CHAPTER –TWO BACKGROUND AND OVERVIEW OF ICB 2. 1. Historical Background of ICB Investment Corporation of Bangladesh (ICB) is an investment bank. An Investment Bank is a financial institution which mobilize fund from the surplus economic units by selling securities and deployed funds to the deficit economic units also by buying or underwriting share and securities. After liberation in view of social economic changes, the scope for private sector investment in the economy was kept limited by allowing investment in projects up to Tk. 2. 5 millions.
The new investment policy, which was announced in July, 1972 provides for an expanded role of private sector by allowing investment in a project up to Tk. 30 millions. The ceiling has further being raised to Tk. 100 millions in spite of the adequate facilities and incentives provided to the private sectors encouraging response was not for the coming. One of the reasons among other was the lack of institutional facilities, which provides underwriting support (Like former ICB) to industrial enterprise that was required to raise much need equity fund.
Thus, the need for reactivation for capital market, stock market was keenly feel. In the received investment policy, which was announced in December, 1975, Government announced its decision reactivate the stock exchange and examine the question of recreation of Investment Corporation of Bangladesh. Accordingly a committee of officials examined the matter and recommended for creation of ICB. After that recommendation ICB established on the 1st October 1976, under “The Investment Corporation of Bangladesh Ordinance-1976” (No. XL of 1976).
The establishment of ICB was a major step in series of measures undertaken by the Government to accelerate the pace of industrialization and to develop a well organized and vibrant Capital Market particularly securities market in Bangladesh. It created to the need of institutional support to meet the equity gap of industrial enterprise having public limited company status. In view of the national policy of increasing the rate of marginal saving and investment to foster self-reliant economy, Investment Corporation of Bangladesh assumes an indispensable and far reaching role.
Though the enactment of the investment Corporation of Bangladesh (Amendment) Act, 2000 (no. 24 of 2000), reforms in operational strategies and business policies have been implemented by establishing and operating subsidiary companies under ICB. 2. 2 Objectives of ICB The Objectives of the corporation are: ?To encourage and broaden the base of investments; ?To develop the capital market; ?To mobilize savings; ?To promote and establish subsidiaries for business development; ? To provide for matters ancillary thereto. 2. 3 Business policies of ICB The business policies of ICB are in the following: To act on commercial consideration with due regard to the interest 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. ?To develop and encourage entrepreneurs. ?To diversify investments. ?To induce small and medium savers for investment in securities. ?To create employment opportunities. ?To encourage investment in Agro-based and information &technology sectors. . 4 Functions of ICB In order to achieve the previously mentioned objectives, the corporation may carryout the following functions: Direct purchase of shares and debentures including placement and equity participation; ? Participation in and financing of joint-ventures companies; ? Providing lease finance singly and through syndication; ?Managing existing Investor’s Accounts; ?Managing existing Mutual Funds and Unit Fund; ?Managing portfolios; ?Conducting computer training program; ?Providing advance against ICB Unit and Mutual Fund certificates; ? To act as trustee and custodian; Providing Bank Guarantee; ?Providing investment counseling to investors; ?Participating in Government divestment program; ?Introducing new business products suiting market demand; ? Dealing in other matters related to capital market. 