IPO PROCESS IN BANGLADESH

A REPORT OF FINANCIAL INSTITUTIONS AND MARKETS

COURSE CODE: FIN- 4101

SUBMITTED TO:
MOHAMMAD BAYEZID ALI
ASSOCIATE PROFESSOR
DEPARTMENT OF FINANCE
JAGANNATH UNIVERSITY, DHAKA

SUBMITTED BY:
RASEL AHAMED
REPRESENTATIVE OF GROUP 6
ID NO: B-120203047
SESSION: 2012-2013
DEPARTMENT OF FINANCE
JAGANNATH UNIVERSITY, DHAKA

DATE OF SUBMISSION: 27 OCTOBER 2016

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Executive Summery

Capital market ensures efficient transfer of resources from savers to borrowers. It ensures this
through the bourses it has. The Capital Market of Bangladesh was established in 1954. It is
constituted with securities non-securities segment. The securities segment is constituted with two
bourses namely Dhaka Stock Exchange Limited (DSE) & Chittagong Stock Exchange Limited
(CSE) as well as the regulator namely Securities & Exchange Commission. The securities market
is regulated by many laws & by-laws. Small number of listed issues, small numbers of investors,
low liquidity level, information asymmetry – all these characters are the salient features of
capital market of Bangladesh.

Also, an overview on the prime bourse of the country- DSE is provided. DSE was established as
East Pakistan Stock Exchange Association Limited on April, 1954 although formal trading
begun in 1956. Chief Executive Officer (CEO) is the head of the management. At present, DSE
is performed various activities related to the capital market through 26 departments under 4
divisions. The major departments are Surveillance, Listing Affairs, Market Operations,
Monitoring, Investigation, and Compliance & Legal Departments etc.

IPO denotes the means of collecting funds from the public through public offering procedure. In
Chapter three different aspects regarding IPO of companies, i.e. meaning, types, advantages of
IPO (from the view point of both the Companies and the Investors), Book-Building System, IPO
Requirements, Documents to be Submitted, Evaluation of the Draft Prospectus are discussed.
Contents
CHAPTER- 2...................................................................................................................................7
2.1 CONCEPT OF PO.................................................................................................................8
2.2 TYPES OF PO.......................................................................................................................8
2.3 Types of IPO..........................................................................................................................8
2.4 ADVANTAGES OF IPO.................................................................................................... 10
2.6 FEES REGARDING IPO....................................................................................................11
2.7 DOCUMENTS TO BE SUBMITTED................................................................................12
2.8 THE IPO PROCESS............................................................................................................13
2.9 EVALUATION OF THE DRAFT PROSPECTUS............................................................ 15
2.10 DECISION OF IPO...........................................................................................................19
2.11 DEPARTMENT OF LISTING AFFAIRS........................................................................21
2.12 IPO SCENARIO ANALYSIS...........................................................................................22
3.1 PROBLEMS REGARDING IPO PROCESS......................................................................24
3.3 CONCLUSIONS................................................................................................................. 27
3.4 REFERENCES....................................................................................................................29

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 IPO PROCEDURE ANALYSIS
2.1 CONCEPT OF PO
Public Offering (PO) means collecting funds for capital from the public. It is one of most crucial
sources of getting funds collected.

2.2 TYPES OF PO
Mainly, there are two types of public offering namely seasoned public offering and initial public
offering (IPO). The first one represents the fact when a company having already floated
securities through IPO further collects funds from public through public offering. On the other
hand, IPO is the process of collecting fund for the first time in the market.

2.3 Types of IPO

a) FIXED PRICING METHOD

Under fixed price method, the company cannot fix up its price for IPO. Rather regulatory body
i.e. BSEC fixes up the price. In accordance with SEC Ordinance, 1969, this price has been fixed
as TK 10. There remains no chance for manipulating price under this system.

