Merchant banks mushrooming despite poor performance
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The number of merchant banks has mushroomed in recent years despite criticisms from different quarters about their role in the capital market and weak activities for years.
The Bangladesh Securities and Exchange Commission under the leadership of its chairman M Khairul Hossan approved around 23 merchant banks in its eight years tenure and eight merchant banks were approved in last three years.
According to BSEC registration department information, 62 institutions are acting as full-fledged merchant banks.
Merchant banks are operating in the country under licence from the BSEC with functions of underwriting initial public offerings, managing new issues, right issue, corporate advisory, structured finance and portfolio management.
A very few number of merchant banks have been able to do the jobs so far in the capital market, sources said.
The country’s capital market has been bearish for a long period of time.
The core index of Dhaka Stock Exchange, DSEX, shed 1,250 points in last nine months with Tk 65,000 crore wiped off the market capitalisation. They failed to play their role in such a situation.
In last three years, only 12 merchant bankers brought 23 IPOs to the capital market.
According to the Bangladesh Securities and Exchange Commission (Merchant Banker and Portfolio Manager) Rules, 1996, under the registration certificate conditions a merchant bank must furnish the commission with at least one issue in two calendar years for bringing it to the capital market.
Earlier in 2016, the capital market regulator issued show-cause notices to 21 merchant banks as they failed to comply with the rules.
Former interim government adviser and BSEC chairman Mirza Azizul Islam told New Age said that the regulators might consider various reasons including political pressure in giving approval to merchant banks, which was very unnecessary.
Former BSEC chairman Faruqe Ahmed Siddique said that the number of merchant banks in the country had unnecessarily surged despite their poor quality.
He said that it was not understandable why they got approval from the regulatory body considering their activities in the market and business opportunities in the current market.
There are many merchant banks who have failed to bring single IPO proposal in years, he said.
Stock market analyst and United International University professor Mohammad Musa said that there was no need for huge number of merchant bankers in the country.
A very few merchant banks performed well and unnecessary approval of merchant banks has become a burden on the market, he said.
Most of IPOs brought by the merchant banks in last five years were mostly fundamentally weak. The companies failed to hold their business growth and failed to provide dividends after two years of listing.
Despite knowing the situation, the market regulator has been approving new merchant banks.
The BSEC again on October 24 at a meeting with the DSE pledged that it would take serious actions including revoking licence of the merchant banks if they fail to obey rules and fail to play due role in the secondary market.
Market experts said that approval of huge number of merchant banks in such a small capital market was not logical.
Market operators said that the merchant bankers had slim contribution to the secondary market growth as they focused mainly on the primary market, which was less risky but highly profitable area for investment.
The merchant banks actually do ‘share business’ not the capital market investment, they said. There is an allegation that most of the merchant bankers are connected with the pre-IPO placement business, forgetting their core jobs.
The placement business was blamed as one of the key reasons for the recent rout at the market.
The merchant bankers repeatedly had blamed poor state of capital market as the main reason for their non-compliance with the securities rules.
They also stated that most companies were unwilling to enter the capital market in an apprehension that they might not get desired prices for their shares due to the dull condition at the capital market.
The merchant banking sector in the country is now quite competitive as they are offering similar kind of services with few basic differences, they said.
Source: http://www.newagebd.net
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