Book-building method to be introduced within 3 months

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Kayes M Sohel
The long awaited book-building method, a price fixing mechanism for IPO (initial public offering), would be introduced within the next three months in a bid to woo private companies into the stock market, says regulator.
"The draft method will be published in the national dailies by the end of next month for public opinion before giving it final shape," Securities and Exchange Commission Chairman Faruq Ahmad Siddiqi told the Financial Express Wednesday.
"The gazette notification for the book-building method will be issued by February next year. The acceptable opinions and suggestions will be incorporated in the draft," he said.
Finance Adviser Mirza Azizul Islam, however, recommended for some changes in the draft method before publishing it for public opinions.
His recommendations came at a meeting where the Securities and Exchange Commission (SEC) briefed about the draft of the book-building.
The draft book-building method says a company must agree to have the company's affairs audited by a firm of chartered accountants appointed by the SEC for preceding three years in addition to statutory audit.
However, the finance adviser, suggested the commission to form a common panel of auditors so that the issuer company can appoint an auditor from the panel for compiling audited account.
This will reduce time and remove differences between the audit reports prepared by the issuer company and the SEC, the finance adviser told the commission.
Talking to the reporters after the meeting, Mirza Aziz said it has already been noticed that under the existing IPO mechanism, a company's Tk 100 worth share is traded at Tk 700 to Tk 800 on the debut day, meaning that the issuer company is not getting the proper value of its shares.
The book-building method has the importance for proper IPO pricing, as in the book-building process, the prices of shares are determined on the basis of market demand, the adviser said and added thus the chances of over or under pricing are minimised.
If introduced, it will encourage the entrepreneurs to list their profitable companies on the stock market, he said.
Book-building is basically a capital issuance process used in the (IPO), which aids price and demand discovery.
It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices that ranges within the price band specified by the issuer.
Under the draft method, it will have two stages-price discovery and book building by eligible institutional investors and public offer based on price found out through book building process.
The price discovery process will involve eligible institutional investors as per rules set by SEC and the types of eligible investors include merchant bankers, mutual fund managers, portfolio managers and foreign institutional investors registered with SEC, it adds.
The aforesaid institutions (either licensed or authorised for this purpose by SEC) will be considered as eligible institutions to participate in the price discovery process under the book building system, the draft method also says.
The base price or cut-off price for public offer shall be determined through 'True Dutch Auction' method.
Under the True Dutch Auction, issuer accepts the highest bids first and works through progressively lower bids until an issue is completely sold.