b) BOOK-BUILDING SYSTEM FOR INITIAL PUBLIC OFFER

In a major shakeup in the capital market, the Securities and Exchange Commission introduced
book-building system for initial public offer. Book Building alternative to fixed price system is
basically a capital issuance process used in initial public offer and during the period for which
the book for the IPO is open, bids are collected from investors at various prices, which are above
or equal to the floor price.
The SEC introduced book-building system for IPO to attract national and multinational
companies which want competitive price of their initial offers. A SEC technical committee
consisting representatives from major stakeholders of the capital market is working to expedite
the process for the introduction of the book-building system. Commission asked the technical
committee to scrutinize ins and outs of the proposed book-building system and place its report to
the commission soon.
At first, the BSEC consultative committee prepared a draft policy guideline on book-building
system and made recommendations to the commission for introducing the system which ensures
competitive pricing of company’s IPOs. Different financial institutions and business houses
including the Bangladesh Bank, chamber bodies and merchant bankers gave their inputs in
preparing the draft policy guideline. The book-building system would encourage multinational
companies to raise capital from the capital market. The multinational companies prefer book-

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building system as an appropriate policy to ensure proper pricing of their stakes before going
public.
However, the commission would also keep its existing system of IPO fixed price system.
Under the proposed book-building system, the underwriters will buy all shares to be floated by a
business enterprise in the stock markets through competitive bidding. Underwriters will then
choose some seller groups or brokers to put up those shares for sale to retail investors. The share
issuing companies will get their share prices from the underwriter who will be the highest bidder
in the bidding process.

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 2.4 ADVANTAGES OF IPO

FROM THE VIEW POINT OF THE COMPANY

The advantages reaped by the Companies from IPO are as follows-

 The company enjoys concessions under Direct Tax laws as such companies are known as
companies in which public are substantially interested resulting in lower rate of income-
tax payable by them.

 Financial Institutions/Bankers extend term loan facilities in the form of domestic

currency and foreign currency loan.

 It ensures wide distribution of shareholding thus avoiding fears of easy take-over of the
organization by others.

 It reduces the reliance on debt financing as borrowing and their prescheduled compulsory
debt servicing could be avoided if the company is listed on the bourse.

 The company gains national and international importance by its share value quoted on the
stock exchanges.
FROM THE VIEW POINT OF THE INVESTORS

 The management of a public company must be accountable to their shareholders, which in

turn play a role in ensuring that the company operates in an efficient manner. Shareholders
will be benefited from the enhancement of the company's operational efficiency.

 Since securities are quoted; there is no secrecy of the price realization of securities sold
by the investors.

 The rules of the Sock Exchange protect the interest of the investors in respect of their
holdings.

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 2.6 FEES REGARDING IPO

1. 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 Lacs
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 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.

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 2.7 DOCUMENTS TO BE SUBMITTED

According to the Regulations the applicant company has to submit some documents duly certified by
the Company or the Authorized Representative presenting the security to the Exchange. Generally,
the following documents have to be submitted in addition to the application form-
Memorandum & Articles of Association
Copy of the Certificate of Incorporation
Copy of the Certificate of Commencement of Business
Copy of the certificate of registration of the industrial Units
Copies of all material contracts and agreements entered into
Copies of Letter(s) of Credit established in favor of Machinery Suppliers (if linked with
the public issue).
Copy of Consent order issued by the Commission
Names of Directors along with directorship of other companies listed on the Exchange
Draft prospectus/Offer for sale
Auditors Certificate for the amount subscribed by the promoters/ directors/ subsidiaries/
associates
Copy of underwriting agreement (if any);
Statement of audited accounts for the last 5 years or for a shorter number of years if the
company is in operation only for such shorter period
Statement showing the cost of project and means of finance
Copies of the approval of tax-holiday application under Ordinance, 1984
Copies of the consent Letters from Bankers/Financial Institution to the Issues
Application for submission of Undertaking and payment of fees
Copy of approval of prospectus/offer for sale from Commission
However, in case of a new project a Copy of the Feasibility Report should be submitted in
addition to the above documents. Beside this, if there is any agreement relating issue to securities
for consideration other than cash then a Copy of such agreement has to be submitted.

