Share price of Titas Gas and withdrawal of direct listing

system

Introduction:

Selected article from the Financial Express is primarily concern about how Titas Gas
Transmission & Distribution Co. Ltd should be listed in stock exchange. According to recent
media news, government has decided to offload 25% of share to public. However, how the share
is going to be disposed to public has not been decided yet. The article basically talks about some
major issues about securities exchange commission’s policy and impact on market as well as
investors and most importantly how the shares of Titas Gas Transmission & Distribution Co. Ltd
should be listed in market. Major issues concerned in the article are

- Current Government method of listing in stock exchange

- Investors in Bangladesh and their behavior pattern.

- Impact of direct listing methods on market and investors.

- How Titas Gas Transmission & Distribution Co. Ltd should be listed.

Current Government method of listing in stock exchange:

For past few years government has been taking initiatives to make local Stock Exchanges more
efficient one by listing government organization and also encouraging other firms operating in
Bangladesh to be listed in stock exchange. Still so far they have listed DESCO Ltd, Power Grid
Company of Bangladesh Ltd and recently Jamuna Oil Co. Ltd. And Meghna Petroliam
Ltd. For listing in stock exchange they have using Direct listing method. And this
process has created an lot of debate in recent times, to be specific after Jamuna Oil
Co. Ltd. Incident when share price were fluctuating greatly. That time market
became very unstable and created an uncertainty among investors. Jamuna had a
face value of Tk. 10.00 each share which was sold at tk. 300.00 to Tk. 952.00 each
share. And the price of share was fluctuating very much and it created an anxiety
among both market analysts and investors. Now since government is planning to
divest 25% of Titas Gas Transmission & Distribution Co. Ltd, market analysist are afraid of
hampering investor’s interest because of direct listing method.

Investors in Bangladesh and their behavior pattern:

Investors are very important player in the market. Without investor no market can
be completed. In a effient market, investor are educated well enough and they take
decision wisely. In Bangladesh, our stock market is between semi-strong market
and weak market. Most of the investor’s take decisions basing on speculation not on
the basis of fundamentals. This phenomenon is very common among small
investors. Most of the small investors in Bangladesh usually do not analyze the
value of share or any other kind of fundamental analysis. That is one reason of
Jamuna Oil Co. Ltd.’s price fluctuation.

Another thing to be noticed is that there are few syndicates of share traders active
in market. They spread rumor about particular stocks and also purchase some of
the shares at very high price. Eventually it affects small investors and they also
speculate to have higher price in future. As a consequence they also buy shares at a
very price. This is causing irrational behavior in market.

Investors are the one who invest money in shares and sponsors gather capital from
selling shares. One single investor might not have huge amount of money but
collectively the amount is very lucrative. But because of this speculation and
syndicates, there is a chance that investors might loose their investment and also
their confidence in the capital market. In 1996, Dhaka Stock Exchange faced great
instability because of syndicates and weakness of our investors.

Impact of direct listing methods on market and investors:

Reviewing Jamuna Oil Co. Ltd., we see that Jamuna had a face value of Tk. 10.00
each share. However, each share were traded for Tk. 952.00 to Tk. 300.00 in the
market. This happended since government listed the shares directly in the stock
exchange. There has been rumor going on about Jamuna’s share in the market and
general investors speculated a higher rate of return from the mentioned share. At
that time price were as high as Tk. 952.00. But when facts were known by the
investors, price of stocks falls greatly within a short period of time. Many investors
incurred great losses from this transections. If the share were offered by IPO’s
(Initial Public Offerings), true price of share would have reflected its asset value
which is Tk. 36.00 each share. The share was overpriced mainly because share were
listed directly. If stocks were price at its true value, investors would not have faced
such great loss. Same thing happened when Meghna Petroliam Ltd.’s share were
offered in the market.

If such trends continues, general investor will soon be loosing there confidence on
the capital market. Which is not good for any economy and such developing country
like Bangladesh would be facing other economical problems. Rapid economic
development is very essential for creating employment opportunities for a
maximum number of the country's existing unemployed or underemployed
workforce. This development can be achieved only by expanded activities in areas
of trade, commerce and industry. All production-oriented activities require
investment of capital regardless whether it is a large one or small one. To support
investment activities different countries adopt different ways. Selling share to public
is one of the most widely accepted ways of raising capital. An investor alone may
not have sufficient money but together, they can generate a great amount of
capital. And that’s where trading of shares through stock exchanges comes to help
develop a market from where firms can gather a good amount of capital for their
ventures. Otherwise, a huge amount of money would be lying idle. A well-organised
and disciplined share market can help firms to gather a good amount of money
from public. But when the general investors lose their small money by investing in
the capital market, they lose their confidence in the share market. This limits the
scope for development of economy since capital gathering become harder.
How Titas Gas Transmission & Distribution Co. Ltd should be listed

From the analysis it is quite clear that, direct listing method is not a efficient method for
Bangladesh right at the moment. To make our stock market, more participation from general
investor is required. Therefore, it would be better if Titas Gas offers it share to public through
IPO’s. this is also true for other company as well. Therefore, SEC should restrict direct listing for
a certain period of time, not completely as article suggested. When our investor get educated
enough about investments then we can go for direct listing. If the current trends continues, in
longer run it would be beneficiary for neither investor nor our economy. Therefore, government
should take the first initiative and our SEC also need to withdraw direct listing method for
certain times.