(2) Table of Contents: On the inside cover page of the prospectus,– a) a detailed table of contents showing the various sections or subdivisions of the prospectus and the page number on which each such section or subdivision begins shall be given; (b) Immediately preceding the table of contents, it shall be indicated that a prospectus may be obtained from the issuer company, issue manager, underwriter and stock exchanges; and (c) The address and telephone number of the company, the issue manager, the underwriters, auditor and the stock exchanges.

(3) Risk Factors and Management’s Perception about the Risks: Immediately following the cover page of the prospectus, all risk factors and management’s perception about the same are to be clearly stated which may include, among others,:– (a) Interest rate risks; (b) Exchange rate risks; (c) Industry risks; (d) Market and technology-related risks; (e) Potential or existing government regulations; (f) Potential changes in global or national policies; (g) History of non operation, if any; and (h) Operational risks.

(4) Use of Proceeds: (a) The prospectus shall show how the net proceeds of the offering shall be used, indicating the amount to be used for each purpose. (b) The prospectus shall also include a schedule mentioning the stages of implementation and utilization of funds received through initial public offering, mentioning about the approximate date of completion of the project and the projected date of full commercial

operation. The schedule shall be signed by the chief executive officer and the chief financial officer of the issuer. (c) If there are contracts covering any of the activities of the issuer company for which the proceeds of sale of securities are to be used, such as contracts for the purchase of land or contracts for the construction of buildings, the prospectus shall disclose the terms of such contracts, and copies of the contracts shall be filed with the Commission as annexure to the prospectus.

(5) Description of Business: (a) The date on which the issuer company was incorporated and the date which the company and its subsidiaries are engaged in or propose to engage in shall be stated in the prospectus. (b) The prospectus shall contain the information in respect of its business operation, for example: (1) The principal products or services of the company and the markets for such products or services.

(2) If the company has more than one product or service, the relative contribution to sales and income of each product or service that accounts for more than 10% of the company’s total revenues.

(3) Names of associates, subsidiary/related holding company and their core areas of business.

(4) How the products or services are distributed.

(5) Competitive conditions in the business.

(6) Sources and availability of raw materials and the names of the principal suppliers.

(7) Sources of, and requirement for, power, gas and water; or another utility.

(8) Names of the customers who purchase 10% or more of the company’s products /services.

(9) Description of any contract which the company has with its principal suppliers or customers showing the total amount and quantity of transaction for which the contract is made and the duration of the contract.

(10) Description of any material patents, trademarks, licenses or royalty agreements.

(11) Number of total employees and number of full-time employees.

12) Production or service rendering capacity and current utilization, where applicable.

(6) Description of Property: The prospectus shall contain the following information in respect of plants and property, namely; (a) Location of the principal plants and other property of the company and the condition thereof;

(b) Whether the property is owned by the company or taken on lease; (c) If the property is owned by the company, whether there is mortgage or other type of lien on the property with name of the mortgagor; (d) If the property is taken on lease, the expiration dates of the lease with name of the lesser.

(7) Plan of Operation and Discussion of Financial Condition: (a) If the issuer has not started its commercial operation, the company’s plan of operations for the period which would be required to start commercial operation shall be described in the prospectus which shall, among others, include:(1) Projected financial statements up to the year of commercial operation certified by the auditor of the issuer; and (2) Any expected significant changes in the number of employees. (b) If the issuer had been in operation, revenue from operation from each of the last three years, the issuer’s financial position, changes in financial position and results of operations for each of the last three years shall be given in the prospectus which shall, among others, include the following information, to the extent material, namely; (1) Internal and external sources of cash.

(2) Any material commitments for capital expenditure and expected sources of funds for such expenditure.

(3) Causes for any material changes from period to period in income, cost of goods sold, other operating expenses and net income.

(4) Any seasonal aspects of the company’s business; (5) Any known trends, events or uncertainties that shall have a material effect on the company’s future business.

(6) Any change in the assets of the company used to pay off any liabilities.

(7) Any loan taken by the issuer from its holding/parent company\ or subsidiary company or loan given to aforesaid company, giving full details of the same.

(8) Any future contractual liabilities the company might enter into within next one year, and the impact it would have on the company’s financial fundamentals.

(9) The estimated amount, where applicable, of future capital expenditure.

(10) Any VAT, income tax, customs duty or other tax liability which is yet to be paid, including any contingent liabilities stating why the same was not paid prior to the issuance of the prospectus.

(11) Sources from which these VAT, income tax, customs duty and other tax liabilities are to be paid.

(12) Details of any operating lease the company has entered into during the five years preceding the issuance of the prospectus, clearly indicating terms of the lease and how the company proposes to liquidate such lease.

(13) Any financial commitment, including lease commitment, the company had entered into during the past five years, giving details as to how the liquidation was or is to be effected.

(14) Details of all personnel related schemes for which the company has to make provision for in future years.

(15) Break down of all expenses connected with the public issue showing specifically: (i) Fee of issue manager; and (ii) Fee of underwriter.

(16) If the issuer has revalued any of its assets, the name, qualification, work done to date by the value and the reason for the revaluation, showing the value of the assets prior to the revaluation, itemizing separately each asset revalued in a manner which shall facilitate comparison between the historical value and the amount shown after revaluation and giving a summary of the valuation report.

(17) Where the issuer is a holding/subsidiary company, there shall be full disclosure in the prospectus about the transactions, including its nature and amount, between it and its subsidiary/holding company or associate companies, including transactions which have taken place within the last five years of the issuance of the prospectus or the date of incorporation of the issuer company, whichever is earlier, clearly indicating whether the issuer company is a debtor or a creditor.

(18) Where the issuer is a banking company, insurance company, non-banking financial institution, a declaration by the board of directors shall be included in the prospectus stating that all requirements as specified in the Insurance Act, 1938 (..... of 1938) have been adhered to.

(19) A special report from the auditors regarding any allotment of shares to the directors and subscribers to the Memorandum of Association and Articles of Association for any consideration otherwise than for cash.

(20) Any material information, which is likely to have an impact on the offering or change the terms and conditions under which the offer has been made to the public.

Note: Suppression of such facts or events shall be construed as willful misrepresentation to solicit or otherwise influence the offering.

(8). Directors and Officers: The prospectus shall contain the following information in respect of its directors and officers, namely; (a) Name, age, qualification, experience and position of each of the directors of the company and any person nominated to be a director, showing the period for which the nomination has been made and the name of the organization which has nominated him.

(b) In the case of a director, the date on which he first became a director and the date on which his current term of office shall expire. (c) If any director is also a director of another company or owner or partner of any other concern, the names of such organizations; (d) Any family relationship among directors and top five officers. (e) Short bio-data of each director. (f) Neither the company nor any of its directors or shareholders who hold 5% or more shares in the paid- up capital of the issuer is loan defaulter in terms of the CIB Report of the Bangladesh Bank: Provided that in case of repeat offering, rule 4 (h) shall be applicable. (g) Name with position, educational qualification, date of joining in the company, last five years experience of the Chief Executive Officer, Chief Financial Officer, Company Secretary, Advisers, Consultants Additional and Deputy Managing Directors and All Departmental Heads.

(9) Involvement of Directors and Officers in Certain Legal Proceedings: The following events shall be described in the prospectus, if they have occurred during the last ten years, namely; (a) Any bankruptcy petition filed by or against any company of which any officer or director of the issuer company filing the prospectus was a director, officer or partner at the time of the bankruptcy. (b) Any conviction of director, officer in a criminal proceeding or any criminal proceeding pending against him. (c) Any order, judgment or decree of any court of competent jurisdiction against any director, officer permanently or temporarily enjoining, barring, suspending or otherwise limiting the involvement of any director or officer in any type of business, securities or banking activities. (d) Any order of the Securities and Exchange Commission, or other regulatory authority or foreign financial regulatory authority, suspending or otherwise limiting the involvement of any director or officer director in any type of business, securities or banking activities.

(10) Certain Relationships and Related Transactions: The prospectus shall contain a description of any transaction during the last two years, or any proposed transactions, between the issuer and any of the following persons, giving the name of the persons involved in the transaction, their relationship with the issuer, the nature of their interest in the transaction and the amount of such interest, namely; (a) Any director or executive officer of the issuer. (b) Any director or officer. (c) Any person owning 5% or more of the outstanding shares of the issuer; (d) Any member of the immediate family (including spouse, parents, brothers, sisters, children, and in- laws) of any of the above persons.

(e) Any transaction or arrangement entered into by the issuer or its subsidiary for a person who is currently a director or in any way connected with a director of either the issuer company or any of its subsidiaries/holding company or associate concerns, or who was a director or connected in any way with a director at any time during the last three years prior to the issuance of the prospectus. (f) Any loans either taken or given from or to any director or any person connected with the director, clearly specifying details of such loan in the prospectus, and if any loan has been taken from any such person who did not have any stake in the issuer, its holding company or its associate concerns prior to such loan, rate of interest applicable, date of loan taken, date of maturity of loan. (g) Any director holding any position, apart from being a director in the issuer company, in any company, society, trust, organization, or proprietorship or partnership firm. (h) All interests and facilities enjoyed by a director, whether pecuniary or non-pecuniary.

(11) Executive Compensation: (a) The total amount of remuneration paid to the top five salaried officers of the issuer in the last accounting year and the name and designation of each such officer. (b) Aggregate amount of remuneration paid to all directors and officers as a group during the last accounting year. (c) The amount of remuneration paid to any director who was not an officer during the Last accounting year. (d) Any contract with any director or officer providing for the payment of future compensation. (e) If the issuer intends to substantially increase the remuneration paid to its directors and officers in the current year appropriate information regarding thereto.

(12) Options granted to Directors, Officers and Employees: The following information shall be given in the prospectus in respect of any option held by each director, the salaried officers, and all other officers as a group, namely; (i) The date on which the option was granted. (ii) The exercise price of the option. (iii) The number of shares or stock covered by the option. (iv) The market price of the shares or stock on the date the option was granted. (v) The expiration date of the option. (b) If such options are held by any persons other than the directors and the Officers of the issuer company, the following information shall be given in the prospectus, namely; -

(i) The total number of shares or stock covered by all such outstanding options. (ii) The range of exercise prices. (iii) The range of expiration dates.

