Investment Bank

Investment Banking an American synonym of merchant banking. Investment banks provide

advice on mergers and acquisitions and are involved in financing industrial corporations

through buying shares and selling them in relatively small lots to investors.

In the Bangladesh context, merchant banking includes all institutions that combine the

functions of both development banking and investment banking. The Securities and Exchange

Commission, based on SRO No. 59 of 24 April 1996, and a decision taken by it on 17 August

1997, invited letters of intent from 14 institutions for registration of merchant banks. Prior to

this decision, 7 institutions submitted such letters of intent and SEC gave registration to a total

of 19.

Types and functions

Investment banking companies in Bangladesh are of two types: open-ended and closed-ended.

The open-ended ones, generally referred to as mutual funds, repurchase shares in any quantity

as and when holders offer them for sales. Thus, the amount of shares of the open-ended

investment companies in market changes continually in response to public demand. Closed-

ended investment companies sell only a specific number of ownership shares. An investor

wanting to acquire shares of a closed-ended investment company must find another investor

who wishes to sell. Investment companies do not take part in the transaction. In addition to

selling equity shares, closed-ended companies issue a variety of debt and equity securities

including preferred stock, regular and convertible bonds, and stock warrants for raising funds.

Investment banks act as intermediaries between issuers and investors. The issuer sells

securities to investment bankers who in turn sell the securities to investors. The investment

banks own the securities until they are resold. For firms seeking to raise long-term funds,

investment banks provide assistance through a number of functions including underwriting,

marketing of securities, corporate finance, sale and brokerage, asset management and

research. In underwriting, investment banks can protect themselves by forming a syndicate,

which allows them to diversify the risk. One investment bank acts as the managing underwriter

that oversees the underwriting activities of all members of the syndicate. In the process of

marketing, securities are typically sold through a selling group consisting of the sales division of

the underwriting syndicate and selected retail brokerage houses. Another significant

development in investment banking is the 'unsyndicated stock offering', in which, the

corporation distributes the entire stock issue directly to institutional investors rather than

syndicating them through a retail distribution network to individual investors.

Corporate finance is the core activity in investment banking. Through this function,

investment banks assist clients in developing projects, dealing with regulatory

authorities, performing mergers and acquisitions, and capital structuring.

The main function of investment banks in sales and brokerage is to provide full-service

brokerage to retail and institutional investors, both foreign and local, in the secondary

market.

The asset management function of investment banks is a process of managing money. In

the process, they analyse the objectives, risk tolerance, and legal restrictions of each

client, and design a customised portfolio. The process continues with an ongoing

measurement and evaluation of performance relative to benchmarks.

Some investment banks in Bangladesh have research department to provide independent and

objective investment advice in relation to primary and secondary securities to retail and

institutional investors. Union Capital Limited is one such company, which publishes Union

Bangladesh Index in major English and Bengali newspapers. The index shows performance of

selected blue-chip stocks of the Dhaka Stock Exchange.

One of the major investment banks in Bangladesh, the Investment Corporation of Bangladesh

(ICB), plays a leading role in developing the capital market in the country. Major functions of

ICB include merchandising operations and operations of unit funds and mutual funds. It has an

Investors' Account Scheme, which provides small investors with credit facilities for buying and

selling shares listed with the Dhaka and Chittagong stock exchanges. It also helps investors

achieve reasonable returns on investment in sound shares and provides institutional support to

small investors for purchase and sale of shares. Under the scheme, small investors are to hold

accounts with ICB for loans for purchase of securities. The interest charged is 13.5% per annum.

The maximum amount of loan sanctioned in an account is Tk 200,000. On behalf of account

holders, ICB purchases and sells securities and maintains the profit and loss accounts. An

investor has the option of taking or not taking the loan. If no loan is taken, the investor can

withdraw funds from the account to the extent in excess of the margin requirement. When an

investor takes a loan, he/she can withdraw the amount appearing in the account as unutilised

balance. Also, an investor can withdraw securities when his/her account is closed after clearing

dues outstanding in the account. Under the scheme, ICB gives the custodian service in

safekeeping securities of the account holders, and also collects allotment letters, share

certificate, and dividends.

