Firms manipulate data to trick IPO investors

Islam Oxygen Limited has recently filed papers with manipulated revenue data to get a better price of its primary shares, in the latest attempt by any company to trick initial public offering (IPO) investors.

As per the capital issue rules, when a company seeks a premium – or extra price – on top of the face value of a Tk10 per share, it has to apply for an IPO under the book building method, where investors determine the share price through bidding.

In that case, bidders evaluate the company's earnings and assets and determine the share price.

There are allegations that companies present inflated figures of their earnings and assets to get a better price for their primary shares issued under the book building method.

The Bangladesh Securities and Exchange Commission (BSEC) has recently received an allegation that Islam Oxygen has shown an inflated income in its IPO prospectus under the book-building method.

The market regulator had sent a letter to the National Board of Revenue (NBR) for verifying the company's revenue.

Later, the revenue authorities found a huge discrepancy between the revenue calculation given in the IPO prospectus of the company and the value-added tax (VAT) invoice.

In a letter to the commission, NBR said that the audit report of Islam Oxygen's prospectus did not match the company's VAT invoice with the revenue account submitted to the revenue board.

According to the audit report, the letter said, from 2016-17 to 2020-21 fiscal years, the company has shown a total revenue of more than Tk469 crore. And as such, it has evaded VAT of Tk61 crore.

An NBR official familiar with the matter said on condition of anonymity that according to the audit report, Islam Oxygen had evaded not only VAT but also income tax of Tk57 crore by showing low income to the government. The revenue board has written to the company to recover the money.

Mohiuddin Ahmed, a partner of Islam Oxygen's auditor Ashraf Uddin and Co, told The Business Standard that the company had filed a writ petition against the NBR's claim.  

He said the revenue is calculated on the basis of the documents provided by the company and declined to give any further details.

Nurul Islam, managing director of the company, has also declined to comment on the matter.

Despite allegations of providing false information in the prospectus, the BSEC had earlier granted IPOs by companies like Apollo Ispat, Khulna Printing and Packaging, and C&A Textiles, putting aside requests by the Dhaka Stock Exchange not to go ahead with the applications.

Even general investors went to court against these IPOs.

Through an IPO in 2015, Aman Feed raised Tk70 crore by issuing shares having a Tk10 face value with a premium of Tk26.  

However, it did not repay the loan of AB Bank despite showing a lot of profit in the financial report. Later, the private sector lender took the initiative to sell all the movable and immovable assets of Aman Feed at auction under the Artha Rin Adalat, a special court designated for dealing with loan-related cases.

According to market stakeholders, the performance of some of the companies that had entered the capital market through IPOs in the past is disappointing.

They could not improve their businesses by investing money collected from investors. On the contrary, due to their poor performances, investors are counting losses, they added.

In view of this, the Financial Institutions Division has on several occasions written to the BSEC to be more vigilant in approving IPOs.

BSEC Commissioner Dr Shaikh Shamsuddin Ahmed said the present commission is approving IPOs after verifying the information provided by companies. Applications with information mismatch are getting rejected.

The regulator has recently turned down IPO applications by AFC Health, Chartered Life Insurance, and Delta Hospital for mismatch in their information.