2. 5 Capital Structure (TK. in crore) ParticularsAs on June30Increase/ decrease (%) 20082009 Paid-up capital50. 0010050 Reserve for stock dividend- Reserves164. 61164. 61- Retained profit13. 8216. 3318. 16 Long-term govt. loan4. 554. 20-7. 69 Debentures41. 8031. 80-23. 92 Others16. 2914. 05-13. 75 Total291. 07330. 9932. 89 Capital Structure as on June 30, 2008-2009 . 6 Shareholding Pattern Classification Share Capital Ownership Pattern of Shareholders as on 30 June, 2009 Shareholder No. of ShareholdersNo. of SharesPercentage Government of Bangladesh1 1350000 27. 00 State Owned Commercial Banks4 1136900 22. 74 Development Financial Institutions2 1281550 25. 63 Insurance Corporations2 617781 12. 35 Denationalised Private Commercial Banks2 454263 9. 08 Private Commercial Banks3 28286 0. 57 Foreign Commercial Banks2 110 0. 01 First BSRS Mutual Fund1 5750 0. 12 Other Institutions12 17454 0. 4 General Public1109 107906 2. 16 Total1138 5000000 100. 00 GRAPH: PERCENTAGE OF SHARE HOLDERS 2. 7 Share Price Share price of ICB varied from lowest Tk. 1795. 31 to highest Tk, 4861. 64 in the stock exchanges during the year. As on 30 June 2009, the market price of share was Tk. 3991. 44 and Tk. 2478. 16 in the DSE and CSE respectively. The price movements of ICB’s share on DSE are shown graphically in below: Graph: ICB PRICE MOVEMENT OVER THE YEAR 2. 8 Transfer of Share A total number of 4613 shares were transferred during 2008-2009 as against 626564 shares in 2007-08. 2. Milestones of ICB MilestonesDate/Establishment Commencement Date of Establishment/ Commencement ICB1st October 1976 lnvestors’Scheme13th June 1977 First ICB Mutual Fund25th April 1980 ICB Unit Fund10th April 1981 Second ICB Mutual Fund17 June 1984 Third ICB Mutual Fund19 May 1985 Fourth ICB Mutual Fund6 June 1986 Fifth ICB Mutual Fund8 June l987 Sixth ICB Mutual Fund16 May 1988 Nomination as the country’s Nodal DFI in SADF7 May 1992 Seventh ICB Mutual Fund30 June l995 Eighth ICB Mutual Fund23 July 1996 Purchase of own Land & Building11 December 1997 Participation in Equity of SARF16 January 1998
Advance Against ICB Unit Certificates Scheme12 October 1998 Lease Financing Scheme22 April 1999 “The Investment Corporation of Bangladesh (Amendment) Act, 2000” passed in the Jatiya Sangsad (Parliament) and Honourable President’s assent thereof5 and 6 July 2000 Formation and Registration of 3 Subsidiary Companies of ICB5 December 2000 ComputerTraining Program25 March 2001 Commencement of business operations of the subsidiary companies ICB Capital Management Ltd. 01 July 2002 ICB Asset Management Company Ltd. 01 July 2002 ICB Securities Trading Company Ltd. 13 August 2002
Registration as a Trustee with SEC20 August 2002 Registration as a Custodian with SEC20 August 2002 Bank Guarantee Scheme21 June 2003 Advance Against ICB Mutual Fund Certificate Scheme21 June 2003 Consumers Credit Scheme 15 February 2004 Received BASIS-SEDF Best IT Use Award in SOFTEXPO,200428 November 2004 2. 10 Various Departments of ICB The Division wise various departments of ICB are given below: DivisionDepartment 1. Administration1. Personnel 2. Establishment 2. Merchandising3. Investors 4. Shares 5. Transaction 3. Funds6. Unit Sales 7. unit registration & Procurement 8. Mutual Funds 4. Accounts and Finance9.
Central Accounts 10. Project Loan Accounts 5. Computer11. System Analysis 12. Programming 13. Data Management 6. Loan Appraisal 14. Loan Appraisal 15. Economic and Business Research Department 7. Implementation & Recovery16. Implementation 17. Covery & Follow-up 8. Legal Affairs18. Public Issue 19. Law 2. 11 Continued Activities of ICB: 2. 11. (i). Private Placements: ICB is authorized to act as an agent of the issuers and investors for private placements of securities. Under this arrangement, ICB places securities to individuals/institutions on behalf of the issuer for which it charges fees.
