SEC to introduce book-building system to ensure IPO fair price
Monday, 18 February 2008
FE Report
The stock market regulatory body is working to introduce book-building method to ensure fair price in the initial public offerings (IPOs) for the entrepreneurs whose companies will go public.
"The present IPO pricing system has some distortions which do not encourage many sponsors to go public, that's why we are working to introduce book-building method," chairman of Securities and Exchange Commission (SEC) Faruq Ahmad Siddiqi said Sunday at a workshop titled, 'Book-building procedure for IPO', arranged by Dhaka Stock Exchange (DSE) in the city.
The programme was attended by top capital market professionals.
He said the rule on the proposed book-building should be meaningful and participatory so that all the stakeholders' opinion could be accommodated.
The speakers suggested appointment of independent auditors at the listed companies' boards by the SEC, compliance with rules on information dissemination, inter-change facilities in the distribution of shares in the book-building by the institutions, mutual funds, non-resident Bangladeshis (NRBs) and general public and mandatory credit rating.
SEC executive director Abdul Hannan Zoarder presented the keynote paper on book-building.
President of Metropolitan Chamber of Commerce and Industry (MCCI) Latifur Rahman, president of International Chamber of Commerce-Bangladesh (ICCB) Mahbubur Rahman, Yaweer Sayed of AIMS of Bangladesh, Osman Imam of Dhaka University, Silmat Chisti of Citibank NA, Samir Asaf of Rahimafrooz, Imtiyaz Husain of DSE, Waliul Maroof Matin of Bangladesh Commodity Exchange (proposed), Saiful Islam of Equity Partners, Mohammad Musa of Merchant Banks Association and DH Chowdhury of City Bank spoke on the occasion.
DSE president Abdullah Bokhari, senior vice president Ahmad Rashid and chief executive officer Salahuddin Ahmed Khan spoke on various aspects of book building process.
DSE senior vice president Ahmad Rashid said the proposed book-building method will attract big companies to go public.
The book-building system is a modern method of selling equities when an investment firm seeks bids for a new issue at indicative prices. When the book is complete, it offers prices and sells the lot in a single day.
Underwriters buy all the shares to be floated by public limited companies through competitive bidding procedure under the proposed system. Later the underwriters choose some brokers to put up those shares for selling to retail investors.
The issuers in the book-building system get their share prices from the underwriters who will be the highest bidder in the bidding process.
The SEC has already fixed certain initial criteria for the prospective issuers and the brokers to become eligible for participation in the proposed book-building system.
Attending the programme, country's top entrepreneurs have opposed a recent SEC decision on compulsory listing of public limited companies (PLCs) with a paid up capital of Tk 500 million or more.
According to a February 12,2008 decision of the capital market regulatory body, the PLCs with a paid up capital of Tk 500 million or more. which are in commercial operations for three years will have to go for initial public offerings (IPOs) within one year.
"Compulsory listing is not desirable in all cases for our entrepreneurs and such kind of policy-approach will not attract issuers to the stock market," president of Metropolitan Chamber of Commerce and Industry (MCCI) Latifur Rahman said.
He said the stock market should develop its own capacity so that issuers come voluntarily.
Echoing the same opinion, president of International Chamber of Commerce-Bangladesh (ICCB) Mahbubur Rahman said many companies worth billions of dollars remain out of the stock market in the world.
"It's my choice to go public…so the compulsory listing will not attract the new issuers in the stock market," Mahbubur Rahman asserted.
Meanwhile, according to the SEC, however, if the public limited companies are not in commercial operations, they will have to float shares within three years after commercial operations.
A public limited company is entitled to have the number of shareholders from seven to unlimited, while a private limited company should have two to 50 shareholders.
Through amending a previously served notification on IPO, the commission also withdrew the obligatory ratio of floating primary shares. Previously, a public limited company had to offer primary shares valued at least one third of the company's paid-up capital.
Now a public limited company can itself fix the amount of primary shares it wants to offer.
The commission also decided if the private companies' paid up capital reaches or exceeds Tk 400 million (40 crore) for increasing their paid up capital, they will have to become public limited company within next six months.
The private limited companies whose paid up capital is already Tk 400 million or more will have to become public limited companies within one year, according to SEC decisions.