ICB launched its Unit Fund Scheme on 10 April 1981. This is an open-end mutual fund, through

which small and medium savers get an opportunity to invest their savings at any time of the

year. The fund is divided into units known generally as ICB units, each of which bears a certain

value in the assets of the fund. These units are sold to the public. ICB units can also be

purchased by Bangladeshi citizens living abroad and foreigners residing in the country. Unit

holders are the owners of the fund, while ICB takes the responsibility of managing the fund and

loading and unloading securities in their interest. ICB floated its first mutual fund in 1980 and

the number of its mutual funds increased to 8 by 2000.The total paid up capital of the mutual

funds is Tk 175 million. In 2001, the corporation disclosed its decision to issue the 9th mutual

fund of Tk 100 million.

In addition to ICB, a number of commercial banks also carry out investment banking functions

in Bangladesh. The Securities and Exchange Commission (SEC) issues certificate of registration

to institutes intending to operate as issue manager provided that they have a capital of at least

Tk 2.5 million. The minimum capital requirement for an institution to become eligible for the

certificate for operating as underwriter or portfolio manager is Tk 10 million. The SEC has a

code of conduct for issue managers, underwriters and portfolio managers and is empowered to

suspend or cancel the certificate of registration for its violation.

About Investment Corporation of Bangladesh

Investment Corporation of Bangladesh (ICB) established on 1 October 1976 under the

Investment Corporation of Bangladesh Ordinance 1976. It is an investment bank established to

accelerate the pace of industrialization and develop a sound securities market in Bangladesh.

Initially, the activities of ICB were limited to underwriting public issue of shares, bridge

financing, debenture financing and opening/maintaining investors' accounts (Investors'

Scheme). ICB had largely expanded its areas and scope of activities and now provides various

types of investment and banking services. Added activities include providing debenture loans to

companies and loans to investors on margin trading basis, providing advances against ICB unit

certificates, leasing of industrial equipment, managing unit fund and mutual funds, and

participating in stock exchange for trading securities.

Initially, the authorized and paid up capital of the corporation was Tk 200 million divided into 2

million shares of Tk 100 each, subscribed by the government of Bangladesh (27%), Bangladesh

Bank (12%), Bangladesh Shilpa Bank (6%), Bangladesh Shilpa Rin Sangstha (6%), Nationalised

Commercial Banks (15%), Sadharan Bima Corporation (9%) and the general public (25%). The

authorised and paid up capital of ICB was increased in 1999-2000 to Tk 1,000 million and Tk 466

million respectively. ICB is a listed company in both Dhaka and Chittagong Stock Exchanges. The

reserve fund of the corporation was Tk 425.08 million on 30 June 2000 and the types of

reserves were general reserves, building reserves and dividend equalisation reserves.

Total fund of ICB during the year 1999-2000 was Tk 6,784.84 million which comprised

shareholders' equity i.e., share capital, reserves and retained profits (Tk 894.97 million), long-

term debts Tk 1,153.81 million, deferred interest (Tk 292.72 million), deferred liabilities (Tk

18.81 million), lease deposits (Tk 0.66 million), and other liabilities (Tk 4,423.83 million).

On 30 June 2000, the total value of assets of ICB were valued at Tk 6,784.84 million comprising

marketable securities (Tk 2,391.52 million), secured margin loans (Tk 1,503.40 million), unit

advance account (Tk 19.60 million), bridging loan (Tk 339.44 million), debenture loans (Tk 4.40

million), leased equipment (Tk 7.95 million), and cash in hand and at banks, interest receivables

and the premises and equipment under its own use.

Since its inception up to 30 June 2000, ICB committed to provide a total of Tk 2,496.8 million in

loans to 353 projects and it disbursed Tk 1,141.2 million to 307 of them. It acted as the trustee

to the debenture issue for 12 companies and as manager to the issue for 39 companies.

Advances Against Unit Certificate Scheme (introduced 1998) were Tk 43 million, cumulative

amount of lease financing amounted to Tk 73.9 million involving 14 companies, and total net

underwriting cum bridging loan commitment was Tk 1,164.80 million to 306 companies. ICB

committed to provide net assistance in the form of direct underwriting of shares of Tk 702.6

million of 37 projects and debentures of Tk 120 million of 5 projects.

