Present IPO pricing system needs to be changed, says SEC chief

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FE Report
Securities and Exchange Commission (SEC) Chairman Faruq Ahmad Siddiqi Tuesday said the existing pricing system in the initial public offering (IPO) should be changed to encourage more entrepreneurs to go to the capital market.
"The absence of a modern IPO pricing method is one of the causes for reluctance showed by a good number of owners of non-listed public limited companies to go public," the SEC chairman said while inaugurating the third branch of the Dhaka Bank Capital Market Services Division (brokerage house) in the city.
Under the existing IPO pricing method, entrepreneurs get only a small return through floating shares in the stock market while the traders or small investors get most of the return, he observed, pointing out the over-heated price-limit of some of the newly listed issues in the stock market.
"Sponsor directors got only Tk 100 or Tk 150 per share through floating two issues while the small investors or traders are taking away 10 to 15 times the offer values of the issues," the SEC chairman said adding this trend cannot encourage the entrepreneurs to float IPOs.
The third branch of the Dhaka Bank brokerage house began formal operation on the ground floor of the DSE building at Motijheel in the city. The two other branches are located at Adamjee Court Building and Uttara in the city.
Dhaka Stock Exchange (DSE) President Abdullah Bokhari, Dhaka Bank Chairman Khondoker Monir Uddin and managing director of the bank Shahed Noman also spoke on the occasion.
The SEC chairman said the regulatory body is working along with the bourses to introduce the book-building system in the IPO market so that big entrepreneurs come forward to float IPOs.
He said since the stock market has registered a robust growth in the recent period, the investor confidence is being restored.
"But all the market players must remain careful and perform with adequate responsibility so that any situation like that in 1996 is created again," the SEC chief warned.
He said most of the new IPOs in recent years floated shares in compliance with the regulatory framework, but there should be an enabling field so that all public limited companies come to the stock market willingly.
"The entrepreneurs should be convinced that they can get the funds at cheaper rate from the stock market rather than the traditional banking system," the SEC chief asserted.
He said the year 2007 will remain a remarkable year in the history of Bangladesh capital market as the total market capitalisation crossed the $10 billion-mark in last month (October), which was below $ 5 billion in December, 2006.
The daily average turnover also crossed the Tk 3.0 billion-mark.
Dhaka Bank Chairman Khondoker Monir Uddin said the bank has taken a move to strengthen the operations of its 'capital market wing' aiming to help enhance the institutional participation in the stock trading.
"Our focus is on stock market and that's why we are expanding our network both inside and outside Dhaka to reach the doorsteps of investors," he mentioned.
Managing director of the bank Shahed Noman said Dhaka Bank is very active in launching innovative products for the clients and stock market investors as well.
"Apart from introducing margin account for the local investors, we have already launched custodial services for foreign investors, non-resident Bangladeshi (NRB) investors following the approval of the SEC," he added.