Textile companies opt to raise funds from the capital market instead of the banking sources as banks have taken a cautious stance in disbursing industrial credits.
The recent loan scams, mounting classified loans in banks and the possible volatility centring the upcoming national election have made the banks more careful, bankers said.
Recently, around 50 companies from different sectors submitted prospectuses for initial public offerings to the Bangladesh Securities and Exchange Commission (BSEC).
Of the companies, 15 from the textile sector want to raise Tk 1,670 crore, according to the BSEC.
Some of the companies asked for a premium of up to Tk 40 for each share of Tk 10.
Most of the IPO requests were from the textile sector, according to the regulator and the Dhaka Stock Exchange.
A DSE official said it is urgent to ensure proper enforcement of IPO rules and regulations, particularly about the uses of funds.
“The textile companies want to raise funds from the capital market due to low interest rates,” said Syed Mahbubur Rahman, managing director of BRAC Bank.
Cost of capital increased in the banking sector, which in turn hiked interest rates for lending to 15-16 percent, Rahman said, adding that bankers always prefer companies with good performances to disburse industrial credits, he said.
Some banks have adopted a go-slow policy in disbursing credits because of the upcoming national election, he said.
The textile companies now prefer the capital market, as they will not need to worry about high interest rates, said Md Fakhrul Alam, deputy managing director of Eastern Bank.
Textile firms were attracted to the stockmarket, as the market is getting stronger slowly, he said.
Among the 242 listed companies of 18 different sectors, 28 are from the textile sector, according to the DSE.
Banks eat up a significant portion of the profit of the textile companies in the form of interest, said Monsoor Ahmed, secretary of Bangladesh Textile Mills Association.
The companies can easily repay the bank loans by raising capital through IPOs or offloading shares, Ahmed said.
However, Ahasanul Islam, a director of the DSE, called for caution before giving approvals to the new IPOs, including those from the textile sector, to protect investor interest as many companies are coming to obtain easy funds.
Islam, also a vice president of Bangladesh Insurance Association, stressed transparency in the accounting process as some companies are revaluing assets to increase earnings for higher premium in IPOs.
“We are studying the IPO prospectuses,” an official of the BSEC said, asking not to be named as he is not the right person to talk to the media.
The regulator will give green light to the companies that will comply with the securities rules, he said, adding: “The BSEC will not give in to any political pressure while approving the IPOs.”
The companies awaiting the IPO approvals are: Far East Knitting and Dyeing, Keya Cotton Mills, Paramount Textiles, Hamid Fabrics, MP Spinning Mills, Matin Spinning Mills, Keya Spinning Mills, Dragon Sweater and Spinning, Mozaffar Hossain Spinning Mills, Tung Hai Knitting and Dyeing, Fiber Shine, Hwa Well Textiles (BD), Royal Denim, Shasha Denims, and Aman Cotton Fibrous.
The regulator on January 22 approved the IPO proposal of Familytexbd, a garment maker and exporter, who will offload 34 million ordinary shares at an offer price of Tk 10 to raise Tk 34 crore.