Indicative Price Discovery
Identical quotation for ACME share by most investors raises syndication suspicion
Thirty seven out of the 42 participating institutional investors have submitted identical price quotation (Tk 80) for indicative price discovery of ACME Laboratories under the book building method for initial public offering, raising suspicion of price syndication.
The rest five institutional investors quoted indicative price at Tk 80-86 for each ACME share, the price quotation submitted by ACME to the Bangladesh Securities and Exchange Commission showed.
Influence exerted by ACME and ICB Capital Management Limited, a state-run body which is the issue manager of ACME, might also be behind the same price quotation, said a number of institutional investors.
The amended book building process bars issue manager and issuer company from making the quote prices public before receiving all the price quotations from the eligible institutional investors.
According to the securities rules 17 of the Securities and Exchange Ordinance, 1969, any attempt to influence and make syndication of share prices of a certain company is prohibited and punishable.
Under the book building method, the market price of securities is discovered based on indicative price.
Based on the indicative price institutional investors will then bid for shares based on the indicative price after the BSEC’s approval for the company’s IPO.
Influencing share prices by making syndicated price quotation is equivalent to fabricating share prices of IPO, capital market experts and DSE officials said.
ACME Laboratories submitted to the BSEC and the Dhaka and Chittagong stock exchanges its draft prospectus setting indicative price at Tk 80 per share.
According to the company’s information memorandum distributed to the institutional investors for indicative price discovery, ACME made Tk 89.38 crore profit after tax during the year ended on June 30, 2014 with earning per share Tk 5.65 each.
Asked about the issue of the identical price quotation by 37 organisations, former interim government adviser AB Mirza Azizul Islam told New Age, ‘Same price quotation by almost all the institutional investors has raised suspicion of syndication in price quotation.’
Azizul, also a former BSEC chairman, said, ‘The capital market regulator should take the matter into consideration and verify the suspicion raised due to the same price quotation by the institutional investors before it approves the IPO of the company.’
Former BSEC chairman Farook Ahmed Siddiki told New Age, ‘It is obvious that if most of the institutional investors quote the same price for any company’s share, it will raise suspicion of syndication in offering indicative price.’
He also suggested an investigation into the matter by the BSEC before the capital market regulator finalises its decision on the company’s proposed IPO.’
Asked, ACME Laboratories chief financial officer Jahangir Alam told New Age, ‘As all the institutional investors did not quote the same indicative price, there is no question of suspicion of syndication.’
He, however, said that the price quotation of most of the institutional investors might be the same as they might use same parameters in calculating indicative price.
A senior official of a merchant bank told New Age that the issue manager after the road show for discovering indicative price of the ACME’s IPO requested them to quote at least Tk 80 as the indicative price and the organisation also told them to refrain from making any quotation if they intended to quote below Tk 80 per share.
A senior official of a brokerage house told New Age, ‘A senior official of the ICB Capital Management requested me to quote Tk 80 per share without showing any justification.’
The ACME CFO, however, said that they had not disclosed any indicative price-related information to the institutional investors before receiving quotations from them.
ICB Capital Management chief executive officer Md Moshiur Rahman told New Age, ‘As the information memorandum of ACME Laboratories which was disbursed to the EIIs before the road show contained the same information, price quotation by the institutional investors could mach each other. We cannot say it syndication.’
‘As the entity is yet to be enlisted, there is no scope for syndication to influence share prices for setting indicative price,’ he said.
BSEC executive director Saifur Rahman told New Age that the commission for the betterment of the capital
market tightened the book building process and it followed proper rules and regulations for allowing companies to raise capital from the market.
‘If there is any symptom of syndication in the discovery of indicative price before IPO issuance under the book building process, the commission will take necessary steps,’ Saifur said.
Besides, ICB Capital Management is acting as the issue manager of ACME violating securities rules as the ICB and its subsidiaries hold substantial amount of ACME shares.
-With New Age input