ICB also acquires shares/securities for its own portfolio both in pre-IPO placement and equity investment. 2. 11. (ii) Custodian and Banker to the Issues: To act as the custodian to the public issue of Open-end & Closed-end Mutual Funds. ICB provides professional services. It also acts as the Banker to the issues and provides similar services through the network of its branches. Fees in this regard are negotiable. 2. 11. (iii) Merger and Acquisitions Companies willing to expand their business through mergers or acquisitions or to Dis-investment projects that no longer viable into present capacity of operation can contact the Corporation.
ICB provides professional services & advices in respect of shaping up the cost and financial structures to ensure best possible operational results. Besides, in case of divestment, the corporation, through network and established business relationship, bring buyers and sellers together, help them to negotiate final agreement and advice on the emerging corporate structure. 2. 11. (iV)Corporate Financial Advice: Government enterprises and Companies intending to go public issue often seek professional & financial advice on corporate restructuring & reengineering.
ICB through its expertise provide such services through its expertise. 2. 11. (v) Lease financing: ICB Provides lease finance mainly for procurement of industrial machinery, equipment and transport. ICB provides professional advice and financial assistance to the intending clients. The period of lease, rental, charges, and other terms and conditions are determined on the basis of type of assets and the extent of assistance required by the applicants. Since introduction of this scheme in 1999 good responses have been received from the intending lessees. 2. 11 (vi) Investment Portfolio of ICB
Being the largest institutional investor ICB contributes significantly to the development of the country’s cap ital market through active portfolio management which is one of the important functions of ICB. During 2003-04 a total investment of Tk. 138. 93 core has been made in the investment portfolio of ICB including Tk. O. 2 core in shares of a company through Pre-IPO placement, Tk. 7. 0 core in debentures of two companies, Tk. 0. 3 core in preference shares of a company and Tk. 5. 0 core in bonds of a company. As a result of favorable market situation in 2003-04 ICB earned Tk. 42. 5 core as capital gain through sale of securities of Tk. 258. 59 core which was 53. 58 per cent higher than the capital gains of Tk. 27. 51 core made in 2002-03. During 2003-04, an amount of Tk. 22. 95 core was earned as dividend on shares and interest on debentures as against Tk. 21. 5 core in 2002-03 registering an increase of 6. 74 per cent. Dividend income has increased because of satisfactory dividend performance of some companies. Up to 30 June 2004 ICB made a total investment of Tk 41. 08 core in 27 companies through purchase of preference shares, debentures, shares against pre-IPO placement and bonds of Tk. . 3 core of 3 companies, Tk. 9. 5 core of 3 companies, Tk. 11. 33 core of 12 companies and Tk. 5. 0 core of a company respectively as well as through investment of Tk. 7. 95 core in 8 companies as direct equity participation As on 30 June 2004, the market value of the securities of ICB’s investment portfolio stood at Tk. 521. 62 core against the net investment value of Tk. 378. 82 core resulting in capital appreciation of Tk. 1 42. 8 core. Details of the portfolio position are shown in Exhibit-‘A’- 2. 11 vii) Advance Against Unit Certificates Scheme
Advance Against ICB Unit Certificates Scheme was introduced in 1998, especially designed for the ICB unit- holders to meet their emergency fund requirements. One can borrow maximum Tk. 85 per unit by depositing his/her unit certificates under lien arrangement from any of the ICB offices where from such unit certificates were issued. The rate of interest on the loan is reasonable and competitive. 2. 11 viii) Advance Against Mutual Fund certificates Scheme Advance against ICB Mutual Fund certificates Scheme was introduced in 2003, designed for the ICB Mutual Fund Certificate-holders to meet their emergency fund requirement.
One can borrow maximum of 50% value of last one year’s weighted average market price of certificates at the time of borrowing by depositing his/her certificates under lien arrangement from any of the ICB offices. The rate of interest on the loan is reasonable and also competitive. 2. 11 ix) Consumer Credit Scheme As part of business diversification programme, ICB has introduced “Consumers Credit Scheme” in 2003-04 considering at the need of various household commodities of different employees of govt. , semi-govt. , autonomous bodies and some established private sector organizations.
