Why listed firms' IPO projects suffered setbacks

Companies that got listed on the bourses in the last five to six years, are facing massive slowdown in implementing their initial public offering (IPO) projects, thanks to a number of hindrances that had been showing up one after another starting with the Covid-19 pandemic.

When the firms were just starting to recover from the pandemic shock, the Russia-Ukraine thing happened and then the dollar got very pricey.

A mix-and-match of these factors led to the slowdown of opening letters of credit (LCs) for the firms to import machinery, which was a major part of their IPO project. Investors are also being deprived of their expected returns from investing in these firms.

The firms claim that the Bangladesh Bank has been approving the opening of LCs for essential products, but not for capital machinery.

From July 2022 to February 2023, total LC opening decreased by 23.45% to $45.51 billion, from $59.45 billion in the same period a year ago, according to data from the Bangladesh Bank.

And, during the period, LC opening for capital machinery decreased by 54.11% to $2.14 billion, from $4.66 billion a year ago.

A senior official at the Bangladesh Securities and Exchange Commission (BSEC) said, most newly listed firms could not import machinery because of the dollar crisis and lower LC opening.

"They applied to the BSEC for a time extension. Some have already been allowed more time to use their IPO fund," he added.

The firms facing the delay

Kattali Textile, which raised Tk34 crore through IPO back in 2018, allotted Tk9 crore from the fund to purchase machinery for business expansion. After the Covid-19 pandemic, dollar crisis, low LC opening, 77% of the fund allotted for machinery remained unutilised. 

Lub-rref (Bangladesh) Ltd, a lubricant re-refiner and blender, raised Tk150 crore in 2021.  The company wanted to purchase machinery of Tk98 crore for expansion. But the firm could only use 46.1% of its machinery fund. As a result, it could not complete its IPO project within the stipulated time.

The company's Chief Financial Officer (CFO) Mofizur Rahman told The Business Standard, "We couldn't import raw materials properly due to a crisis of dollars. Now, we are getting permission for a small LC instead of a big amount."

"The company has applied to the commission for a time extension to complete its IPO project," the CFO added.

Dominage Steel Building Systems Ltd, engaged in the steel building structures or prefabricated steel structure business, raised Tk30 crore in 2020.

The firm wanted to import machinery of Tk5.86 crore for business expansion. But the company could not import any till now.

Md Jamir Hosen Chowdhury, company secretary of Dominage Steel, said the banks are now providing LCs for importing essential products and pharmaceutical raw materials.

"The banks say that the Bangladesh Bank prohibited LCs for machinery import. Now, we are working on parts of our IPO project other than the machinery import" he added.

"We do not complete work as per work order, as all the construction materials prices are skyrocketing. Now, if we complete the project by using costly raw materials, then it may be a loss project."

"Besides, we have more than 15 months to use our IPO fund," he added.

Mir Akhter, one of the largest construction and engineering companies in the country, raised Tk125 crore in 2020. But the firm couldn't import a big portion of machinery because of the same issue.

A senior official of the company said, seeking anonymity, "We applied to the commission for a time extension in this regard. The commission gave approval for eight extra months to use the IPO fund."

Acme Pesticides Ltd – a primary manufacturer and seller of insecticides, pesticides, household products, and toiletries – raised Tk30 crore in 2021.  

The company wanted to purchase machinery worth Tk10.50 crore for expansion. But it failed to do so within the last two years.

A senior official at Acme said banks are not able to issue LCs for even raw materials properly, let alone for machinery imports. 

"Because of this LC issue, we are trying to collect machinery locally," he added.

Associated Oxygen, listed in 2020, could only import 20% of machinery within the year.