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 2.8 THE IPO PROCESS

Bangladesh Securities and Exchange Commission took initiatives to simplify the IPO process
and to reduce the time requirements from public subscription to listing application for the
convenience of the investors. as part of this effort, BSEC met with representatives of top
brokerage houses, merchant banks and concerned TreC Holders several times to get their
opinions. Opinions were collected on the issues how a company could be listed within a short
period of time and how to eliminate refund related complexities.
Under the newly approved IPO subscription guidelines, IPO subscription of Hamid Fabrics
started on September 28, 2015 as the first issue under a pilot project. 151brokerage houses of
DSE and 16 merchant banks took part in the pilot project complying with BSEC guidelines.
subsequently National Feed Limited, C & a Textile, Ifad autos, Shasha denims, Zahin spinning
and BSRM also completed the IPO subscription process under the pilot project. In the meantime,
all brokerage houses of DSE have become eligible to compete in the IPO subscription process.
Accordingly on May 25, 2015, DSE completed fully the IPO subscription of Aman Feeds with
all the brokerage houses. DSE is entitled to receive IPO data transmission fee @ Tk. 2,00,000
from every issuer company under the guidelines for performing the IPO related tasks.
The companies are required to complete certain procedure to get permission for raising capital
through IPO on the Dhaka Stock Exchange. The present procedure f this can be described briefly
as follows-
APPOINTING THE ISSUE MANAGER
Every company intending to get permission for raising capital through IPO to DSE by issuing its
securities is required to appoint Issue Manager to proceed with the listing process of the
company in the Exchange.
SUBMITTING THE DRAFT PROSPECTUS
The Issue Manager prepares the draft prospectus of the company as per Public Issue Rules of
SEC and submits the same to the SEC and the Exchange(s) for necessary approval.
MAKING AGREEMENT
The Issuer is also required to make agreement with the Underwriter(s) and Bankers to the Issue
for IPO purpose.
ANALYSIS OF DRAFT PROSPECTUS BY THE EXCHANGE
After receiving the draft prospectus, the Exchange examines and evaluates overall performance
as well as financial features of the company which may have short term and long term impact on
the market.

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ANALYSIS BY SEC
The Exchange sends its opinion to SEC within 15 days of receipt of draft prospectus for SEC's
consideration. And SEC evaluates the different aspects of the Company as well as it also
considers the Recommendation provided by the Exchange regarding this.
RECEIVING SEC’S CONSIDERATION
After proper scrutiny and analysis, the Securities & Exchange Commission (SEC) gives it
consent for floating IPO as per Public Issue Rule.
FILLING LISTING APPLICATION
Having consent from SEC, the Issuer is required to file application to the Dhaka Stock Exchange
for listing its securities within 5 days of issuance of its prospectus.
SUBSCRIPTION
The next step is opening the subscription to the general people. After a successful subscription,
the company is required to complete distribution of allotment/refund warrants within 42 days of
closing of subscription.
PLACEMENT OF LISTING APPLICATION
After 100% distribution of shares/refund warrants and compliance of other requirements, the
application for listing filed by the Issuer Company is placed to the Exchange's meeting for
necessary decision of the Board of the Dhaka Stock Exchange.
DECISION OF LISTING
The Board of Dhaka Stock Exchange takes the decision regarding listing/non-listing of the
company which must be completed within 75 days from the closure of the subscription.
IPO DATA TRANSMISSION SOFTWARE DEVELOPMENT
A software system was designed and implemented to collect IPO related files from all TreC Holder
in a single store for further processing as well as to redistribute to the corresponding TreC Holders'
houses after processing in collaboration with listing affairs department. Go-live of this IPO data
Transmission software was on 23rd March 2015. This solution is now running successfully

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 2.9 EVALUATION OF THE DRAFT PROSPECTUS

Basically, while analyzing the different aspects of the applicant company different issues may
come in front. However, the Exchange, especially the Department of Listing Affairs, follows a
standard method to evaluate the prospectus submitted by the applicant company. The method is
described as follows-
PREPARING THE CHECKLIST
A checklist is prepared by the Department before starting the analysis of draft prospectus.
This checklist ensures whether the prospectus is prepared according to the Security and
Exchange Commission (Public Issue) Rules, 2006. Page numbers of items under each section of
the rule are also included in this checklist.
OVERVIEW OF THE COMPANY
The analysis begins with a brief overview of the Company. In this section a brief overview on
the Date of Incorporation, Commencement of Business, Authorized Capital, and Paid up Capital
of the company is provided.
DETAILS OF THE ISSUE
A detail of the issue, for which the Applicant Company has submitted the Draft Prospectus, is
summarized in this section. This section covers the public offering as well as the as the private
placement (if any) with the amount, number of shares and offer value of the shares. All data is
available in the prospectus.
NAME OF THE ISSUEMANAGER, &INDEPENDENT AUDITOR
In this section the name of the Issue Manager and the Independent Auditor is provided.
HISTORY OF PAID UP CAPITAL
A history of the paid up capital for the company (if available) for a 5-year period is provided in
this section. This history covers the amount of paid up capital with the sources i.e. cash issue,
bonus issue or right issue, of those capital. Any remark is also provided in this section related to
the paid up capital.
PAID UP CAPITAL AFTER IPO
The main objective of this section is to provide an overview on the Post IPO Paid up
Capital assuming the company will be allowed to go for offering.