Under this scheme one can enjoy minimum Tk 1. 0 lac but maximum 5 lac credit facilities. The rate of interest on the loan is reasonable and competitive which is fixed by the board of directors of ICB considering the bank rate and with the guidelines of Bangladesh Bank. 2. 11 x) Bank Guarantee scheme ICB introduced Bank Guarantee scheme in 2002-03. ICB provides (i) Bid Bond for enabling the business people to participate in any tender or bidding; (ii) Performance Bond for helping the business community to continue their business smoothly by fulfilling their obligations promised by them to their lients; and (iii) Customs Guarantee for solving different disagreements between the customs authority and the business classes at the initial stage. The maximum limit of guarantee is Tk. 2. 00 crore and would be issued against at east 20% cash and 80% easily encashable securities or against 100% cash margin. Re-guarantee from other financial institution is required for guarantee against the amount exceeding Tk. 2. 00 crore. 2. 11 xi) Training Local Training
During 2003-04, as part of human resource development programme, ICB endeavored to develop the skill, knowledge and professional competence of its manpower by arranging various in-house and local training courses. During the year, 26 officers and 09 employees of ICB received local training on different subjects including Policy towards investment and industrialization, VAT and Taxation, Performance Measurement of Financial Institutions-a Credit Rating Perspective, Web page Design and Development, Venture Financing and Factoring, Investment and Merchant Banking, Managing core risks in banking for senior bankers.
Corporate Governance, Institutional Computer Training, Trade Union Training Course for Organizer, Young Leadership, Development of small and medium enterprises etc.. Foreign Training During 2003-04, no officer/staff participated in any foreign training course. 2. 11 (xii) Trustee to the debenture and Securities assets ICB is acting as trustee to the debenture issues and asset-backed securitized bonds. ICB acted as trustee to the issues of 17 companies of which 7 companies have been redeemed successfully. 2. 12 International Activities
ICB’s involvement with South Asian Development Fund (SADF) SAARC Fund for Regional Projects (SFRP) and SAARC Regional Fund (SRF) were established in 1991 with the collaboration of member countries of the SAARC. The establishment of SADF was officially declared by dissolving SFRP and SRF in a meeting of the member countries held in Dhaka in June 1 996. SADF is an Umbrella Fund comprising three windows: ? Window for Identification and Development of Projects ?Window for Institutional and Human Resource Development, and ?
Window for Social and Infrastructural Development. ICB being the nodal DFI has been representing Bangladesh in the governing board of SADF and contributed proportionately to the fund. UP to 30 June 2004, eight meetings of the Governing Board of SADF were held. The Managing Director of ICB performed the responsibilities of the first chairman of the Governing Board of SADF and by rotation; the Chief Executive Officer of National Bank of Pakistan is the current Chairman of the Governing Board of SADF.
Under Wtdow-i of SADF, identification and feasibility studies of 14 projects have been completed of which 9 projects are in Bangladesh and under Window-ii a training programme was arranged in India. South Asia Regional Fund (SARF) Investment in South Asia Regional Fund (SARF) To facilitate investments in SAARC member countries a development fund of US$ 200. 0 million, namely, South Asia Regional Fund (SARF) was declared in the Commonwealth Summit held in 1 997. The fund is managed’ by a wholly owned subsidiary of Commonwealth Development Corporation (CDC) incorporated in Mauritius.