(13) Transaction with the Directors and Subscribers to the Memorandum: (a) The names of the directors and subscribers to the memorandum, the nature and amount of anything of value received by the issuer during the last five years or to be received by each of the above persons, directly or indirectly, from the issuer and the nature and amount of any assets, services or other consideration received or to be received by the issuer shall be stated in the prospectus. (b) If any assets were acquired or are to be acquired from the aforesaid persons, the amount paid for such assets and the method used to determine the price shall be mentioned in the prospectus, and if the assets were acquired by the said persons within two years prior to their transfer to the issuer, the cost thereof paid to the subscribers to the memorandum shall also have to be shown therein.

(14) Tangible assets per share: The prospectus shall show the net tangible asset backing per unit of the securities being offered at the date of the latest statement of financial position contained or referred to in the prospectus.

(15) Ownership of the Company’s Securities: (a) The prospectus shall disclose, in tabular form, the name and address of any person who owns, beneficially or of record, 5% or more of the securities of the issuer, indicating the amount of securities owned, whether they are owned beneficially or of record, and the percentage of the securities represented by such ownership. (b) There shall also be a table in the prospectus showing the number of shares of the issuer’s securities owned by each director, each of the top ten salaried officers, and all other officers as a group, indicating the percentage of outstanding shares represented by the shares owned.

(16) Determination of Offering Price: (a) If ordinary shares are being offered, the factors considered in determining the offering price shall be set forth in the prospectus. (b) If the issue price of the ordinary share is higher than the par value thereof, justification of the premium should be stated with reference to(i) Net asset value per share at historical or current costs; (ii) earning-based-value per share calculated on the basis of weighted average of net profit after tax for immediately preceding five years or such shorter period during which the issuer was in commercial operation;

(iii) Projected earnings per share/book value for the next three accounting year as per the issuers own assessment duly certified by the auditor of the issuer; (iv) average market price per share of similar stock for the last six months immediately prior to the offer for common stocks or if issuance is the repeat public offering market price per share of common stock of the issuer for the aforesaid period; and v) All other factors with justification which have been taken into account by the issue r for fixing the premium: Provided that premium on public offering shall not exceed the amount of premium charged on shares issued within immediately preceding one year.

(17) Market for the Securities Being Offered: The issuer shall apply to all the stock exchanges in Bangladesh within seven working days from the date of consent accorded by the Commission to issue prospectus.

(18) Description of Securities Outstanding or Being Offered: The prospectus shall:– (a) Describe any dividend, voting and preemption rights of any common stock outstanding or being offered; (b) Describe the dividend, voting, conversion and liquidation rights, as well as redemption or sinking fund provisions, of any preferred stock outstanding or being offered; (c) If there are any limitations on the payment of dividends to common or preferred stockholders because of provisions in debt instruments or otherwise, explain such limitations; and (d) Describe any other material rights of the common or preferred stockholders.

(19) Debt Securities: The prospectus shall:(a) describe the terms and conditions of any debt securities that the issuer company may have issued or is planning to issue within six months, including their date of redemption, whether or not such debt securities are convertible to equity, rate of interest payable and any other rights the holders of such securities may have; (b) describe the principal amount outstanding or to be outstanding, the maturity date, the interest rate, the conversion or redemption features and the sinking fund requirements of all debt securities outstanding and being offered; (c) describe all other material provisions giving or limiting the rights of holders of each class of outstanding debt or debt being offered, for example subordination provisions, limitations on the declaration of dividends, restrictions on the issuance of additional debt or maintenance of asset ratios; and

(d) Give the name of the trustee(s) designated by the indenture for each class of outstanding debt or for debt being offered and describes the circumstances under which the trustee must act on behalf of the debt holders.

(20) Financial Statement Requirements: The prospectus shall include: (a) The financial statements prepared and audited in adherence to the provisions of the Securities and Exchange Rules, 1987; (b) Information as is required under section 186 of 1994 relating to holding company; (c) Selected ratios on liquidity, profitability and solvency of the issuer as specified in Annexure B; and (d) The issuer shall include comparative income statements and balance sheet and aforementioned ratios for immediate preceding five accounting years of the issuer in the prospectus. If the company has been in existence for less than five years the above mentioned inclusion and submission will have to be made for the period of existence.

9. Lock in Provision. – All issued shares of the issuer at the time of according consent to public offering shall be subject to a lock- in period of three years from the date of issuance of prospectus or commercial operation, whichever comes later: Provided that the persons, other than directors and those who hold 5% or more, who have subscribed to the shares of the company within immediately preceding two years of according consent, shall be subject to a lock- in period of one year from the date of issuance of prospectus or commercial operation, whichever comes later.

10. Refund of subscription money.In the case of non-allotment of securities, refund of subscription money of applicants resident in Bangladesh shall be made by account payee cheque / warrant payable to applicant. For this purpose the number of the bank account along-with name of bank and branch shall be indicated in the securities application form.

11. Subscription by and refund to non-resident Bangladeshi (NRB). – (1) A nonresident Bangladeshi shall apply either directly by enclosing a foreign demand draft drawn on a bank payable at Dhaka, or through a nominee by paying out of foreign currency deposit account maintained in Bangladesh or in Taka, supported by foreign currency encashment certificate issued by the concerned bank, for the value of securities applied for through crossed bank cheque marking “Account Payee only”.

(2) The value of securities applied for by such person may be paid in Taka or US Dollar or UK Pound Sterling or Euro at the rate of exchange mentioned in the securities application form.

(3) Refund against over subscription shall be made in the currency in which the value of securities was paid for by the applicant through Account Payee bank cheque payable at Dhaka with bank account number, Bank’s name and Branch as indicated in the securities application form.

12. Availability of Securities. – (1) 10% of total public offering shall be reserved for non-resident Bangladeshi (NRB) and 10% for mutual funds and collective investment schemes registered with the Commission, and the remaining 80% shall be open for subscription by the general public.

(2) All securities as stated in sub-rule (1) shall be offered for subscription and subsequent allotment by the issuer, subject to any restriction which may be imposed, from time to time, by the Securities and Exchange Commission.

(3) In case of over-subscription under any of the categories mentioned in sub-rule (1), the issue manager shall conduct an open lottery of all the applications received under each category separately in accordance with the letter of consent issued by the Securities and Exchange Commission.

(4) In case of under-subscription under any of the 10% categories mentioned in sub-rule (1), the unsubscribed portion shall be added to the general public category and, if after such addition, there is over subscription in the general public category, the issuer and the issue manager shall jointly conduct an open lottery of all the applicants added together.

(5) In case of under-subscription of the public offering, the unsubscribed portion of securities shall be taken up by the underwriter(s).

(6) The lottery as stated in sub-rule (3) and (4) shall be conducted in presence of representatives from the issuer, the stock exchanges, and the applicants, if there be any.

13. Issue manager. – The issuer shall appoint issue manager(s) registered by the Securities and Exchange Commission for the purpose of making the public offering.

14. Underwriter. – (1) The issuer making public offering shall appoint underwriter(s), having certificate of registration from the Securities and Exchange Commission or allowed by the Commission to carry out underwriting on a firm commitment basis.

(2) The issuer, in the event of under subscription, shall send notice to the underwriter(s) within ten days of closure of subscription calling upon them to subscribe the securities and pay for them in cash in full within fifteen days of the date of said notice and the said amount shall be credited into securities subscription account within the said period.

(3) The underwriting agreement shall contain a condition to the effect as mentioned in sub rule (2).

(4) The issuer shall, within seven days of the expiry of the period mentioned in sub rule (2), send to the Securities and Exchange Commission proof of subscription and deposit of the money by the underwriter.

15. Debenture trustee. – (1) The public company issuing debenture shall appoint a debenture trustee to protect the interests of debenture holders.

(2) The debenture trustee shall be a bank, a financial institution, an insurance company, or any other entity registered by the Commission to act as trustee.

16. Fees for public offering and listing of security with the recognized stock exchanges.The following fees shall be applicable for payment by the issuer company:(i) Issue management fee: maximum 1% on the public offering amount or Tk. 20 mlacs whichever is lower. (ii) Underwriting fee shall be calculated on 50% of public offer amount, and the said amount shall not exceed 1% on the amount underwritten. (iii) Bankers to the issue fee: maximum 0.1% on the amount collected against public offering applications. (iv) Fees to be paid to the stock exchange: Listing fee for ordinary shares: i. Up to Taka 10 crore of paid-up capital @ 0.25%. ii. Above Taka 10 crore of paid-up capital @ 0.15%.

Listing fee for preferred shares and fixed income securities: i. Up to Taka 10 crore of size of the issue @ 0.25%. ii. Above Taka 10 crore of size of the issue @ 0.15%.

However, the total listing fee shall be minimum of Taka 10,000 (ten thousand) and maximum of Taka 20 lacs for each of the categories mentioned under sub-rule (6) Fees to SEC: (a) The issuer company shall pay Taka 10,000 (non-refundable) as application fee along with the application for consent of the Commission to issue or offer of securities, by way of a pay order or demand draft issued in favor of the “Securities and Exchange Commission”; and (b) Upon according of consent by the Commission to issue prospectus, the issuer company shall pay consent fee @ 0.15%, by way of a pay order or demand draft issued in favor of the “Securities and Exchange Commission”, on the amount of public offering.

(2) No seal commission shall be paid to any persons including the members of the stock exchanges.

17. Approval, rejection and review. –

(1) On receipt of an application for consent or recognition, as the case may be, to the issue or offer of securities from an issuer, the Securities and Exchange Commission shall review the said application to ascertain whether it is complete.

(2) In case the said application is incomplete, the Commission shall inform the issuer in writing of the incompleteness generally within twenty eight days of receipt of the said application.

(3) If the issuer fails to remove the incompleteness within thirty days of communication thereof, it shall have to file a fresh application.

(4) The Commission shall issue letter of consent, subject to such conditions as it may deem fit to specify, within sixty days of receipt of a complete application, if such application is acceptable to the Commission.

(5) If the application is not acceptable to the Commission, it shall issue a rejection order, stating the reasons for such rejection, within sixty days of receipt of the complete application.

(6) The issuer, whose application has been rejected by the Commission, may apply for review to the Commission within ninety days from the date of such rejection, and the decision of the Commission thereon shall be final.

18. Penalty: If an issuer or its representative violates any of the provisions of this rule or furnishes false, incorrect, misleading information or suppresses any information, the SEC may the penal action under the SEC ordinance, 1969.