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COMPANY DESCRIPTION
A brief description of the company is provided in this section. The operation of the
Company, amount of Authorized capital, special features, name of the foreign countries in which
the company exports its products (in case of an exporter company) are provided in this section.
Basically, this information is available in the prospectus.
RISK FACTORS
Any investment always associates with risks. Among those risks some can be averted, others are
beyond control, which may causes of loss. Before making any investment decision, Investor
should take the risk factors into consideration. Major such factors are identified and provided in
this section. However, the basis of this section is the management perception about different
risks identified by them and provided in the Prospectus. The Stock Exchange provides some
remarks if there is any difference between the Management’s perceptions about risks and the
DSE’s perception.
BOARD OF DIRECTORS
The name of the Board of Directors and their involvement in other businesses are summarized in
this section. If there is any involvement of any director with other companies which are listed on
DSE that is marked. An overview on the shareholding structure of the Directors and the family
relationship among them is also provided in this section. This can be called as analyzing the
Human Aspect.
SHAREHOLDING STRUCTURE
Another process of analyzing the human aspect is analyzing the shareholding structure of the
company. In this section the Percentage of holding shares by the directors of the company is
provided. Basically, according to Securities and Exchange Commission (Public Issue) Rules,
2006, the company has to provide 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,
and the percentage of the securities represented by such ownership. From this shareholder’ list
the percentage of holding of shares by the Chairman and Directors are sorted and presented.
FAMILY RELATIONSHIP AMONG THE DIRECTORS
In this section the family relationship among the directors are provided. Basically, the
information is available in the Prospectus as according to Securities and Exchange
Commission (Public Issue) Rules, 2006, the company has to provide the information regarding
any family relationship among directors and top five officers. The main purpose of this section is
to analyzing the human aspect of the company. A strong family bonding among the directors put
a negative impression on the company.

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PERFORMANCE AT A GLANCE
In this section there are two parts. In the first part, the performance analysis of the Company is
done based on the historical data provided in the prospectus. Generally, Growth of Turnover,
Cost of Goods Sold, Operating and Net Profit, Net Assets is calculated for five years. Special
attention is given to the Dilution. Diluted EPS and Net Asset Value per share are calculated to
consider comparative performance of the company. Dilution is also done by considering the after
IPO effect on the Shareholders of the applicant company. The second part deals with different
ratios calculated by the Exchange. The ratios include Return on Equity (ROE), Return on Assets
(ROA), Profit Margin, Asset Utilization, Equity Multiplier, Debt Equity ratio, Time Interest
Earned etc. the performance analysis is done to consider the past performance of the applicant
company which would allow considering the probable future performance of it.
SELECTED RATIOS
This part or information is provided by company. The purpose of focusing this section is to find or
justify any deviation between the calculated figures in the previous section and the company reported
figures. If there is any significant deviation found, the possible reasons behind that are identified if
possible. Otherwise, the proper explanation of such deviation is asked to the Company.

DIVIDEND INFORMATION
The history of Dividend payment by the Company is provided in this section. Both the Cash and
Stock/Bonus dividend payment are presented here.
NET TANGIBLE ASSET PER SHARE
In this section Net Tangible Asset per share is calculated. Basically, Net Tangible Asset is
calculated as the Total Assets of a Company minus any Intangible Assets such as Goodwill,
Patents and Trademarks, less all Liabilities. However, this calculation is provided in the
prospectus. However, the Exchange calculates and focuses on the Diluted Net Tangible Asset per
share to consider the after IPO effect on the Tangible Assets for the Company.
DESCRIPTION OF FIXED ASSETS
Fixed assets are valuable assets for a company. To consider the strength of the company a
description of the fixed assets are provided in this section.
DETERMINATION OF OFFER PRICE
The determination of offer price is presented here. Basically, the offer price is determined by the
Issue Manger of the applicant Company. There are various methods of determining the offering
price. However, the most common method is based on Net Asset Value. If there is any objection
by the Exchange, that is provided in the analysis.

