Book-building system gets SEC approval
FE Report | Friday, 6 March 2009
The country's capital market regulator approved Thursday the introduction of much talked-about book-building method to woo big corporate houses and foreign companies to float shares in the stock markets.
The Securities and Exchange Commission's (SEC's) endorsement to the new system for floating primary shares came after reviewing comments from the stakeholders and examining pros and cons for over the past two years.
A company having net worth of at least Tk 300 million will be eligible to raise capital from the country's stock markets under the newly introduced book-building method.
It will have to offer at least 10 per cent share of the paid up capital or Tk 300 million, whichever is higher, under the new method.
To become eligible for raising capital under the book-building method, the company must have to be in commercial operation at least for past consecutive three years and attain profit in last two years.
Besides, it must have to agree to let the SEC audit its company affairs of the past three years in addition to statutory audit by the commission appointed chartered accountants audit firm.
Financial institutions, mutual funds and non-resident Bangladeshis (NRBs) will have at least 10 per cent shares each out of the total offered shares.
The institutional investors like mutual funds, non-banking financial institutions (NBFIs), registered venture capital, stock dealer, registered foreign institutional investors, banks and insurance companies will take part in a price discovery process to build up the share prices of the interested companies under the book-building method.
"This is a remarkable reform in history of the commission," SEC executive director Farhad Ahmed told reporters after Thursday's meeting.
The method will help build proper initial public offering (IPO) pricing, which will be determined on the basis of market demand, he said.
"A gazette notification in this regard will be published soon," Mr Ahmed added.
The new method will encourage the entrepreneurs to list their profitable companies on the stock exchanges as it will ensure proper value of their floated shares.
The SEC official said the book-building method will be an addition to the existing IPO system. The current IPO system to float shares will also remain in force in the stock markets, he confirmed.
The proportion of allotted shares for the financial institutions, mutual funds, the NRBs and public will depend on the size of floated shares.
For the companies issuing shares worth between Tk 300 million and Tk 500 million 20 per cent will go to institutions, 10 per cent to mutual funds, 10 per cent to NRBs and 60 per cent to the public.
Financial institutions would get 30 per cent of the total issue worth between Tk 500 million and Tk 1.0 billion, while 10 per cent for mutual funds, 10 per cent for NRBs and 50 per cent for the public.
Forty per cent of the total issue worth between Tk 1.0 billion and Tk 5.0 billion will be kept for institutions, while 10 per cent for mutual funds, 10 per cent for NRBs and 40 per cent for the public.
The financial institutions will get 50 per cent of the total issue worth over Tk 5.0 billion while, 10 per cent for mutual funds, 10 per cent for NRBs and 30 per cent for the public.
Under the existing system, if any company wants to issue IPO, it has to submit its prospectus to the SEC. Then the SEC, after scrutiny, approves the prospectus determining a price for the IPO shares.
But in the case of book building method, the value of IPO shares will be initially determined by an indicative price offered by at least five institutional investors.
Then, the indicative price will be placed for an automated bidding where the general institutional investors will participate and determine the price.
Any bidder can offer to buy at best 10 percent of the shares and make highest five bids.
The manager to the issue will not be allowed to participate in the bidding.
When the IPO price is determined by the bidders through the automated bidding, then the SEC will fix the IPO price on the basis of the bidding results.
Issuer company will arrange road show, projection, seminar to display the detailed information about the issue and issuer with the help of issue manager will fix the indicative price.
The bidding will start after getting permission from the SEC.
The Securities and Exchange Commission's (SEC's) endorsement to the new system for floating primary shares came after reviewing comments from the stakeholders and examining pros and cons for over the past two years.
A company having net worth of at least Tk 300 million will be eligible to raise capital from the country's stock markets under the newly introduced book-building method.
It will have to offer at least 10 per cent share of the paid up capital or Tk 300 million, whichever is higher, under the new method.
To become eligible for raising capital under the book-building method, the company must have to be in commercial operation at least for past consecutive three years and attain profit in last two years.
Besides, it must have to agree to let the SEC audit its company affairs of the past three years in addition to statutory audit by the commission appointed chartered accountants audit firm.
Financial institutions, mutual funds and non-resident Bangladeshis (NRBs) will have at least 10 per cent shares each out of the total offered shares.
The institutional investors like mutual funds, non-banking financial institutions (NBFIs), registered venture capital, stock dealer, registered foreign institutional investors, banks and insurance companies will take part in a price discovery process to build up the share prices of the interested companies under the book-building method.
"This is a remarkable reform in history of the commission," SEC executive director Farhad Ahmed told reporters after Thursday's meeting.
The method will help build proper initial public offering (IPO) pricing, which will be determined on the basis of market demand, he said.
"A gazette notification in this regard will be published soon," Mr Ahmed added.
The new method will encourage the entrepreneurs to list their profitable companies on the stock exchanges as it will ensure proper value of their floated shares.
The SEC official said the book-building method will be an addition to the existing IPO system. The current IPO system to float shares will also remain in force in the stock markets, he confirmed.
The proportion of allotted shares for the financial institutions, mutual funds, the NRBs and public will depend on the size of floated shares.
For the companies issuing shares worth between Tk 300 million and Tk 500 million 20 per cent will go to institutions, 10 per cent to mutual funds, 10 per cent to NRBs and 60 per cent to the public.
Financial institutions would get 30 per cent of the total issue worth between Tk 500 million and Tk 1.0 billion, while 10 per cent for mutual funds, 10 per cent for NRBs and 50 per cent for the public.
Forty per cent of the total issue worth between Tk 1.0 billion and Tk 5.0 billion will be kept for institutions, while 10 per cent for mutual funds, 10 per cent for NRBs and 40 per cent for the public.
The financial institutions will get 50 per cent of the total issue worth over Tk 5.0 billion while, 10 per cent for mutual funds, 10 per cent for NRBs and 30 per cent for the public.
Under the existing system, if any company wants to issue IPO, it has to submit its prospectus to the SEC. Then the SEC, after scrutiny, approves the prospectus determining a price for the IPO shares.
But in the case of book building method, the value of IPO shares will be initially determined by an indicative price offered by at least five institutional investors.
Then, the indicative price will be placed for an automated bidding where the general institutional investors will participate and determine the price.
Any bidder can offer to buy at best 10 percent of the shares and make highest five bids.
The manager to the issue will not be allowed to participate in the bidding.
When the IPO price is determined by the bidders through the automated bidding, then the SEC will fix the IPO price on the basis of the bidding results.
Issuer company will arrange road show, projection, seminar to display the detailed information about the issue and issuer with the help of issue manager will fix the indicative price.
The bidding will start after getting permission from the SEC.