19. Exhibits. – The following documents shall also be filed by the issuer as exhibits to the application for consent to an issue of capital through public offering, namely:(1) Memorandum and Articles of Association- certified by the Registrar of Joint Stock Companies and Firms (RJSC) and attested by the Managing Director/Chief Executive Officer.

(2) Certificate of Incorporation and Certificate of Commencement of Business – certified by the Registrar of Joint Stock Companies and Firms and attested by the Managing Director/ Chief Executive Officer.

(3) Extract from the Minutes of Meeting of the Board of Directors for raising paid up capital – photocopy attested by the Managing Director/ CEO. (4) Consent of the Directors to serve, in original, signed by all directors.

(5) Land Title Deed with current rent receipts -photocopy attested by the Managing Director/ Chief Executive Officer.

(6) If plant & machinery is reconditioned or second-hand – a certificate from SGS or Lloyds agency on its economic life and price competitiveness duly certified by the Chamber of Commerce of the exporting country or the country of origin – all in original.

(7) Loan agreements, if any – photocopy attested by the Managing Director/ Chief Executive Officer.

(8) Banker’s letter confirming opening of separate bank account for public issue purposes photocopy attested by the Managing Director/ Chief Executive Officer.

(9) Due Diligence Certificate (using format included in Annexure C) from the Manager to the Issue - in original.

(10) Due Diligence Certificate (using format included in Annexure D) from Underwriter- in original.

(11) Due Diligence Certificate from Debenture Trustee, in original, as prescribed by the Commission.

(12) Agreement with (a) Investment Adviser, (b) Issue Manager, (c) Underwriter(s)and (d) Debenture Trustee- photocopies attested by the Managing Director/ Chief Executive Officer..

(13) Bankers’ to the issue’s letter accepting their appointment as such – photocopy attested by the Managing Director/CEO. (14) Joint venture agreement if any-attested by the Managing Director/ Chief Executive Officer.

(15) Tax Holiday Approval Letter from NBR – attested by the Managing Director/ Chief Executive Officer.

(16) Copy of return of allotment and particulars of directors certified by the RJSC and attested by the Managing Director/ Chief Executive Officer.

(17) Banker’s certificate/ bank statement showing deposit of an amount equivalent to the paid up capital/ auditor’s certificate in that regard attested by the Managing Director/ Chief Executive Officer.

(18) Undertakings of the issuer company and its directors for obtaining CIB Report from Bangladesh Bank – attested by the Managing Director/ Chief Executive Officer.

(19) Copies of valid license from the regulatory authority, where applicable – attested by the Managing Director/ Chief Executive Officer.

(20) Deed of Trust (in case of debt securities) attested by the Managing Director/ Chief Executive Officer.

(21) Credit rating report, if applicable – attested by the Managing Director/ Chief Executive Officer.

20. Contravention. – If any issuer or its representative violates any of the provisions of these Rules or furnishes false, incorrect, misleading information or suppresses any information, the

Securities and Exchange Commission may take appropriate action under the Securities and Exchange Ordinance, 1969.

21. Repeal and Savings.— (1) The Public Issue Rules, 1998 is hereby repealed.

(2) Notwithstanding the repeal of the said Public Issue Rules, 1998, any consent given, document or agreement made, fee received or paid, resolution passed, direction given, proceeding taken, instrument executed or issued or things done under or in pursuance of the said Rules shall, if in force at the commencement of these Rules, continue to be in force and shall have effect as if made, directed, passed, given, taken, executed, issued or done under or in pursuance of these Rules.

Annexure- the public Issues Rules,1998 from Annexure A to D (Appendix-B ) 2.6 Securities and Exchange Commission (Rights Issue) Rules, 2006 1. Short title –These rules may be called the Securities and Exchange Commission (Rights Issue) Rules, 2006.

2. Definitions. - (1) In these rules, unless the context otherwise requires,(a) “bank-defaulter” means a person having an overdue or a classified loan as per the latest report issued by the Credit Information Bureau of Bangladesh Bank; (b) “Banker to the issue” means a bank so named in the rights share offer document to collect the rights share sub scrimption; (c) “Chartered accountant” means a person who is a chartered accountant within the meaning of the Bangladesh Chartered Accountants Order, 1973 (P.O. No. 2 of 1973); (d) “Director” means a director of a company who is so named in the rights share offer document; (e) “Form” means the form annexed to these Rules; (f) “Ordinance” means the Securities and Exchange Ordinance, 1969 (XVII of 1969); (g) “Rights share” means new shares offered to the existing shareholders of a public listed company in proportion to their existing holding out of total shares of the company; (h) “Rights share offer document” means a document offering for subscription of rights share by existing shareholders in terms of these Rules; (i) “Section” means a section of the Ordinance.

(2) Words and expressions used herein and not defined, but defined in the Securities and Exchange Ordinance, 1969 (XVII of 1969), the Securities and\ Exchange Commission

Act, 1993 (XV of 1993), the Companies Act, 1994 (XVIII of 1994), and the Depository Act, 1999 (XI of 1999) shall have the same meanings respectively assigned to them in the said Acts and the Ordinance as well as Rules and Regulations issued hereunder.

3. Conditions to be fulfilled prior to making rights issue. – An issuer of a listed security may make rights issue by issuing rights share offer document subject to compliance with the following: (a) Such rights issue and price thereof have been approved by the shareholders in a general meeting; (b) The proceed of previous public offering, or rights issue has been utilized fully; (c) Annual general meeting has been held regularly; (d) The rights issue has been fully underwritten on a firm commitment basis by the underwriter; (e) The financial statements of the company is prepared as per International Accounting Standards (IAS) as applicable in Bangladesh, and audited as per International Standards of Auditing (ISA) as applicable in Bangladesh; (f) The issuer or any of its directors is not a bank-defaulter; and (g) The issuer has been credit rated by a credit rating company, if the offer is at a premium.

4. Pricing and ratio of rights share. – (1) The issuer of a listed security making rights issue shall determine the price of its rights share in consultation with the issue manager.

(2) No issuer of a listed security shall price its rights share above par value; if it has not been in commercial operation for immediate past three years having a track record of profitability and net positive cash flows from its operating activities; (3) The number of rights share proposed shall not exceed five for each existing share held in the company.

5. Issue manager. – (1) The issuer of a listed security making rights issue shall appoint an issue manager licensed under the Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Rules, 1996, to ensure compliance with these rules.

(2) The issue manager shall furnish a due diligence certificate as in Form-A which shall be included in the rights share offer document.

6. Underwriter. –

(1) The issuer of a listed security making rights issue shall appoint one or more underwriters licensed under the Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Rules, 1996 to fully underwrite the rights issue on a firm commitment basis.

(2) The issuer shall call upon the underwriter within ten days of closing of the subscription lists for subscription of the under-subscribed shares, if any, by the underwriter, and the underwriter shall subscribe to such under-subscribed shares within fifteen days of calling thereof by the issuer.

(3) The underwriter shall furnish a due diligence certificate as in Form-B which shall be included in the rights share offer document.

7. Filing of the application for rights share offer(1) An application for issuing rights share along with offer document shall be furnished to the Commission for approval within fifteen days of approval of such issue by the shareholders of the company in a general meeting.

(2) Such document shall be submitted to the Commission along with(a) The copies of underwriting agreement, issue management agreement, agreement with the banker to the issue; (b) Original auditors’ report and certificate with the related financial statements; (c) Relevant extract of the minutes of the general meeting; (d) Undertakings for the company itself and directors in prescribed CIB form; and (e) a bank pay order or demand draft issued in favor of the Securities and Exchange Commission as payment of application fee for an amount of taka ten thousand only.

(3) The Chief executive officers of the issuer and the issue manager, by whatever name called, shall jointly certify under their full signature and seal each page of the copy of documents submitted to the Commission under these rules.

(4) The rights share offer document along with the audited financial statements must be submitted to the Commission within 120 days of the end of the period for which the said financial statements is prepared.

8. Contents of the rights share offer documents. – (1) Rights share offer document shall include, among others, the following information, namely:(a) Date of the rights share offer document; (b) amount of rights shares, divided into number of shares, par value and issue price of each share, and number of right share offered for each existing share;

(c) Highlight of the rights offer, risk factors, and management plans for reduction of such risks; (d) Date and time of opening and closing of subscription; (e) purposes of raising fund through rights share, specifying clearly the heads and amount of the fund utilization, and identifying various proposed projects with heads and amount of expenditure for each projects, and also highlights of such projects; (f) name of the products manufactured or to be manufactured or services rendered or to be rendered by the issuer together with capacity or proposed capacity of the existing and proposed projects vis-Ă -vis capacity utilized by the existing project during the last three years or such shorter period during which the issuer was in commercial operation; (g) If the issue price of rights share is higher than the par value thereof, justification of the premium should be stated with reference to(i) Net asset value per share at historical or current costs; (ii) earning-based-value per share calculated on the basis of weighted average of net profit after tax for immediately preceding five years or such shorter period during which the issuer was in commercial operation. (iii) Average market price per share for the last six months immediately prior to the offer for rights issue; and (iv) Projected earnings per share/book value for the next three accounting year as per the assessment of issuer and issue manager; (h) cash flows statement, profit and loss account, balance sheet and notes to the accounts of the issuer made unto a date not earlier than 180 days from the rights share offer document date, together with certificate from the auditors as in Form-C; (i) summarized cash- flows statement, profit and loss account and balance sheet, and dividend declared and paid for each of the five years immediately preceding the issue of rights share offer document or for such shorter period during which the issuer was in commercial operation, together with a certificate from the auditors as in Form-C; (j) Length of time during which the issuer has carried on business; (k) Implementation schedule for completion of each segment of the project along with the proposed dates of trial and commercial operation of the proposed project; (l) Quantity of shares held by each director and persons who hold 5% or more of the paid- up share capital of the issuer on the date of the rights Share offer document; (m) Name, address, description and occupation of directors; managing director, managers and company secretary of the company; (n) Name of the public listed companies under common management, if any;

(o) Name and address of the underwriter along with the number of shares underwritten by each underwriter, and also the name and address of issue manager, auditors, legal adviser and banker to the rights issue; (p) particulars along with the terms and conditions of the material contracts including vendors’ agreement, underwriting agreement, issue management agreement, agreement with the banker to the issue and contract for acquisition of property, plant and equipment; (q) Number of rights shares that the directors are going to subscribe, and in case they propose to make renunciation, the reasons and extent of such renunciation; (r) Statement of actual utilization of fund raised by public offering of shares or rights shares, if any, prior to the proposed rights issue vies-avis plan therefore; (s) Application form for depositing the subscription money with the bankers to the issue for the rights share, with the provision for renunciation of the rights offer; (t) Declaration about the responsibility of the issue manager, the underwriter, the auditors and the directors in Forms-A, B, C, and D Respectively; (u) A statement that a lock-in on the rights shares of the directors (Including their renounced shares) for a period of three years from the date of closure of the rights share subscription shall be operative; (V) A Declaration that the rights shares to be issued in dematerialized form and that the subscribing shareholders have to apply with respective depository accounts; and (w) Summary of rating statement by a credit rating company, if the offer is at a premium.