As on 30 June 2000, the total gross outstanding loans of ICB stood at Tk 4,775.1 million and it

recovered Tk 1,315.70 million. Up to the date, ICB floated 8 closed-end Mutual Funds with total

paid up capital of Tk 175 million. The dates of issue of these Mutual Funds were 25 April 1980,

17 June 1984, 19 May 1985, 6 June 1986, 8 June 1987, 16 May 1988, 30 June 1995, and 23 July

1996. As on 30 June 2000, the cumulative net sale of units amounted to Tk 5,280.8 million for

42,985,690 units. The ICB unit certificates earned a net income of Tk 528 million during the year

1999-2000. The total number of unit holders on 30 June 2000 was 43,433 of which 58% were

salaried employees of government and private organisations.

The corporation introduced its Investors' Scheme in 1977. Under the scheme, it received a total

deposit of Tk 22,177.5 million up to June 2000, while loans sanctioned and investments made

amounted to Tk 3,715.2 million and Tk 4,410.6 million respectively. During the year 1999-2000,

the corporation invested Tk 978.9 million in securities and on 30 June 2000, the market value of

its portfolio stood at Tk 1,945.9 million. During the fiscal year 1999-2000, the corporation

earned a net profit of Tk 59.4 million

Besides its head office and the local office in Dhaka, ICB has 6 branch offices, one each at

Chittagong, Rajshahi, Khulna, Barisal, Sylhet and Bogra. The head office has 4 broad

divisions/wings and 31 departments under them. In 2001, ICB had 394 employees including 242

officers and 152 other staff. The managing director is the chief executive officer of the

corporation and an 11-member board of directors is its top policy making body.

With the enactment of the Investment Corporation of Bangladesh (Amendment) Act, 2000, ICB

became empowered to create and operate subsidiaries. ICB has a plan to form three separate

subsidiary companies - ICB Capital Management Ltd, ICB Securities Trading Company, and ICB

Asset Management Company Ltd. ICB is represented in the governing board of the South Asian

Development Fund established in June, 1996 through the Dhaka Declaration of a meeting of the

SAARC member countries. ICB is also associated with South Asian Regional Fund (SARF).

Objectives

To encourage and broaden the base of investment.

To develop the capital market.

To provide for matters ancillary thereto.

To mobilize savings.

To promote and establish subsidiaries for business development.

Basic Functions

Underwriting of initial public offering of shares and debentures

Underwriting of right issue of shares

Direct purchase of shares and debentures including Pre-IPO placement and equity

participation

Managing investors’ account

Managing Open End and Closed End Mutual Funds

Operating on the Stock Exchanges

Providing investment counsel to issuers and investors

Participating in Government divestment Program

Participating in and financing of, joint-venture projects

Dealing in other matters related to capital market operations

Trusty, Custodian, Bank Guarantee

Consumer Credit

Business Policy

To act on commercial consideration with due regard to the interest of industry,

commerce, depositors, investors and to the public in general.

To provide financial assistance to projects subject to their economic and commercial

viability.

To arrange consortium of financial institutions including merchant banks to provide

equity support to projects and thereby spread the risk of underwriting.

To develop and encourage entrepreneurs.

To diversify investments.

To induce small and medium savers for investment in securities.

To create employment.

To encourage Investment in IT sector.

To encourage Investment in joint venture capital/project.

Continued Operations of ICB

Private Placement

Custodian and Banker to the Issues (IPO)

Mergers and Acquisitions

Corporate Financial Advice

Lease Finance

Portfolio Investment

Advance Against Unit Certificate Schemes

Advance Against Mutual Fund Certificate Schemes

Consumer Credit Scheme

Bank Guarantee

Training Program

Trustee to the Debentures and Securities Assets

ICB’s Subsidiary Companies

ICML – ICB Capital Management Ltd

IAMCL – ICB Asset Management Company Ltd

ISTCL – ICB Securities Trading Company Ltd

ICML – ICB Capital Management Ltd

Underwriting

In order to raise long term debt and equity from the primary market, the Government bodies,

enterprises corporation or companies may seek intermediary assistance from ICML in the form

of underwriting.

Issue Management

To act as the manager to the issue of shares and debentures, ICML provides professional

services in respect of syndicate underwriters and bankers to the issue. Besides, it also helps in

preparing prospectus, getting their approval from SEC and arranges publication of the same.