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COMPARISON
A comparison between the applicant company and other companies, already having IPO
completed on the market and has the common issues similar with the applicant company, is
done. The basic issues being compared are the Turnover, Cost of Goods Sold, SG&A, and
Diluted NAV & EPS etc. the current market prices for the listed companies are also provided to
forecast roughly the probable market price of the upcoming securities.

DSE OBSERVATION
In this section the summarized version of the analysis is provided. The key points are provided
here. That means the findings through the analysis are provided in this section.

RECOMMENDATION
This is the last section of the analysis. In this section the Listing Committee of Dhaka Stock
Exchange provides a Recommendation regarding the listing of the applicant company.

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 2.10 DECISION OF IPO
Basically, the Securities & Exchange Commission (SEC) has the full authority to take decision
whether to allow the applicant Company to go for IPO. It may happen that in spite of negative
recommendation from the Exchange the company obtains the permission from SEC to go for
IPO. In that case the Exchange has the authority to reject the Listing of such company.
The process of analyzing the prospectus and decision taken by the exchange can be shown in the
following flow chart-

Issuer (Submission of
Prospectus)

Department of Securities &Exchange

Listing Affairs Commission

Q
u
e
ri C
Expert Panel
e o

s n
s
e
DSE Board
nt
Recommendation for Listing

Consent for
Recommendation
IPO/rejected

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The Listing department, after analyzing the Prospectus, provides the recommendation to the
listing committee. The discussion is done, may be for several times (sometimes queries are made
to the company), and the recommendation is provided to the BSEC. BSEC, after analyzing, gives
the decision of IPO. The Exchange then decides whether to accept the decision by giving
accordance of the permission for IPO or reject the decision by doing otherwise.

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 2.11 DEPARTMENT OF LISTING AFFAIRS
The department through which the companies get entry into the Capital Market is Department of
Listing Affairs. With a vision of getting the best companies to be listed and keeping the all listed
companies as transparent and compliant as possible and safe guard investors’ interest doing all
these at all costs the Listing Affairs Department was established in October 5, 2008 under
Operations Division. Before the date the department was named Listing & Market Operations
Department. Headed by 1 AGM, 1 Manager and 2 Sr. Executives this department has five
employees remaining busy with their jobs.
The department has a vast job area to do. Some of the major functions of this department are as
follows-
Corresponding with the listed companies regarding compliance.
Maintaining AGM/ EGM and other relevant data in collaboration with R&D and DSE
Library.
Visiting listed companies as per instruction or randomly and also visiting prospective
companies that may get listed.
Taking initiatives for new listing and processing listing of Govt. Bonds.
Processing and evaluating of the draft prospectus/Information Documents for different
upcoming companies for IPO/Direct Listing.
Preparing comments based on Draft Prospectus/Information Documents for listing
committee of DSE and thereby intimating to SEC on behalf of DSE upon DSE Board
approval.
Arranging listing committee meeting, agenda and minutes Assuring
impartial IPO lottery (if any) by sending representatives

Corresponding with the companies (issuer) and issue managers regarding IPO Direct
Listing issues.
Arranging Listing Agreement Signing and First Trading ceremonies for newly companies.

Preparation of System Files/database for newly listed companies (through IPO/ Direct
Listing).
Evaluating and processing gift of shares.
Take necessary steps for different Training Programs/ Workshops/ Seminar/Symposium/
Workshop/ Road show etc.
Listing promotional activities & maintaining information base of defaulter companies.
Updating the web department of ICT Division with relevant information for the DSE
website and

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 Carrying out any delisting related process.

2.12 IPO SCENARIO ANALYSIS

During 2014-15 financial year, sixteen companies including 1 Mutual Fund, 5 from, engineering
sector, 5 from Textile sector, 1 from Fuel & Power sector, 1 from services and real estate and 1
from Miscellaneous sector came to the Capital Market with Tk. 16 thousand 930 million paid up
capital and raised capital Tk. 12 thousand 469 million through Initial Public offering (IPO). Of
these, 10 companies raised Tk. 7 thousand 936 million as premium. On the other hand, in 2013-
14 financial year, sixteen companies including 1 from Financial sector, 3 from engineering
sector, 1 from Food & allied sector, 6 from Textile sector, 2 from Pharmaceuticals & Chemical
sector, 1 from Fuel & Power, 1 from Paper & Printing sector and 1 from Travel & Leisure sector
raised capital Tk. 9,338.70 million through Initial Public offering (IPO). Of these, 6 companies
raised BDT 4,375 million as premium.