9. Public announcement for rights issue. – (1) The issuer of a listed security making offer for rights issue shall: (a) Announce two separate date for record date, one for shareholders decision regarding the proposed rights issue, and the other for determination of entitlement of rights issue after the Commission accords approval; (b) for the purpose of determination of entitlement of rights issue under these Rules, the issuer shall, within three working days from the date the Commission accords approval to the issuer under these Rules, announce the record date; (c) disseminate the receipt of the Commission’s approval along with purpose of the rights issue, amount of issue, price of rights share as a price sensitive information, as prescribed by the Commission mentioning the record date for the determination of entitlement of rights share, and subscripting opening and closing dates will be disclosed within three working days; (d) Commence record date not earlier than fourteen working days and not later than twenty one working days from the date of approval by the Commission;

(e) Deliver offer document approved by the Commission to the shareholders entitled to have rights shares, stock exchange(s) and the Commission within 10 working days from the record date as mentioned in (d) above.

(2) Once approval is obtained, no rights offer can be withdrawn or cancelled or postponed or varied by the issuer without prior written consent from the Commission.

10. Approval and rejection. – (1) On receipt of an application for approval to the rights share offering from an issuer, the Securities and Exchange Commission shall examine the said application.

(2) In case the said application is incomplete, the Commission shall inform the applicant in writing of the deficiencies generally within twenty eight days of receipt of the said application, and the issuer shall correct the deficiencies within fifteen days of communication thereof.

(3) On receipt of the complete application and satisfaction of the Commission, the Securities and Exchange Commission shall accord its approval, subject to such conditions as the Commission may deem fit?

(4) If the offer is not approved, the Commission shall issue a rejection order, stating the reasons for such rejection, within sixty days of receipt of the complete application.

11. Approval fee on rights share. – The issuer of a listed security shall deposit approval fee with the Commission for the rights issue at 0.15% of the total offered amount of rights issue, including premium, if any, by a bank pay order or demand draft issued in Favor of the Securities and Exchange Commission within seven working days from the date of according said approval.

12. Subscription. – (1) Subscription shall be received through the banker to the issue during the subscription period of not less than fifteen days and not more than thirty days.

(2) Subscription opening date shall commence after fifteen days from the record date as mentioned in rule 9 (d).

13. Information on rising of rights issue fund. –The issuer of rights share shall furnish to the Commission;(a) Statement of the subscription received against the offer for rights issue within ten days of the closing of the subscription lists; and (b) Statement of the subscription received from the underwriter against the under subscribed shares within seven days of the expiry of the subscription period allowed to the underwriter under rule 6.

14. Lock-in on rights share. – The rights share of directors and other shareholders holding 5% or more shares shall be subject to lock- in for a period of three years from the date of closure of the rights share subscription. In the event of renunciation of rights share by aforesaid persons, the renounced shares shall also be subject to lock-in for the same period. The issuer shall ensure compliance of this rule.

15. Contravention. – Contravention of any of the provisions of these Rules will attract relevant provisions of the Securities and Exchange Ordinance, 1969.

16. Repeal and Savings.— (1) The Rights Issue Rules, 1998 is hereby repealed. (2) Notwithstanding the repeal of the said Right Issue Rules, 1998 any clearance given, document or agreement made, fee received or paid, resolution passed, direction given, proceeding taken, instrument executed or issued or things done under or in pursuance of the said Rules shall, if in force at the commencement of these Rules, continue to be in force and shall have effect as if made, directed, passed, given, taken, executed, issued or done under or in pursuance of these Rules.

FORM -Securities and Exchange Commission (Rights Issue) Rules, 2006 form FORM A to D (Appendix-B) 2.7 Process of buying shares in the primary market: In order to buy a company in the primary market, investor will fill out from which is obtain from brokers, the issuing company or any branch of a commercial bank involved in the particular issuer of share. Photo copies of such forms could also be used.

In such a primary issue minimum number of shares that cab be applied for is usually 50, and applications for higher quantities must be multiple of hundred.

Application duly perfected and accompanied by check, bank draft or cash as indicated should be sent a branch of a bank engaged for the purpose or to a share banking company or the issuing shares as stated in the prospectus.

In the case of the issuer of new shares that have high demand, it is possible that the amount of money the company is seeking from the issue would be found or subscription fully, before the closing date. Therefore, it is usually advisable to apply for shares in a primary issue within the stipulated times of the prospectus.

If the issue is over subscribed the applicant will in due course receive a refund of the money paid for not getting shares through lottery. If investor’s application is accepted and shares are allotted in her/his name she/he will be issued a share certificate by the company. However

she/he will not be permitted to withdraw her/his investment from the company because this share investment as equities has no maturity dates as with debt obligations.

The company in which investor’s have purchased shares have not has incurred a debt obligation by issuing shares. Further the company act prohibits a company buying back its own shares.

Investor will in time earn a dividend, when the company declares dividends depending of its profitability or the company may be allotted bonus shares or entitled to buy more shares on a right issue.

Chapter Three Data analysis and Finding This part is dedicated in analyzing the IPO over the time period of 20032 to 2008. Initial return about 63 stocks are identified along with their performance over the next five month after their offering. Having analyzing them several finding and reason are identified and discussed.

3.1 Methodology 3.1.1DataA total of 63 stocks (IPO) were issued during the period 2003to 2008. Hoover the present study covers 63 IPO’s. The offering price each of IPO , its first trading price and its closing price subsequently five month after IPO’s in the secondary market at the end of each month were collected from the DSE library. Prospectuses for the IPO’s were collected from the SEC library in Bangladesh.

3.1.2 (a) Estimate the initial return Initial return of IPO’s is the return of first trading day after IPO. An initial return certainly manifests the state of the firms and the capital market that are engaged in this venture. From the initial return of IPO’s the performance of companies going public can be gauged, but because of the elusive natures of IPO’s operations, setting conclusion based on firm’s initial return can be very difficult. Here we would like to estimate the initial return of all IPO’s that went public over the period 2003 to 2008. In estimate the initial return, we will refer to the following equationInitial return= [(Pt-Po)/ Po]*100 Where, Pt= Opening price Po= Offer value 3.1.2(b) Estimation of post IPO performance

In order to get better insights of the performance of all IPO’s consideration, we would like to estimate the post IPO performance. We would like to analyze the rate of return base on the Monty ended market price of IPO’s about five months immediately after their launching. I believe that, doing so would help us to logically explain the performance of those IPO’s and justify their initial return. For the comparison of initial return and subsequence return after IPO’s. We have taken data of last trading prices of every five month immediately after IPO’s and the offer prices for every IPO’s over the period from 2003 to 2008. Then we have calculated the return in terms of its offer price.

At last, based these analyses; we would like to infer some finding that are affecting the way of IPO operation in Bangladesh.

3.2 Estimate the initial return Non we will try to estimate the initial return of all IPO over the period 2003 to 2008 in calculating initial return method – Example calculation from initial return calculation 1.1 (Appendix-D), and initial return Analyzing from tables 2.1to2.6( Appendix-C ).

3.3 Analysis of initial return from IPO’s over the period from 2003 to 2008 The initial return on IPO’s was especially higher for the firms during 2003 to 2008 in most of case. Above the analyzing result, we can conclude that the initial return of IPO’s were much higher, in most of the case than the subsequent retune over the person from 2003 to2008, during 2004 and 2005 period most higher average return than other period. Exceptionally, very few companies were perform badly where investors got poor and negative return(like 2003 Agni system ltd 3% and keya detergent 1%,) 2005 sonar bangle insurance limited -34.50 and Asia specific insurance limited -39 two companies IPO was under price but it is not the case of Bangladesh context. The IPO’s are overprice in Bangladesh because price decrease overtime during the period 2003 to 2008 in our analysis. When price decrease, initial returns have been deteriorating over the period, because the shares are over price. In that case the issuer receives more than it should have from issuing the share.

We will see next whether these companies were performing will or not after IPO’s (where we will analyze their post IPO’s performance in the letter section. the true picture in initial return from IPO’s over the period of 2003 to2008 can better understanding from graphical depiction from Figure 1.2 (Appendix-A) and table 1.1 (Appendix-C)of average initial return of IPO’s have over this period. From the graph, it’s very evident that the average initial returns of IPO’s increase drastically from 2003 to 2008 but 2004 and 2005 it was staggering 285.67 and 292.68 , though only three IPO 2004 and seventeen 2005 are issued among the year. In 2006 the initial return diminishes bet from the previous year 2004 and 2005 but still stood above the 2003.

Generally the trend of IPO initial is greater than return the investor getting from the existing securities. Therefore investors are more willing to invest in IPO’s. Such unusually high performance has attracted individual investor to the IPO market.

3.4 Estimate the long term performance of IPO’s Now, we will take a look at the post IPO situation for six month immediately after there initiation. From tables 3.1to3.6 (Appendix-C).

3.5 Analysis of post IPO performance over the period from 2003 to 2008

Already, we have discuses about the initial return of IPO. We saw most of companies did will initially rather than after IPO. But, we have to look forward to see what the long term performance of those IPO’s. We have scrutinized the long performance of those IPO’s. From our analysis, we have seen many IPO did will initially. But, they failed to perform to keep their price stability. From our observations, we saw that few companies (like insurance companies in the year 2005. see table 3.3 Appendix-C) did will after the IPO though their initial return were lower than other companies ,which have initial higher return.

Therefore, we strong evidence found from our analysis from tables 3.1to3.6 (Appendix-C). That IPO’s of firms performed poorly on average five month or longer. Thus, from long perspective many IPO’s over price at the time of the issue. Investor was overly optimistic about firms that went public, to extend that the investor base their expectation on the firm’s performance before the IPO. They should be aware that firm’s do not perform as will after going public. The weak performance of IPO‘s was partially attributed to irrational valuation at the time of IPO, which were connected over time. In addition it was partially attributed to the firms managers, who spent excessively and less efficient in managing the firms fund than they were before the IPO.