Placement of Shares

ICML acts as a placement agent.

Investment Counseling

ICML provides investment counsel to the issuers and investors' including financial engineering

and corporate advisory services.

Managing Investment Accounts

ICML, at its discretion, may grant loan at a ratio of 1:1 against the assets of an account subject

to a maximum limit of Tk.25.0 lac. An accountholder may use the combined balance of his/her

equities and loan to buy shares/securities. To help the investors to develop diversified and

balanced portfolio to minimize risk and earn a reasonable return. ICML provides professional

advice and other support services.

IAMCL – ICB Asset Management Company Ltd

Background

ICB Asset Management Company Ltd. was established as part of the restructuring programme

of ICB under Capital Market Development Programme (CMDP) initiated by the Government of

Bangladesh and the Asian Development Bank. The Company was incorporated as a public

limited company with an authorized capital of Tk. 100 crore and a nominal paid up capital of Tk.

2.00 lac, which was subsequently increased to Tk. 12.00 crore, under the Companies Act, 1994

with the Registrar of Joint Stock Companies and Firms on December 05, 2000. The Company

obtained license on October 14, 2001 from the Securities and Exchange Commission (SEC)

under Securities and Exchange Commission (Mutual Fund) Act 2010 to carry out the mutual

fund activities. The company started its operation from July 01, 2002 upon issuance of Govt.

gazette notification.

Business

The company is engaged in investment management; more specifically floating and managing

both open-end and closed end mutual funds. The company is dedicated towards development

of mutual fund industry as well as the capital market of Bangladesh.

Capital Structure (Taka in Lacs)

Particulars June 30, 2010 June 30, 2009

Authorized Capital 10000.00 10000.00

Paid up Capital 1200.00 750.00

Reserve 1040.00 1040.00

Retained Profit 1749.24 872.53

Total 3989.24 2662.53

MUTUAL FUNDS

ICB Asset Management Company Ltd. has so far floated eleven closed-end mutual funds and

two open-end Mutual Funds through which the small and medium savers get opportunities to

invest their savings in a balanced and relatively low risk portfolio. The aggregate size of these

funds is around Tk. 815.00 crore.

Conventional Mutual Funds:

Sl.No. Name of the FundsDate of

Launching

Nature of

the Fund

Size of the

Fund (TK.

in crore)

1. ICB AMCL First Mutual Fund 16/06/2003 Close-end 10.00

2. Prime Finance First Mutual Fund 04/01/2009 Close-end 20.00

3. ICB AMCL Second Mutual Fund 09/08/2009 Close-end 50.00

4.ICB Employees Provident Mutual Fund One:

Scheme One22/11/2009 Close-end 75.00

5. Prime Bank 1st Mutual Fund 06/12/2009 Close-end 100.00

6. Phoenix Finance 1st Mutual Fund 07/03/2010 Close-end 60.00

7. ICB AMCl Unit Fund 21/06/2003 Open-end 150.00

Non-Conventional Mutual Funds:

Sl.No. Name of the FundsDate of

Launching

Nature of the

Fund

Size of the

Fund (TK. in

crore)

1. ICB AMCl Islamic Mutual Fund 12/10/2004 Close-end 10.00

2. ICB AMCL First NRB Mutual Fund 28/01/2007 Close-end 10.00

3. ICB AMCL Second NRB Mutual Fund 15/05/2008 Close-end 100.00

4. ICB AMCL Third NRB Mutual Fund 28/03/2010 Close-end 100.00

5. ICB AMCL Pension Holders' Unit Fund 18/10/2004 Open-end 30.00

6. IFIL Islamic Mutual Fund-1 26/09/2010 Close-end 100.00

These funds received spectacular response from the investors. The business of the Islamic

mutual funds should be inconsistence with the Sharia Law. With a view to tapping the savings

of Non-Resident Bangladeshis (NRBs) for investment in the country's capital market, ICB Asset

Management Company Ltd. lunched ICB AMCL First NRB Mutual Fund, ICB AMCL Second NRB

Mutual Fund and ICB AMCL Second NRB Mutual Fund. Investors have shown overwhelming

interest in all the mutual funds. ICB AMCL Unit Certificates and ICB AMCL Pension Holders’ Unit

Certificates are sold and repurchased on the counters of ICB AMCL Head Office and the branch

offices of ICB. ICB AMCL Pension Holders’ Unit Certificates are sold exclusively to the retired

pension holders. ICB along with some other banks and financial institutions extend loan facility

against lien of units. The company plans to launch some other conventional mutual funds

named First Agrani Bank Mutual Fund, Sonali Bank Limited 1st Mutual Fund and specialized

open-end mutual fund for NRBs named ICB AMCL NRB Unit Fund.