In addition, CDC has made equity investments to the tune of US$ 50. 0 Million in this fund. The objective of the fund is to achieve long term benefits through direct equity and equity related investments in private sector companies of SAARC countries. ICB mode investments of US$ 1. 0 million in SARF from ICB Unit Fund, in exchange the SARF has issued 1000 Ordinary ‘A’ shares and 1000 Preference shares ((@ 8%) in favour of ICB Unit Fund. Up to 2003-04, 234 preference shares have been redeemed in full. After redemption of 234 preference shares, the net balance of these investments stood at US$ 0. 7 million as on 30 June 2004 which includes 1000 ordinary “A” shares and 8% preference shares. 2. 13 Role of ICB in the Capital Market As in the previous years, ICB and its subsidiary companies played very important and expanded roles through participation in both the primary and secondary markets to quicken the pace of industrialization and to development and enlarge a vibrant and sustainable capital market in the country. As on 30 June 2009, the numbers of ICB assisted securities were 131 out of 294 listed securities (excluding 84 Govt. reasury bonds) of the Dhaka Stock Exchange Ltd. Out of 231 listed securities of the Chittagong Stock Exchange Ltd. ICB assisted securities were 91. In the reporting year, through the purchase and sale of securities for ICB’s investment portfolio, unit fund and mutual funds portfolios and on behalf of investment account holders ICB made significant contribution in maintaining stability, reliability and liquidity of the stock market. During 2008-2009, the total transaction of ICB and its subsidiary companies in both the bourses was Tk 4311. 9 crore which was 230. 14 percent higher than the total transaction of Tk 1305. 99 crore in the previous year. In the reporting year , ICB and its subsidiary companies’ contribution to total turnover of both the bourses has increased, simultaneously the transaction volume has increased , significantly during the year. The following table shows the position of transactions made by ICB and its subsidiary companies on DSE and CSE during 2007-2008 and 2006-2007. ICB performance particularsDhaka stock Exchange ltd. (DSE)Chittahong stock Exchange ltd. CSE)Total 2008-092007-08Increase (percentage)2008-092007-08Increase (percentage)2008-092007-08Increase(percentage) Total turnover89378. 9554328. 5639. 2112518. 258016. 2035. 96101897. 2062344. 7638. 81 Transactions of ICB and its subsidiary companies3973. 971020. 75289. 32337. 62285. 2418. 364311. 591305. 99230. 14 ICB and subsidiary companies transactions In total turnover %7. 316. 204. 218. 006. 926. 52 2. 14 Management of ICB The head office of the corporation as per the requirement of the ordinance of ICB is located at Dhaka.
The general direction and superintendence of the corporation is created in a board of directors, which consist of 11 persons including the chairman and managing director of ICB. The board of directors consists of the following directors: ? The chairman to be appointed by the government. ?The directors to be appointed by the government from among persons serving under the government. ?One director to be nominated by the Bangladesh Bank. ?The managing directors, Bangladesh Shilpa Bank, Ex-Office. ?The managing directors, Bangladesh Shilpa Rin Sangstha, Ex-office. Four other directors to be elected by the share holders other than the government, BB, BSB, & BSRS. ?The managing directors of ICB to be appointed by the government. The board in discharging its functions acts on commercial consider rations with due regard to the interests of industry and commerce, investment climate, capital market, depositors, investors and to the public interest generally and is guided in question policy by the institutions, if any, given to by government which shall be sole judged as to whether a question is a questio9n of policy or not.
The managing director is the chief executive of the corporation. The corporation has an executive comprised of 5 people including managing director. 2. 15 Board of Directors of ICB The board is comprised of 11 directors. Exchange managing director, all directors are non-executive and independent and represent government, bank, Insurance Corporation, financial institutions and general public. The board of directors of ICB as on 30th June 2009 is as follows: Chairman of the Board Mr. Feroz Ahmed Secretary, Ministry of Commerce Government of the People’s Republic of Bangladesh. Dr. M.