3.6 Overall state (Analysis) of IPO market in Bangladesh The most of the companies comes for IPO are overvalued. The IPO’s are from unfamiliar and unexamined companies, which give initial return much higher from there offer price. In most case, investor is buying that share more than the offer price. In this situation one question arise is why they are buying these share more than the offer price but investor failed to give proper answers. I think that lack of investor knowledge’s about stock market. When the price of IPO’s shares whether it is related with the companies original ability or not, it is not justified by the investor when they invest in the stock market. By the analyzing most of investors characteristic, we can sat that they have a tendency to buy the new IPO by selling the existing shares of reputed companies to get the initial high return. For capitalization the initial IPO return, they invest in the unfamiliar company’s shares by withdrawing money from the secondary market. As result, market capitalization and price index have been a declining tendency after the immediate IPO offer. In these consequences, market would be weaker than pre-IPO scenario. Companies are not giving true picture in there prospectuses, which are published before coming in the primary market. If the investor don’t analyze the companies previous performance form the financial statement before investing into the companies, they will definitely lose

Chapter Four Inferences, Recommendations and Conclusion

4.1 Inferences From the above discussions and analyses of data we can make some inferences based on our findings. The next part thus identifies and discusses some of our finding and also discusses their potential consequences.

1. Investors Knowledge: As we’ve seen from our previous section that the initial return of IPO’s much than their performances after the IPO, but this phenomenon can be explained by some reasons. His is due to overly optimistic investors who put high value on the firm that went public. At the same time the dismal post-IPO performances of most of the stocks manifests that they are overvalued at the time of their offer which were corrected over time. The irrational valuations of IPO’s results from the imprudent judgments of investors as they base their expectations on the firms performance before the IPO and also because of their speculative nature of investments where they get higher initial return from IPO’s than from existing securities.

Thus investments where they get higher initial return from IPO’s than from existing securities. Thus investors are reluctant to keep the stocks for long term. So, investor’s knowledge is a crucial factor for prudent investments.

2. Drains of IPO are in the share Market: There’s been a flood of IPO’s in the share market. Many IPO’s are coming up simultaneously. The simultaneous entrance of large number of IPO’s has made the market woozy. As a result a big part of capital of the secondary market will be leaning toward IPO’s.

Many investors will prompt to sell their old share at a lower rate than the market value in order to collect money for these IPO’s. Consequently. There is a likelihood of relocating a large amount of capital from the secondary market. Naturally, the effect of these will be inflicted upon the capital market and the market’s natural rhythm will be lost and there is a fear of annihilation of the natural harmony and motion of the capital market. For capitalizing the initial IPO’s return, they invest in the unfamiliar companies shares by withdrawing money from. The secondary market. As a result, market capitalization and price index have been a declining tendency after the immediate IPO offer. In this consequence, market would be weaker than pre-IPO scenario. If this tendency of lowering share price index persists in the long run then many investors will lose their zeal towards the secondary market; which will flatten the market for a long time. Besides these, demands of the IPO’s are high, but supply is less comparable to investors in IPO’s which causes to raise the share price of new companies.

In the year 2005, within one month, ten IPO’s have got the consent of the authority. The number was only three in 2004. Within last ten years, the highest number of IPO’s was introduced in 1994, which were 23. The year 1996 stood second with 22 IPO’s. In those two years, because of the superfluous nature of IPO’s people got animated to invest in those and they sold their old share at a lower rate; as a result, the price of the share plunged significantly. But according to the investors, the downbeat effect of IPO’s will not be long lasting this time, although the share price index has traditionally declined because of new IPO’s. How long this negative effect will continue can’t be said with conviction. But according to the Chairman of DSE, because of new IPO’s a momentary depressing effect may transpire. This is because, if there is an average invested. Naturally, the effect of this will be quite evident in the secondary market. But this effect will be fleeing.

3. Prospectus Information: In most of the cases, companies are not giving true picture of their states in their prospectuses. Besides these, investors are also not aware of different facets of prospectus information. If investors don’t analyze companies’ previous performances and don’t understand different jargons, then it could prove fatal for them. Most of the individual investors in our country don’t actually know how to translate or interpret different

information that is provided in the prospectus. Prospectus information thus could provide investors with necessary and relevant information that are required to make a good investment decision.

4. Risks of Investing in IPO’s: It may sound easy, but it is considerable risky to invest in an IPO. Before investing in an initial public offering, investors need to ask themselves some questions. How much do they really know about this company? A sage once said, “Never invest money in anything you don’t understand”. We may understand all about how an IPO works, but our knowledge about the business of the company in which we plan to invest matters for a prudent investment decision. Alleviators should concern themselves with three kinds of risk related to the company.

Business Risk: It is the uncertainty associated with projections of firm’s future returns on equity, if the firm uses no debt.

Financial Risk: It is the portion of the stockholders risks, over and above basic business risk, resulting from the manner in which he firm is financed.

Market Risk: It is risk associated with the probability of trading the companies stocks in the secondary market, reflected through the appeal that the stock could create to its investors in the current market environment. The longevity of investor’s attraction towards the stock is also concerned.

5. SEC’s Vigilance, Timing of IPO’s and paying dividends: With the analyzing of 14 years of IPO’s history, highest number of IPO’s was 23 in 1994, the second highest number was 22 in 1996 and the lowest number of IPO’s was 3 in 2004. The number of IPO’s from 1994 to 2008 respectively was 23, 21, 22, 12, 6, 11, 7, 11, 8, 14, 3, 17, 7, 14 and 12. Gaining permission to introduce so many IPO’s within period of month (2005) is an unprecedented event that happens with the contest of 10 IPO’s. According to shares market analysts, these numbers of IPO have never been introduced in a single year also. It is not a wise decision for SEC to approve many IPO within one year. Many of Brokers and market experts have held SEC responsible for such milieu. According to them, SEC’s imprudence and unjustifiable inference of accepting so many IPO’s but rather ,this situation could have been avoided by giving the permission to instigate IPO’s stage by stage by taking enough time not at a time these timing was also wrong and inapt. According to experts most of company’s finished declaring dividend within June, as a result subsequent two or three month the market remain slow-moving. Reallocating capita because of IPO’s may prolong and intensify this listlessness. So, dividend declaration problem is also one of the major reasons for market slowness.

6. Others: Investment is a step toward economic development. In the capital market there are two markets, these are-I, Primary Market and 2, Secondary market. Many think of investing in the primary market as risk free. But in recent times, the resentment regarding several issues between the Securities and Exchange Commission and Dhaka Stock Exchange has caused investors to incur losses. Those people having little capital are becoming discouraged after losing their investments. In 2005, 17 enterprises have entered the capital market. Every IPO was oversubscribed, counterfeit and manipulations were also evident regarding the issuance

of certain IPO’s. Measures have been taken against those who were convicted. But those who invested their capital in the primary market lost their time and money. Besides these, many small investors have raised questions regarding the dysfunction of technical support provided by the Engineering University for the purpose of conducting lottery to allocate shares for which people applied in excess of the number of shares in the primary market. Again, the SEC has to watch over an area where different enlisted companies like-stock Exchanges, Merchant Banks, Brokerage Houses, Joint Stock Companies etc. operate. It is thus increasingly difficult to look after this huge area with few logistics support of the SEC. Besides these, could war between different regulatory companies and the changing of government regulations very often discourage investors and it also makes them suffer a lot.

So, these are some inferences that we can discover from our discussions and study of data. Along these inferences, we can have some ideas regarding the reasons and rationalities of the IPO performance in this country in recent years.

4.2 Recommendations: In addressing the concerns raised in the inferences part of the paper in the previous sections, we need to devise some ways to combat them. So, following is an effort to make some recommendations regarding the betterment of the IPO operation in consideration.

1. Knowledge: Before investing in any IPO investors need to analyze the nuances facts that are relevant for their IPO operation and vary necessary for a sensible decision, as with any investment, investors must do their home work carefully. Keep in mind that an initial public offering is a cheap way to raise capital. Investing in an IPO is not always best for the investor. Before signing that check, they must be clear about the benefits they hope to obtain from the investment. Are investors for income, long-term growth or short-term capital gain?

The offering’s financials will tell the story.

•

As an income investor, they need to examine the company’s potential for profits and its dividend policy. They are looking for steadily rising profits that will be distributed to shareholders regularly.

•

A growth investor evaluates the company’s growth plan, earning and potential for retained earnings. They are looking for potential steady increase in profits that are reinvested for further expansion.

•

A speculator looks for short-term capital gains. As a speculators, investors look for potential of an early market breakthrough or discovery that will send the price up quickly with little care about a rapid decline. They are not gong to be in it that long.

Besides these, it’s important to understand that underwriters are salesmen. The whole underwriting process is intentionally hyped up to get as much attention as possible. Since IPO’s only happen once for each company, they are often presented as “once in a lifetime” opportunities, of course, come IPO’s soar high and keep soaring. But many end up selling below their offering price within the year. When a stock first starts trading, its price will nearly always rise to an artificially high level. First of all investor demand is often unusually heavy because of the hype surrounding an IPO and the strong selling effort employed by the

syndicate. As a result, one should not buy a stock only because it’s an IPO do it because it’s a good investment. But the good point is recently many new investors have come to the market and are also coming through their hands into the market. Beside these, investors should invest in IPO with long term thinking rather than to capitalize on the above average return. Thus with proper knowledge the irrational valuation of IPO could be mitigated.

2. IPO will make the market vibrant: As said earlier, if the tendency of lowering share price index persists in the long run then many investors will lose their zeal towards the secondary market, which will flatten the market for a long time. But one or two experts have different opinions to these. According to them, these IPO’s will bring many new investors into the market, a part of which will also be zealous towards the secondary market. The market capitalizations will increase significantly because of the advent of these large numbers of IPO’s. Thus the market will be beneficial in the long run. The Ex president of DSE said that, there is nothing to be worried about IPO’s. There may be some temporary negative effect of these IPO’s but in the long run there is no fear of damage. Rather there is an increased chance of proceeds. As many investors are coming in the market, thus the liquidity is increasing in the market. Besides these, without the debut of number of IPO’s, the capitalization will not be increased and market will not be broadened. Share market experts, the Chairman of the Bangladesh Shilpa Bank, economist Abu Ahmed has also agreed on the fact that there is nothing to be worried about, if the approved IPO’s ate superior from all aspects. He said that in order to maintain the balance of the market, it is necessary to increase the number of good shares through IPO’s. But from the desire to increase the flow of shares, if some how, some destructing for the market. In order to diversity the share market, he gives importance on bringing shares of mobile companies, oil-gas companies into market.

