"Bangladesh IPOs Under Fire as Weak Firms Turn to Junk"

 Weak Firms Flood Bangladesh's IPO Market, Many Downgraded to Junk

DHAKA, Feb 12 (Reuters) – More than two-thirds of companies that went public in Bangladesh over the last 14 years have been downgraded to lower categories, with many turning into junk stocks soon after listing, raising concerns about the integrity of the initial public offering (IPO) process.

The Dhaka Stock Exchange (DSE) has flagged multiple cases of financially weak firms securing IPO approvals despite concerns over their viability, with analysts questioning whether these companies listed to raise capital or to offload risk onto public investors.

One of the most striking cases is Sikder Insurance, a non-life insurer that was downgraded to junk status within a year of its listing. The DSE had warned against approving its IPO, citing violations of investment regulations.

In 2022, Sikder Insurance invested Tk 132 crore ($11.2 million), or 73% of its total assets, in National Bank—an institution owned by its sponsors and already classified as a junk stock. Bangladesh’s Insurance Development and Regulatory Authority (IDRA) restricts non-life insurers from investing more than 5% of their assets in a single stock.

Despite these concerns, the Bangladesh Securities and Exchange Commission (BSEC) approved the company's IPO in 2023, allowing it to list on the market in 2024. Shortly after, Sikder Insurance declared a 3% cash dividend but failed to disburse it, resulting in a downgrade to the Z-category, the lowest tier of listed stocks.

Regulatory Gaps and Market Impact

Sikder Insurance is not an isolated case. Companies like Apollo Ispat, which was already struggling before its IPO, were approved at a premium price but quickly lost value. Shares of Apollo Ispat, which listed at Tk 12 per share, were trading at Tk 3.80 last week.

According to DSE data, BSEC approved 132 companies for listing in the past 14 years. Of these, 50 remain in the A-category, while 43 have been downgraded to B-category and 38 to Z-category. One company was merged with another listed entity.

“This is a serious problem,” said Faruq Ahmad Siddiqi, former chairman of BSEC. “Many of these companies should never have been approved. The regulator needs to be held accountable for failing to scrutinize IPO applications properly.”

Calls for Reform

Saiful Islam, president of the DSE Brokers Association, warned that the long-term impact of weak IPO approvals could erode investor confidence.

“Even if some IPOs were approved under political pressure, it’s time to delist underperforming firms,” Islam said, calling for simplified procedures to remove struggling companies from the market.

BSEC spokesperson Rejaul Karim defended the regulator’s actions, saying Sikder Insurance met public issue rules at the time of approval. However, he acknowledged that BSEC is now exercising greater caution when approving IPOs.

In 2021, BSEC intervened by restructuring the boards of several struggling firms, though most have yet to recover. The regulator said it would review cases if recommendations are made by the interim government’s stock market task force.

Meanwhile, Sikder Insurance maintains that it expects to be upgraded soon. “We have already paid most of our announced dividend,” company secretary Abdur Razzak told Reuters.

Despite this, the company’s exposure to National Bank, which has not paid dividends for four years, continues to raise concerns about its financial health.

Shares of Sikder Insurance were trading at Tk 21.90 last Thursday.