Published at: The Daily Star, April 16, 2019
Esquire Knit slid below its offering price within a day of its stock market debut on April 9 — in a baffling development for a new stock, which typically experience high demand amongst general investors.
The stock’s offering price was Tk 45. The following day it slid to Tk 43.50 and yesterday it traded at Tk 43.60.
Analysts said the reason for the slip is general investors’ acting once bitten twice shy: in recent times, many stocks debuted at a high price but within months they came crashing down. So, general investors who bought into the stocks early incurred losses.
The last stock to debut through the book-building method like Esquire Knit was Bashundhara Paper Mills on July 2 last year.
Its offering price was Tk 80, which rocketed to Tk 181 within three days of its debut on the Dhaka Stock Exchange. But it is now trading at Tk 64.20.
The same happened in cases of Aman Cotton, Amra Networks, which debuted last year, and Acme Laboratories in 2016.
Book-building is the process through which the initial public offering price of a stock is determined based on demand from institutional investors.
But the system can be gamed by wily institutional investors, who tend to place higher bids to inflate the offering price and offload their shares once their lock-in period is over and the price is still high.
In so doing, they bring the stock’s price down, leaving general investors with sudden losses.
“The slide of Esquire Knit share price should be a lesson for institutional investors,” said Mizanur Rahman, professor of the Department of Accounting & Information Systems at Dhaka University.
The general investors have wisened up, so they have refrained from pouring in money to a newly-listed company at a higher price this time.
“This has saved them,” he said, adding that a drier market is also another reason for the lower price of the share.
He went on to term the book-building method as a deterrent to the development of the capital market, a sentiment which was conveyed by M Khairul Hossain, chairman of the Bangladesh Securities and Exchange Commission, at a programme recently.
The BSEC would take stern actions against the over-bidding institutional investors, Hossain said, while urging investors not to rush to a newly-listed company without analysing its history and business prospect.
If Esquire Knit truly deserves the price supported by its earnings and potential, the institutional investors would not incur losses, said a top official of a leading asset management company requesting anonymity.
“The assessment of institutional investors will be tested this time,” he said, adding that one should not invest in a company without analysing its potential.
