The IPO of JMI Hospital Requirement Manufacturing Limited, which is in the process of entering the capital market through an initial public offering (IPO) of the bookbuilding method, has been canceled. The decision was taken by the Bangladesh Securities and Exchange Commission (BSEC) for a number of reasons, including breach of securities law and suspicious financial statements of the company. This information has been known from the relevant sources
BSEC issued the letter on Thursday (July 30) morning. JMI Hospital Requirement Manufacturing Limited and its issue managers ICB Capital Management Limited and Janata Capital and Investment Limited have been informed about the matter.
According to sources, the company has placement shares worth Tk 61 crore of non-banking financial institution ICB, which was bought at a premium. There is an agreement between the company and the ICB to guarantee an 11 percent return on the purchase and sale of these shares.
The subsidiary company of ICB was the issue manager of ICB Capital Management Company. Under the Securities Act, the issue manager cannot in any way hold the shares of the issuing company. On the other hand, the issue of guaranteed return is not supported by the Securities Act.
BSEC has reviewed the financial report of JMI Hospital Requirement Manufacturing Limited and found that the company has lent Rs 109 crore to another company of the same owners. With this money back, the company does not need to raise Rs 75 crore through IPO.
The BSEC also believes that the company has tried to entice investors by raising its profit and earnings per share (EPS) to show that the company’s financial health is good. And as part of this process, the company has shown much higher product sales in the last fiscal year, with the bulk of the rest being sold.
A large portion (44%) of JMI Hospital Requirement Manufacturing Limited’s revenue comes from selling products to other companies in the same group. This results in several types of risks. On the one hand, the owners of the company can manipulate the share price by artificially increasing and decreasing the sales if they want. On the other hand, by selling products at lower prices to affiliates, ordinary shareholders can benefit themselves by depriving them of their dues.
The BSEC also observed that the company had increased its profits by showing lower depreciation. JMI Group Requirement Manufacturing Limited, an organization of JMI Group, had applied to BSEC to raise Rs 75 crore from the market through IPO of book building method. As part of this process, the company held a road show on October 20 last year and applied to BSEC for bidding to sell shares to institutional investors. After selling the shares to the institutional investors, a new application had to be made to sell the shares to the general investors. BSEC has rejected the auction application. So the whole process has been canceled.