3. Evaluating Prospectus Carefully: Adequate research is, without a doubt, the most effective way to identify and stay away from the disasters waiting to happen. The prospectus, which contains nearly all aspects of a company’s business and game plan, is the first place any investor interested in purchasing a new issue should look. A prospectus in not an easy read. Written mostly by lawyers, they are laden with confusing jargon. In addition, the tone of these documents is decidedly negative. Companies have to be completely honest about all of their wants in order to avoid future lawsuits. Thus, bullish statements are often followed by cautionary disclaimers, and there’s an entire section titled “Risk Factor” dedicated to what may go wrong at the company. Before one get scared off from investing in an IPO, however one should realize that many of these risk factors and disclaimers are included in every prospectus. Thus again just because they are boiler plate doesn’t mean one shouldn’t pay attention.

4. Addressing Risks of IPO Investment: The more information investors have the better decision they will be able to make. Keep in mind that the original stockholders are insiders.

Before it went public, the only shareholders in a privately held company were the management, employees and their families. They all know about the business, they are in it.

Before investing, we need to learn the fundamentals of the business. What are their products?

What is the like hood they will be succeeding with their newfound capital Ignorance is our worst enemy.

Among the other information we will want to know is: •

Business operation: What is management like? Do the employees like to work there?

Is there a large turnover in the labor force? How do customers perceive the company?

Through these questions, investors can gain insights regarding the business risks of

the firm. A firm will tend to have low business risk if the demand for its product is stable, if the prices of its inputs are and product remain relatively constant, if it can adjust its prices freely when costs increased, etc.

•

Financial Operations: What is the company’s credit history? Are they is default on any debts? Have the owners invested sufficient capital to give them a financial stake in the company’s success? How dose this company’s expenses to their competitors

•

Marketability: Would we buy and use their product who would? Is their product a long-term commodity or just a fad Con we buy the IPO shares directly from the issuer?

A substantial advantage can be gained if we can purchase IPO shares directly from an issuer. This could save us “mark0up” and commissions used to pay marketing the offering. By taking the time to answer each of the questions above, investors gain valuable information that will help them decide whether this IPO is a suitable investment for them or not.

Proper monitoring by SEC: From the point of view of brokers and market specialists, SEC has been performed poorly in past to give the approval of IPO’s for different companies.

They have suggested that should approve the IPO’s with a wise time distance rather than approving the IPO’s together. According to Director of DSE, Saiful Islam, through the market pressure has intensified because of offering large number of IPO’s at a close proximity, but that is not too much. According to him, investors in secondary market and in IPO’s different, all investors in the secondary market don’t invest in IPO’s again a large portion of IPO’s are quite different. Besides these, Dr Mirza Azizul Islam, Chairman of SEC, controller of the share market. He also said that, there is no evidence of liquidity crisis in the secondary market because of IPO’s. Beside these, if there are ten IPO’s granted in one month, subscriptions are not taking place at time, they are advised to make collection by keeping time distance between them. They give an opinion that many companies distribute their dividends within the month of June, after that market falls in bearish position. Due to IPO’s, capital transfers from secondary market to primary market. Therefore, it will defer the bearish situation for further period. It is not a great period for approving IPO. If the whole process is administered during March-April or November-December them there will be no such negative effect on the market.

Other: Securities & Exchange Commission should take necessary steps to make sure there is no counterfeit or manipulation of IPO’s. They should train their employees to effectively monitors and supervise the whole process. At the some time, in order to oversee the Hugh jurisdiction of SEC, they should employ more efficient and skilled logistic supports. Proper and effective integration and harmony should be established between different regulatory and supporting agencies, like-SEC, and stock Exchanges, Register of joint stock companies, brokerage horded etc. Without taking any long term steps to protect the interests of the small investors, the capital market of the country will not be revived. And thus the industries of the country will not progress towards development. Beside these, necessary adjustments and changes are also required for the smooth functioning of capital market in Bangladesh. Some of them are----------•

According to the share market specialists, by considering the long term interests of the share market, it is necessary to bring changes in the criteria of emanating IPO’s. At present, organizations apart from financial one can issue a portion of the issued capital through pre-IPO. Rest of the portion has to be disseminated among the general investors through public offering. In case of financial institution, there is no provision

of pre-IPO issuance. 10% of the public offerings need to be reserved for non-resident Bangladeshi. Experts believe that provision of pre-IPO issuance should be in existence for all organizations including investors but to the institutional investors.

This is because; individual investors have less aptitude to hold on to shares, as a result, immediately after investing in IPO’s. They are also negative influenced by the sluggishness of the market and got afraid and discharged their shares into the market.

Consequently, there is a negative stock in the market. But this menace can be avoided to some extent, in case of institutional investors then the result will be market stability.

•

To make compulsory listing of the companies to the stock market after getting the consent of launching IPO’s for the purpose of trading shares in the secondary market.

•

Establish four new stocks exchanges in the four divisions including the creation of the National Stock Exchange.

Taking necessary measures to ensure the transparency of the lottery in case of allocating shares to the applicant.

Ensuring the accountability of the government controlling body by appointing qualified persons to the required posts with handsome salary in order to keep them motivated.

Investigating and inspecting all accounts regarding the issuance of IPO’s or any other matters no matter there is a complaint or not.

Taking necessary steps to apprehend those who are convicted of manipulation and counterfeit and bring them to justice.

• • • •

So these are the some recommendations that are consistent with the finding in the previous section. believe, by employing these strategies, the transparency and lucidity of the IPO operation could be established and thus the capital market could be once more revived.

4.3 Conclusion The present study provides an empirical analysis of the market for new issues in Bangladesh from the sample period 2003 to 2008. A total of 63 new issues are included in the sample.

The initial return and subsequent returns of IPO’s are estimated and analyzed from a variety of perspectives. An analysis of the cost of going public is also done in the present study.

Furthermore the sequence of event leading to the rise and fall of the IPO market in Bangladesh are also described in details from the period 1991 through 1999 and despite the spectacular growth during the early to mid 1990s the market for new issues in Bangladesh is currently stagnant. Until the institutional framework within which the market participant in Bangladesh operate strengthen e.g.. the investor’s are given a solid legal backing against market corruption and auditor are held accountable for the way they conduct business, on the other hand the corporate governance structure is radically improved, the SEC is held accountable for failure to enforce security related laws. Both the individual and institution ( local and the foreign) investors not be expected to participate in the market for new issues in Bangladesh actively again.

APPENDIX-A Figure-Structure of proceeding IPO Private limited company Convert to public limited company SEC- To obtain initial permission of valuation for the propose IPO Valuation for valuation Approval of revalued figure from SEC Accounting effect Audit of account Issue manager appointment Obtain permission from SEC for IPO Price fixation & obtain permission of price from SEC Preparation of prospectus with due permission from SEC Collection subscription (separate bank account) Lottery for over subscription Allotment letter Share issue

Graph- Average initial return of IPO Graphic depiction of average initial return of IPO’s

Average Initial Return of IPO

Average Initial Return of IPO 350 300 250 200 150 100 50 0 2003

2004

2005

2006

2007

2008

Number of Year

APPENDIX-B

Annexure -Securities exchange commission (Public issues) Rules 2006 Annexure- A Declaration about the Responsibility of the Directors, including the CEO of the Issuer in respect of the Prospectus [see rule 3 (1)] This prospectus has been prepared, seen and approved by us, and we, individually and collectively, accept full responsibility for the authenticity and accuracy of the statements made, information given in the prospectus, documents, financial statements, exhibits, annexes, exhibits, papers submitted to the Commission in support thereof, and confirm, after making all reasonable inquiries that all conditions concerning this public issue and prospectus have been met and that there are no other information or documents the omission of which make any information or statements therein misleading for which the Commission may take any civil, criminal or administrative action against any or all of us as it may deem fit.

We also confirm that full and fair disclosure has been made in this prospectus to enable the investors to make a well informed decision for investment.

Signature [Full Name]

Designation Annexure -B Ratios Pertinent to the Prospectus [see rule 8B (20) (c)] ]I. Liquidity Ratios: (i) Current Ratio, Quick Ratio (ii) Times Interest Earned Ratio (iii) Debt to Equity Ratio II. Operating Ratios: (iv) Accounts Receivable Turnover Ratio (v) Inventory Turnover Ratio (vi) Asset Turnover Ratio III. Profitability Ratios: (vii) Gross Margin Ratio (viii) Operating Income Ratio (ix) Net Income Ratio (x) Return on Assets Ratio (xi) Return on Equity Ratio; (xii) Earnings- Per- Share Ratio (EPS) Annexure-C Due Diligence Certificate of Manager to the Issue [see rule 19 (9)] To Sub: Public offer of .........Ordinary Shares/Preferred Shares/ Fixed Income Securities of Tk......... Each of........

Dear Sir: We, the under-noted Manager to the Issue to the above- mentioned forthcoming issue, state as follows: 1. We, while finalizing the draft prospectus pertaining to the said issue, have examined Various documents and other materials as relevant for adequate disclosures to the investors; and 2. On the basis of such examination and the discussions with the issuer company, it’s directors and officers, and other agencies; independent verification of the statements concerning objects of the issue and the contents of the documents and other materials furnished by the issuer company;-

WE CONFIRM THAT: a) The draft prospectus forwarded to the Commission is in conformity with the documents, materials and papers relevant to the issue; b) All the legal requirements connected with the said issue have been duly complied with; c) The disclosures made in the draft prospectus are true, fair and adequate to enable the investors to make a well informed decision for investment in the proposed issue. For Manager to the Issue Sd/ Managing Director (Name of the Merchant Banker) Annexure - D DUE DILIGENCE CERTIFICATE OF THE UNDERWRITER (S) [see rule 19(10) ] To – Sub: Public offer of .........Ordinary Shares/Preferred Shares/ Fixed Income Securities of Tk. .......... each of..........