Total No. of IPOs

FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15
17 16 14 16 16

Capital Raised through IPOs (million BDT)

FY 2010-11 FY 2011-12 FY 2012-13 FY 2013-14 FY 2014-15
16,803.00 16,238.23 9,104.00 9,338.70 12,469.72

18

16

14

12

10

0
2011 2012 2013 2014 2015
Series 1 IPO Subscription

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 3.1 PROBLEMS REGARDING IPO PROCESS

THE COST ASPECT

Going public is costly both in terms of money and time. Accounting, legal, printing, travel,
manpower devoted to preparing for a public offering can be substantial. There are numerous
additional expenses annually, including audited financial reports, preparation and distribution
of proxy materials, quarterly and annual reports to shareholders, fees for transfer agents,
public relations, and other costs, including the time required by a company officers devoted to
these matters. In addition to the upfront costs of the IPO, there are also costs of maintaining a
quote on stock exchanges.
THE TIME ASPECT

Flotation process is also a time consuming exercise. Because of red-tapism and other lengthy
processes, it might take six months to years to complete the IPO process fully.
DISCLOSURE OF INFORMATION
When a company moves from private ownership to public, much information must be disclosed

- for instance, salaries, transactions with management, sales, profits, competitive position,
mode of operation and other material information. The companies may find it against their
business secrecy.
LOOSING FLEXIBILITY

Management of the company may lose some flexibility in managing the company's affairs,
particularly with actions which require shareholders' approval. The company may not have the
ability to act quickly if approval is required by shareholders or outside directors.
CURRENT IPO PROCESS

Due to the current process of IPO most of the time the companies are not getting the actual
equity value for their stocks. The companies further allege, and sometimes correctly, that it is
the IPO Hunters who benefit from the current system by selling the shares when they win it in
the lottery and sell the shares at a much higher price (even 6 to 8 times of the face value) in the
secondary market. When they are traded the issuing Companies get nothing except the face
value of the shares. So, the companies are not getting interest in IPO.
 3.3 CONCLUSIONS
Our economy is starving for a matured and stable capital market. The stability came through a
variety of sources namely, educated retail investors, institutional investors and capital market
regulators. Through various forms of reforms and automation the capital market of Bangladesh
won the confidence of investors from all walks of life. In addition to that, the government
facilitated our capital market by structuring its monetary and fiscal policies in a pro-capital
market manner.

Our emerging economy mostly invited the funds from all over the globe. Market capital has
shown amazing growth. Although current market price earnings ratio is higher than that of the
neighboring country but it is my belief that considering the demand for lack of avenue to invest,
the capital market of our country has a bright and attractive future and untapped sector.

From the present point of time the future seems bright, not only because of our vibrant capital
market but also of our room for new products. With the introduction of direct listing and fixed
price method, our primary market is improving in line with the secondary market. The market
capitalization will grow significantly within next few years and turnover shall reach an
international level. Generally, the main reason for a company to obtain a listing is to gain wider
access to capital. The ability to raise finance remains the single most important facility that a
listing provides. Entrepreneurs or families descended from entrepreneurial founders have
enjoyed and benefited from the enhanced marketability of shares that comes with a public
offering. Flotation gives those backers an exit- either at the time of listing or subsequently but
some care has to be taken not to appear greedy. The Mutual Fund Investment is attracting
more popularity. The managers of these funds are sensitive the notion that pre-float backers
may be cashing in chips and leaving them with overpriced shares.

The IPO has got some disadvantages also. It brings cost and obligations that could be off-
putting. There are costs associated with gaining quotation. Significant amounts of management
time can be taken up fulfilling the obligation that goes with IPO, too. Moreover, reporting
requirements can mean the surrender of personal privacy and there are complaints of
undervaluing some shares in the market.

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However, though there are some drawbacks of IPO we can sum up that an IPO provides the
opportunity for greater firepower in the market. Increased visibility and liquidity gives a
competition with it a certain amount of prestige for a firm, helping it to attract and retain highly
qualified staff. Importantly, an Exchange listing enables tracking of the market’s perception of a
company’s performance and strengthens the focus on shareholder value.

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