\\\'Nexus\\\' of fixing indicative price alleged

The latest amendment to the Book Building (BB) method has yielded little results due mainly to alleged 'nexus' of institutional investors in fixation of indicative price of the companies moved to go public, insiders and experts said.
They said the process of discovering indicative price has again created controversy although the securities regulator brought amendment to the BB method for the sake of discovering justified prices.
Their allegations came as a significant number of eligible institutional investors quoted same price for the shares of the companies moved to go public under the BB method.
The issue manager of the ACME Laboratories which recently completed their road show and submitted the list of prices quoted by 42 institutional investors to the Bangladesh Securities and Exchange Commission (BSEC).
According to the list, out of 42 institutional investors, 37 offered Tk 80 and the remaining seven offered price within the range of Tk 80.15 to Tk 86.
Former BSEC chairman Faruq Ahmad Siddiqi said he is always in favour of premium for the good companies having reputation and fundamentals.
"The identical price quoted by significant number of institutional investors indicates the possibility of nexus among those ones. It is also true that the company has completed the process as per rules," Siddiqi said.
He, however, said the regulator should fine-tune the rules so that such kind of allegation do not raise in future.    
As per revised rules, the issue manager will submit the price offered by at least 20 institutional investors and among those prices 18 must be from six categories.
And final indicative price will have to be supported by at least 15 institutional investors provided that the whole amount of shares will be purchased by those ones.
When asked, an institutional investor told the FE on the condition of anonymity that they refrained from quoting price as they were told that there is no possibility of accepting price below Tk 80 as the quota of institutional investors has been fulfilled.
The company's earning per share (EPS) and net asset value (NAV) are Tk 5.65 and Tk 66.16 respectively as on June 30, 2014.
Asked, the chief financial officer of ACME Laboratories Zahangir Alam said they received the price offered by more than 70 institutional investors.
"If you see the complete list you will find that there is a variation of prices offered by the investors. But as per rules, we will have to consider the price at which the whole amount of shares preserved for institutional investors will be offloaded," Zahangir told the FE.   
 The government postponed the BB method in January, 2011 amid the allegation of siphoning off money from the stock market through over-pricing.
In early August, the securities regulator brought amendment to the BB method in a bid to curb the anomalies allegedly practiced before the December (2010)-January (2011) stock market debacle.
It is mentioned in the amendment that BB method means the process by which an issuer attempts to determine the price to offer its security based on demand from institutional investors.
A BSEC official said the issue manager is required to submit the price offered by at least 20 institutional investors.
"The ACME Laboratories complied with the rules as it submitted the price offered by 42 investors in stead of 20," the official said.
Asked, whether 37 or 88 per cent institutional investors of the ACME Laboratories offered same price miraculously the BSEC official was unable to say anything.
The official, however, said the regulator is internally looking into the issue raised over same price offered by institutional investors.
BSEC commissioner Arif Khan said the regulator brought changes in BB method to seal the scope of previous anomalies.
"As per the revised BB method, those who will offer indicative price must purchase shares. We have also extended the quota of institutional investors to ensure their involvement in holding shares," Mr. Khan told the FE.
He said the regulator also extended the lock-in period to six months from previous 15 days for the share of eligible institutional investors.
Asked, about the benefit of bringing amendment to the BB method Khan said as per the revised rules there is no scope of committing serious anomalies observed before the stock market debacle.
"The regulator is reviewing allegations. It will take some time to avail the full benefit of revised BB method," Khan added.
The other two companies which earlier completed bidding prices are United Power Generation & Distribution Company Limited (UPGD) and Energypac Power Generation (EPG).
The UPGD has accepted the indicative price quoted by 28 institutional investors whereas a total of 62 quoted indicative price.
On the other hand, above 70 institutional investors quoted indicative price for the EPG and the company considered the price of 20 investors.
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