The stock market regulatory body is working to introduce book-building method to ensure fair price in the initial public offerings (IPOs) for the entrepreneurs whose companies will go public.
"The present IPO pricing system has some distortions which do not encourage many sponsors to go public, that's why we are working to introduce book-building method," chairman of Securities and Exchange Commission (SEC) Faruq Ahmad Siddiqi said Sunday at a workshop titled, 'Book-building procedure for IPO', arranged by Dhaka Stock Exchange (DSE) in the city.
The programme was attended by top capital market professionals.
He said the rule on the proposed book-building should be meaningful and participatory so that all the stakeholders' opinion could be accommodated.
The speakers suggested appointment of independent auditors at the listed companies' boards by the SEC, compliance with rules on information dissemination, inter-change facilities in the distribution of shares in the book-building by the institutions, mutual funds, non-resident Bangladeshis (NRBs) and general public and mandatory credit rating.
SEC executive director Abdul Hannan Zoarder presented the keynote paper on book-building.
President of Metropolitan Chamber of Commerce and Industry (MCCI) Latifur Rahman, president of International Chamber of Commerce-Bangladesh (ICCB) Mahbubur Rahman, Yaweer Sayed of AIMS of Bangladesh, Osman Imam of Dhaka University, Silmat Chisti of Citibank NA, Samir Asaf of Rahimafrooz, Imtiyaz Husain of DSE, Waliul Maroof Matin of Bangladesh Commodity Exchange (proposed), Saiful Islam of Equity Partners, Mohammad Musa of Merchant Banks Association and DH Chowdhury of City Bank spoke on the occasion.
DSE president Abdullah Bokhari, senior vice president Ahmad Rashid and chief executive officer Salahuddin Ahmed Khan spoke on various aspects of book building process.
DSE senior vice president Ahmad Rashid said the proposed book-building method will attract big companies to go public.
The book-building system is a modern method of selling equities when an investment firm seeks bids for a new issue at indicative prices. When the book is complete, it offers prices and sells the lot in a single day.
Underwriters buy all the shares to be floated by public limited companies through competitive bidding procedure under the proposed system. Later the underwriters choose some brokers to put up those shares for selling to retail investors.
The issuers in the book-building system get their share prices from the underwriters who will be the highest bidder in the bidding process.
The SEC has already fixed certain initial criteria for the prospective issuers and the brokers to become eligible for participation in the proposed book-building system.
Attending the programme, country's top entrepreneurs have opposed a recent SEC decision on compulsory listing of public limited companies (PLCs) with a paid up capital of Tk 500 million or more.
According to a February 12,2008 decision of the capital market regulatory body, the PLCs with a paid up capital of Tk 500 million or more. which are in commercial operations for three years will have to go for initial public offerings (IPOs) within one year.
"Compulsory listing is not desirable in all cases for our entrepreneurs and such kind of policy-approach will not attract issuers to the stock market," president of Metropolitan Chamber of Commerce and Industry (MCCI) Latifur Rahman said.
He said the stock market should develop its own capacity so that issuers come voluntarily.
Echoing the same opinion, president of International Chamber of Commerce-Bangladesh (ICCB) Mahbubur Rahman said many companies worth billions of dollars remain out of the stock market in the world.
"It's my choice to go public…so the compulsory listing will not attract the new issuers in the stock market," Mahbubur Rahman asserted.
Meanwhile, according to the SEC, however, if the public limited companies are not in commercial operations, they will have to float shares within three years after commercial operations.
A public limited company is entitled to have the number of shareholders from seven to unlimited, while a private limited company should have two to 50 shareholders.
Through amending a previously served notification on IPO, the commission also withdrew the obligatory ratio of floating primary shares. Previously, a public limited company had to offer primary shares valued at least one third of the company's paid-up capital.
Now a public limited company can itself fix the amount of primary shares it wants to offer.
The commission also decided if the private companies' paid up capital reaches or exceeds Tk 400 million (40 crore) for increasing their paid up capital, they will have to become public limited company within next six months.
The private limited companies whose paid up capital is already Tk 400 million or more will have to become public limited companies within one year, according to SEC decisions.