ISTCL – ICB Securities Trading Company Ltd

Background

ICB Securities Trading Company Limited (ISTCL) is a subsidiary of Investment Corporation of

Bangladesh (ICB) under the provisions contained in Section-2 of the Companies Act, 1994. It

was formed as a part of the restructuring programme of ICB under Capital Market Development

Programme (CMDP) initiated by the Govt. of Bangladesh (GOB) and the Asian Development

Bank (ADB) and in terms of power conferred in the ICB Ordinance. The company was

incorporated with the Registrar of Joint Stock Companies and Firms under the Companies Act

1994 on 05 December 2000. The company obtained license from the Securities and Exchange

Commission on 12 August 2002 to carry on the stock brokerage business. The company started

its operation on 13 August 2002 upon the issuance of gazette notifications by the Government.

The company is being operated pursuant to its own Memorandum and Articles of Associations,

SEC's Rules and regulation and other applicable laws. It has independent Board of Directors and

separate management.

Corporate Service

Provides online trading facilities for buying and selling securities listed with the bourses;

Works as a full service Depository participant in the Central Depository System;

Performs other brokerage services;

Trades Securities for its own portfolio as Authorized Dealer of DSE;

Acts as selling agent under "Direct Listing Regulations 2006".

Financial Indicators of ISTCL:

Particulars 2008-2009 2009-2010

Capital Structure

Authorized Capital TK. 50.00 crore TK. 50.00 crore

Paid up Capital TK. 3.75 crore TK. 7.50 crore

Reserve TK. 26.55 crore TK. 39.55 crore

Retained Earnings TK. 5.76 crore TK. 31.47 crore

Financial Performance

Revenue Income TK. 38.79 crore TK. 89.74 crore

Income before Tax TK. 21.76 crore TK. 43.98 crore

Income after Tax TK. 18.79 crore TK. 38.70 crore

Financial Ratios

Net Profit to Total Income(%) 48.44 43.12

Return on Equity(%) 47.20 49.29

Earning Per Share(Tk.) 501.15 516.00

Dividend Per Share 1:1B 1:2B

Dividend Payout Ratio(%) 19.96 38.76

Current Ratios (Times) 1.32:1 1.29:1

Net Asset Value(NAV) per Share(Tk.) 1061.64 1046.87

Year wise IPO floating Amount Analysis:

2010Total Amount 8412.35 million

No. of Companies 9Average 934.71 million

2009Total Amount 12492 millionNo. of Companies 17Average 734.82 million

2008Total Amount 3043.41 millionNo. of Companies 12Average 253.62 million

2007Total Amount 3463.96 millionNo. of Companies 13Average 266.46 million

2006Total Amount 1243.7595 millionNo. of Companies 11Average 113.07 million

2005Total Amount 1233.24 millionNo. of Companies 15Average 82. 22 million

If we look into the trend of IPO size we can see that the yearly aggregate IPO floating amount in

the year 2005 and 2006 was around 1200 million BDT. In 2007 the amount grew by 280% as

that of 2006 and totaled to around 3464 million BDT, In 2008 the amount was lower than the

previous year by 12.15% and amounted to 3043.41 million. In 2009 the yearly aggregate

amount was at its peak level of our analysis through the years 2005 till 2010, which was 12492

million, a growth of above 260%. Lastly in 2010 it again fell down by 4079.65 million 8412.35

million, 1/3 decline than that of 2009. So finally we can say in terms of year to year growth,

2007 had the most amount of growth of 280%, and in terms of aggregate IPO size the year 2008

had the maximum floated amount.

The average authorized capital base (size) for each of thecompanies that off loaded its shares

through IPO to the capital market during each of the years from 2005 till 2010 had a

significantly increasing trend as in 2005 it was 82.22 million, whereas, in 2010 it was 934.71

million.