We, the under-noted Underwriter to the above-mentioned forthcoming issue, state individually and collectively as follows: 1. We, while underwriting the above mentioned issue on a firm commitment basis, have examined the draft prospectus, other documents and materials as relevant to our underwriting decision; and 2. On the basis of such examination and the discussions with the issuer company, it’s directors and officers, and other agencies; independent verification of the statements concerning objects of the issue and the contents of the documents and other materials furnished by the issuer company;WE CONFIRM THAT: (a) All information as are relevant to our underwriting decision have been received by us and the draft prospectus forwarded to the Commission has been approved by us; (b) We shall subscribe and take up or procure subscription for taking up the un-subscribed securities against the above-mentioned public issue within 15 (fifteen) days of calling up thereof by the issuer; and

(c) This underwriting commitment is unequivocal and irrevocable.

For Underwriters Sd/ Managing Director (Name of the Merchant Banker/Underwriter) FORM- Securities exchange commission (Right issues) Rules 2006 FORM-A (See rule 5) Declaration (due diligence certificate) about responsibility of the issue manager in respect of the rights share offer document This rights share offer document has been reviewed by us; and we confirm after due examination that the rights share offer document constitutes full and fair disclosures about the rights issue and issuer, and complies with the requirements of the Securities and Exchange Commission (Rights Issue) Rules, 2006; and that the issue price is justified under the provisions of the Securities and Exchange Commission (Rights Issue) Rules, 2006.

Place...............................

Dated............................. .....................................

(Name of the Issue Manager)

For

(Signature)

Managing Director FORM-B (See rule 6) Declaration (due diligence certificate) about responsibility of the underwriter(s) in respect of the rights share offer document

This rights share offer document has been reviewed by us; and we confirm after due examination that the issue price is justified under the provisions of the Securities and Exchange Commission (Rights Issue) Rules, 2006, and also that we shall subscribe for or procure subscription for any under-subscribed rights shares within fifteen days of calling thereof by the issuer. The issuer shall call upon us for such subscription within ten days of closure of the subscription lists for the rights issue.

Place.....................................

Dated....................................

For.................................

(Name of the Underwriter) (Signature) Managing Director FORM-C [See rule 8(1)(h) & Auditors’ report to the shareholders We have audited the accompanying financial statements for the period from ........................... to .......................................... of .......................................... in accordance with the International Standards of Auditing as applicable in Bangladesh; and we state that we have obtained all the information and explanations which we have required, and after due verification thereof, we report that, in our opinion: (a) These financial statements have been drawn up in accordance with the requirements of the Securities and Exchange Rules, 1987, as amended the Companies Act, 1994 and other relevant laws where applicable; and the International Accounting Standards as applicable in Bangladesh; (b) These financial Statements which are in agreement with the Books of Account of the Company give a true and fair view of the state of its affairs as at ......................... and of the result of its operations and cash flows for the Period/year then ended; (c) Proper Books of Account have been kept by the Company as required by the relevant laws; and (d) The expenditure incurred was for the purposes of the Company’s business. We also certify that the above company has declared the following dividend for each of the following five years immediately preceding the issue of rights share offer document under the Securities and Exchange Commission (Rights Issue) Rules, 2006, and that the company has duly paid off the following amounts of the declared dividend mentioned against respective yearFinancial Year

Date of Dividend Declaration

Declared Dividend

Rate (%) Total Amount (TK.) Total Paid (Tk.)

Place..............................

Date..............................

For......................................

(Name of the firm) ___________________________ (Signature with name of the Partners) Chartered Accountant FORM-D [See rule 8(1)(t)] Due diligence certificate by the directors about their personal responsibility in respect of the rights share offer document This rights share offer document has been prepared, seen, reviewed and approved by us; and We collectively and individually accept full responsibility for the accuracy of the information Given in the rights share offer document; relevant documents and financial statements Submitted to the Commission and others concerned under the Securities and Exchange Commission (Rights Issue) Rules, 2006. We confirm after making all reasonable enquiries That all conditions concerning this rights issue and rights share offer document have been met.

We further confirm that we have not concealed any information or statement which might Have any bearing on the information already made. In case of any default or failure on our Part, civil, criminal or administrative action may be taken against us.

Sd/Chairman

sd/-

sd/-

Managing Director

Sd/-

sd/-

Director Director Place................................

Dated................................. _______________________ (Name of the Issuer Company)

Director

sdDirector

sd/-

sd/-

Director

Director

APPENDIX-C Tables- average initial return Table no 1.1 Year 2003 2004 2005 2006 2007 2008

Average initial return 56.38 285.67 292.68 120.28 147.57 229.76

Tables- Estimate the initial return

Tables no 2.1 Year

Sl No

Company name

2003

1 2 3 4

Agni Systems ltd.

Keya Detergent Lafarge Surma cement Mutual trust Bank Premium) One Bank limited 1st lease international ICB AMCL M.F Standard Bank Bank Asia Mercantile Bank Daffodil Computer led.

5 6 7 8 9 10 11

Ltd

(25%

Offer Value (TK) 10 10 100 125

Opening Price (TK)

Initial return of IPO’s (%)

10.30 10.10 135 174

3.00 1.00 35.00 39.20

100 100 100 100 100 100 10

223 136.25 100.50 153.25 224.50 214.50 19

123.00 36.25 .50 53.25 124.50 114.50 90.00

Opening Price (TK)

Initial return of IPO’s (%)

662.25 300.25

562.25 200.25

Tables no 2.2 Year

Sl No

Company name

2004

1 2

Export import (EXIM) bank Ltd Mercantile Insurance

Offer Value (TK) 100 100

3

ICB AMCL Islamic Mutual Fund

100

194.50

94.50

Offer Value (TK) 100 100 100 100

Opening Price (TK)

Initial return of IPO’s (%)

170 130 250 700

70.00 30.00 105.00 600.00

Tables no 2.3 Year

Sl No

Company name

2005

1 2 3 4

Agrani Insurance Global Insurance Limited Popular Life Insurance Fareast Islami Life

5 6 7 8 9 10 11 12 13 14 15 16 17

People leasing Meghns Life Insurance Grameen Mutual Fund One Nitol Insurance Prime finance Premier Leasing Int. Limited Asia pacific General Insurance Summitpower Ltd(40%premium) Sonar Bangla insurance Islamic finance& Investment Progressive Life Insurance Berger Paint BD Ltd.(10% Premium) Pragati Life Insurance

100 100 10 100 100 100 100 140 100 100 100 120 100

250 520 20 80 699 300 61 400 65.50 35 361 160 420

150.00 420.00 100.00 -20.00 599.00 200.00 -39.00 185.70 -34.50 250.00 261.00 33.30 320.00

Tables no 2.4 Year 2006

Sl No 1 2 3

Company name

5

Prime Islami Life Insurance Limite Brack bank limited Industrial Promotion and Development Co. of Bangladesh Ltd Bangladesh Company Ltd Industrial Finance LankaBangla Finance Limited

6 7

S Alam Cold Rolled Steels Limited Jamuna Bank Limited

4

Offer Value (TK) 100 170 200

Opening Price (TK) 400 510 305

Initial return of IPO’s (%) 300.00 200.00 52.5

100

181

81.00

10

20

100.00

100 120

121 225

21.00 87.5

Offer Value (TK) 100 100

Opening Price (TK) 280 310

Initial return of IPO’s (%) 180.00 210.00

10 100 10 100

19 370 30 200

90.00 270.00 200.00 100.00

100

352

252.00

225

600

166.66

150 100

698 112

365.33 12.00

100 1000

208 1520

8.00 52.00

100

210

110.00

Tables no 2.5 Year 2007

Sl No 1 2 3 4 5 6 7 8 9 10 11 12 13

Company name Shahjalal Islami Bank Limited ICB AMCL FIRST NRB MUTUAL FUND Golden Son Limited PREMIER BANK LIMITED UNION CAPITAL LIMITED Bangladesh Finance And Investment Co. Ltd Phoenix Finance and Investments Limited International Leasing And Financial Services Ltd Trust Bank Limited Paramount Insurance Company Limited City General Insurance Company Ltd Mudaraba Perpetual Bonds (MPB) of Islami Bank Bd Ltd Fidelity Assets & Securities Company Ltd

14

Continental Insurance Limited

100

150

50.00

Offer Value (TK) 210

Opening Price (TK) 1000

Initial return of IPO’s (%) 376.19

100

274.75

258.00

Tables no 2.6 Year 2008

SI No 1

Company name

2

Delta Brac Housing Finance Corporation Ltd ICB AMCL Second NRB Mutual Fund

3

Grameen One : Scheme Two

10

36.10

26.1

4 5 6 7 8

First Security Islami Bank Limited Summit Alliance Port Limited Takaful Islami Insurance Limited Standard Insurance Limited Northern General Insurance Company Limited National Housing Finance And Investments Limited Maksons Spinning Mills Limited Republic Insurance Company Limited

100 100 100 100 100

185 600 250 152 120

85.00 500.00 150.00 52.00 20.00

100

999

899.00

10 100

31.90 119

21.90 19.00

100

450

350.00

9 10 11 12

BSRM Steels Limited

Tables – Subsequence performance about five month after IPO

Tables no 3.1 Value in taka year

SI No

Company name

200 3

1

Agni Sysems ltd.

10

10.30

Initial return of IPO’s 3.00

2 3

Keya Detergent Lafarge Surma cement Mutual Trust Bank Ltd(25%premium) One Bank limited

10 100

10.10 135

1.00 35.00

125

174

39.20

100

223

1st lease international ICB AMCL M.F

100

136.25

123.0 0 36.25

100

100.50

.50

4 5 6 7

Offer Opening value(Taka) value(Taka)

Monthly return after 1ST trading price (in %) 1st 2nd 3rd 4th 5th return return return return return 35.0 0 1.00 40.5 0 28.0 0

36.00

34.00

32.00

27.00

10.00 24.50

11.00 23.75

5.00 27.25

8.00 109.25

33.00

32.80

44.40

76.60

89.5 0 34.0 0 6.00

70.75

64.00

65.50

73.50

60.50

55.25

46.25

49.75`

9.75

10.25

10.50

10

8

Standard Bank

100

153.25

53.25

9

Bank Asia

100

224.50

10

Mercantile Bank

100

214.50

11

Daffodil Computer Ltd

10

19

124.5 0 114.5 0 90.00

68.2 5 131.