Khairul Hossain Professor, Department of Finance University Of Dhaka Directors Brigadier General Arif Ahmed Chowdhury Director Army Head Quarter, Dhaka CantonmentS. M. Aminur Rahman Managing Director & CEO Janata Bank Ltd. Khandakar Muzharul Haque Executive Director Bangladesh Bank. Md. Amirul Islam Managing Director (additional charge) Bangladesh shilpa Rin Sangstha . Syed Abu Naser Bukhtear Ahmed Managing Director & CEO Agrani Bank Md. Shafiqul Managing Director Sadharan Bima Corporation Md. Mizanur Rahman Managing Director Bangladesh Shilpa Bank Sirajuddin Ahmed Chowdhury
Managing Director & CEO Sonali Bank Ltd. Secretary MD. Moshiur Karim Deputy General Manager 2. 16 Administration and Human Resource Investment Corporation of Bangladesh (ICB) is providing different category of financial and banking services. Nature of the different division departments vary, such that Economic and Business Research (EBR) department requires teamwork, Lone Appraisal division requires professional work. Funds divisions need chain work. Managing director is entrusted with authority to transact the regular business of the organization; he may delegate some uthority to officials of the Corporations. However, most of the policy decisions are taken by the different committee with the approval of managing director and where required of the board. it is the discretionary authority of the board to constitute the execute committee and to maintain its Chairman to assist the board in the discharging of the function stated under the ordinance. The board may appoint such other committee (s) as it thinks fit to assist it in the efficient discharge of its function. So far, board has appointed two such committees.
Economic and Business Research (EBR) committee and Loan Appraisal committee is headed by General Manager. 2. 18 SWOT Analysis Strength: ?Credit Quality: ICB has in its credit portfolio good quality exposure. The (eased assets so far are of A-1 quality and all of them are 100% asset based financing. The practice of good credit culture has ensured quality assets in its balance sheet. ?Experienced Sponsors: shareholders have arrived from respectable family. Well established business house, insurance company, leading industrialist are also in sponsorship at ICB.
The paid up capital of ICB is largest in the industry among the investment companies. ?Strong Management: ICB has the backing of a strong financial management group who advises on various management issues. Besides, people with rich financial background are managing the day to day affairs of the company. ?Sufficient Fund Position: ICB enjoys credit line from both PCB’s and NCB’s. ICB never faced fund crisis in 2008, rather possibly it was the only NBFI to invest surplus fund in the last money market crisis. ?Flexible and Adaptable Corporate Culture: ICB has established a corporate culture of openness and good governance.
Through delegation and empowerment it has create a culture of responsibility, accountability and efficiency. Weaknesses: ?Poor Recovery of Rental Dues: the company is suffering gradual in recovering its rental dues. if this continues, it may face fund crisis. ?High Fund Cost: as with all investment financing companies, there is a lack of cheaper sources of funding for ICB. Bands enjoy weighted average fund cost of 7%-8% which is less than half of the investment financing companies. ?High Employee Turnover: the low level of basic salary is one of the causes leading to high employee turnover.
Besides that employees are switching to bands believing of better career opportunity there. Opportunities: ?Diversified Revenue flow: diversifying its product can be a good opportunity. Besides offering existing products, other activities can be funds management, merchant banking activities and other financial advisory services. Factoring can also be a promising tool as many leasing companies including IDLC have already it. ?Technological Change: offices of ICB can be computerized to increase the efficiency of its operation. Employees can also be trained in this regard. Finance on Small and Mid Level Enterprise: long-term and medium term project loams, short-term working capital loans and financing for the establishment and expansion of micro, small and medium enterprises in the private sector can be catalysts to the profitability of ICB. Threats: ?Economic Uncertainties: the economy of Bangladesh as well as that of the investment company is tied with that of the overseas. Rise in interest rate and events like terrorist attacks are likely to affect the Bangladesh economy and the margin of leasing companies. Lack of Sufficient Legal Framework: the lack of sufficient legal framework to penalize the defaulter of bouncing check is resulting in the decrease of recovery rate of rental dues. Its high time to implement adequate. ?Involvement of Ranks with Leases: these days’ banks have come up with leases. This has further increased competition. ? Government Policy: policy changes connected to the operation of finance companies might create an unfavorable impact on the investment industry. The decision to withdraw the accounting practices accelerated depreciation and extra shift depreciation has decreased the profitability of the leasing companies.