110 109

76.25

71.50

67.00

70.00

126.5 0 140.5 0 80.00

143.2 5 163.5

205.7 5 178.7 5 N/A

316.50

N/A

212.20 N/A

Tables no 3.2 Value in taka year

SI No

Company name

200 4

1

Export import (EXIM) bank Ltd Mercantile Insurance ICB AMCL Islamic Mutual Fund

2 3

Offer Opening value(Taka) value(Taka) 100

662.25

100

300.25

100

194.50

Initial return of IPO’s 562.2 5 200.2 5 94.50

Monthly return after 1ST trading price (in %) 1st 2nd 3rd 4th 5th return return return return return 491.2 5

562.2 5

676.0 0

566.2 5

555.50

108.5 0 104.7 5

78.00

77.50

60.50

48.50

83.25

88.50

57.25

62.25

Tables no 3.3 Value in taka year

SI No

Company name

200 5

1

Agrani Insurance

100

2

Global Insurance Ltd. Popular Life Insurance Fareast Islami Life People leasing Meghns Life Insurance

3 4 5 6

Offer Opening value(Taka) value(Taka)

Monthly return after 1ST trading price (in %) 1st 2nd 3rd 4th 5th return return return return return

170

Initial return of IPO’s 70.00

37.00

3.25

.25

.50

-9.25

100

130

30.00

15.75

23.50

17.50

-.25

7.00

100

250

664.75

250

341.25

351.50

100

520

664.0 0 769.7 5 354.5 0 324.7 5

691.50

100

488.2 5 737.0 0 273.7 5 306.0 0

632.25

700

367.2 5 671.7 5 269.0 0 452.7 4

579.75

100

105.0 0 600.0 0 150.0 0 420.0 0

339.25

295.75

7 8 9 10 11 12 13 14 15 16 17

Grameen Mutual Fund One Nitol Insurance Prime finance Premier Leasing Int. Limited Asia pacific General Insurance Summitpower Ltd(40%premium) Sonar Bangla insurance Islamic finance& Investment Progressive Life Insurance Berger Paint BD Ltd.(10% Premium) Pragati Life Insurance

10

20

100 100

80 699

100

300

100

61

140

400

100

65.50

100

35

100

361

120

160

100

420

100.0 0 -20.00 599.0 0 200.0 0 -39.00

84.00

71.00

59.00

44.00

38.00

-4.25 410.2 5 225.2 5 -39.25

-28.50 389.5 0 231.2 5 -38.25

-34.25 314.2 5 185.0 0 N/A

-34.00 291.25

N/A 297.25

4153.2 5 N/A

119.00

185.7 0 -34.50

239.2 5 -27.75

200.8 9 -34.25

195.3 6 N/A

160.89

N/A

N/A

N/A

250.0 0 261.0 0 33.30

203.5 0 260.7 5 16.42

142.7 5 239.5 0 6.67

112.2 5 N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

320.0 0

287.5 0

N/A

N/A

N/A

N/A

N/A

Tables no 3.4 Monthly return after 1ST trading price (in %) 1st 2nd 3rd 4th 5th return return returnreturn return

Value in taka year

SI No

Company name

200 6

1

Prime Islami Life Insurance Limited BRAC BANK LIMITED Industrial Promotion and Development Co. of Bangladesh Ltd Bangladesh Company Ltd Industrial

2 3

4

Offer Opening Initial value(Taka) value(Taka) return of IPO’s 400 300.0 N/A 100

N/A

N/A

N/A

N/A

0

170

510

200.0 0

212.00

N/A

N/A

N/A

N/A

200

305

52.5

97.625

N/A

N/A

N/A

N/A

100

181

81.00

87.25

76.00

N/A

N/A

N/A

5 6 7

Finance LankaBangla Finance Limited S Alam Cold Rolled Steels Limited Jamuna Bank Limited

10

20

100.0 0

98.00

91.00

N/A

N/A

N/A

100

121

21.00

74.5

62.00

67.0 0

68.00

80.00

120

225

87.5

138.12 5

107.9 1

102.

5

108.2 5

164.79

Tables no 3.5 Monthly return after 1ST trading price (in %) st nd 1 2 3rd 4th 5th return return return return return

Value in taka year

SI No

Company name

200 7

1

Shahjalal Islami Bank Limited ICB AMCL FIRST NRB MUTUAL FUND Golden Son Limited PREMIER BANK LIMITED UNION CAPITAL LIMITED Bangladesh Finance And Investment Co. Ltd Phoenix Finance and Investments Limited International Leasing And Financial Services Ltd Trust Bank Limited Paramount Insurance Company Limited City General Insurance Company Ltd Mudaraba

2

3 4 5 6

7

8

9 10

11

12

Offer Opening Initial value(Taka) value(Taka) return of IPO’s 280 180.0 245.2 100

166.5

164.5

5

227.2 5

166.5

0

100

310

210.0 0

322.7 5

372.0 0

380.2 5

268.7 5

239.75

10

19

90.00 270.0 0

114.0 0 169.5

51.00

370

120.0 0 211.0 0

55.00

100

100.0 0 201.2 5

188.5

206.5

10

30

200.0 0

478.0 0

513.0 0

499.0 0

390.0 0

262.00

100

200

100.0 0

207.2 5

217.0 0

129.2 5

122.2 5

N/A

100

352

252.0 0

296.2 5

304.2 5

338.5

299.0 0

N/A

225

600

166.6 6

233.0 0

241.3 3

264.3 4

253.7 7

N/A

150

698

560.6 6 20.00

629.1 6 16.00

N/A

112

519.3 3 18.00

N/A

100

365.3 3 12.00

14.00

13.5

100

208

108.0 0

81.75

50.25

116.5 0

63.00

69.00

1000

1520

52.00

60.00

58.00

55.00

56.00

52.00

13

14

Perpetual Bonds (MPB) of Islami Bank Bd Ltd Fidelity Assets & Securities Company Ltd Continental Insurance Limited

100

210

110.0 0

183.2 5

172.5

169.0 0

196.5

N/A

100

150

50.00

27.83

6.66

40.00

60.00

71.60

Tables no 3.6 Value in taka year

SI No

200 8

1

2

3

4

5

6

Company name

Monthly return after 1ST trading price (in %) st nd 1 2 3rd 4th 5th return return return return return

Offer Opening Initial value(Taka) value(Taka) return of IPO’s 1000 376.1 N/A Delta Brack 210 9 Housing Finance Corporation Ltd 274.75 258.0 311.7 Delta Brac 100 0 5 Housing Finance Corporation Ltd 36.10 26.1 469.0 Grameen 10 0 One : Scheme Two 185 85.00 74.5 First 100 Security Islami Bank Limited 600 500.0 N/A Summit 100 0 Alliance Port Limited 250 150 137.5 Takaful 100 Islami Insurance

N/A

N/A

N/A

N/A

358.2 5

327.2 5

N/A

N/A

404.0 0

466.0 0

570.0 0

N/A

60.5

95.75

N/A

N/A

N/A

N/A

N/A

N/A

132.5

N/A

N/A

N/A

7 8

9

10

11

12

Limited Standard Insurance Limited Northern General Insurance Company Limited National Housing Finance And Investments Limited Masons Spinning Mills Limited Republic Insurance Company Limited BSRM Steels Limited

100

152

52.00

55.00

30.00

N/A

N/A

N/A

100

120

20.00

67.25

38.25

N/A

N/A

N/A

100

999

899.0 0

N/A

N/A

N/A

N/A

N/A

10

31.90

21.90

25.00

22.00

21.00

18.00

N/A

100

119

19.00

N/A

N/A

N/A

N/A

N/A

100

450

350.0 0

250.0 0

200.0 0

205.0 0

N/A

N/A

APPENDIX-D Calculation some method to set price1.1 a. Shahjalal Islamic Bank Ltd: They calculated their share price under accounting method.

Their calculation is given below: Net worth= 960642220 Tk. Number of Share = 9358250 Face Value = 100 Value per Share = 960642220 / 9358250 =102.65 Tk. Premium = 100-102.65 = 2.65 Tk. Accounting method is more acceptable and they also used this method to set their price. b. International Leasing & Financial Service: They follow accounting method to set the share price. Their calculation is given below:

Net Worth = 75000000 Tk. Face Value = 100 Tk. Number of Share = 500000 Value per Share = 75000000 / 500000 = 150 Tk. Premium = 150-100 = 50 Tk. c. Union Capital Limited: They also follow accounting method to set the price. Their calculation is given below: Net Worth = 75000000 Tk. Face Value = 10 Tk. Number of Share = 7500000 Value per Share = 75000000 / 7500000 = 10 Tk. Premium = 10-10 = 0 Tk.

Calculation of initial return 1.2 2003, One Bank limited, Offer value (Po) =100 Opening price (Pt0=223 So, Initial return = [(Pt-Po)/Po]*100 = [(223-100)/100]*100 =123.00%

Reference Annual report and monthly review of DSE and SEC, Various issues.

Aggarwal, R. R . Leal and Hernandez (1993) “the aftermarket performance of initial public offerings in Latin America,” Financial Management, Vol. 22 (spring) pp.42-53 Institute of Bank Management Bulletin, Vol. 2 No.3 May-June,1999.

Beatty, R and J. Ritter (1986) “Investing Banking, Reputation and the under pricing of initial public offering” Journal of financial Economies, Vol. 15 pp.213-232 Clarkson P. and J. Merkley (1994) “ the under pricing of initial public offerings, uncertainty and proxy selection” Accenting & Finance Vol. 34(November)pp.67-78.

“Foreign Investment in Asia Stock Markets” ESCAP, Monograph No.6, 1996.

Levin, Ross “ Stock Market: A Spur to economic growth” Finance & development, Marc 1996, Besley, Scott and Brigham, Eugene F. “Essentials Managerial Finance” Twelve Edition.

Jeff Madura “ financial Market and Institution” Sixth Edition.

Loughran, T. and J. Ritter and K. Rydqvist ( 1994) “ Initial Public Offerings: International Insights” Pacific-Basin Finance Journal , Vol. 2 pp. 165-199.

P. Rivoli (1991) “ Evaluating the cost of raising capital through an initial public offering” Journal of Business Venturing, Vol. 6.pp.351-361.

Web Sites www.secbd.com www.dsebd.com http://www.investoprdia.com /university/ipo www. Thefinancialexpress-bdcom/search index php

www.reuters.com/article/id www.bdstockmarket.com