SEC okays book-building method amendments

Withdraws cap on P/E ratio for IPO
The Securities and Exchange Commission on Tuesday finalised the book-building method for initial public offering withdrawing the proposed cap on price earning ratio or net asset value of any company, bowing down to pressure of a section of stakeholders.
‘After analysing the suggestions from the stakeholders and opinion of public the commission decided to withdraw the cap on P/E and NAV for the book building method,’ said SEC executive director Saifur Rahman at a press briefing after a commission meeting.
Earlier the commission drafted an amendment to the controversial book-building method setting the upper limit of P/E ratio at 15 for any company to set its primary share.
DSE, however, recommended for withdrawing the cap while the Chittaging Stock Exchange recommended for lowering of the P/E at 10.
In the proposed amendments, the SEC said that the indicative price of any scrip would be such that it did not exceed 15 times of the weighted average earnings per share of the preceding three years or three times of the NAV, whichever was lower.
Under the book building system, introduced in 2009, a company sets its share price under an IPO for general investors based on the biddings made by institutional investors.
Following the share market debacle in January, the SEC, as per a government directive, suspended the book building system in the wake of severe criticism that it allowed floatation of over-priced shares as there was no cap on P/E ratio.
The SEC in the Tuesday meeting also decided to include asset management companies in as Eligible Institutional Investor category.
As per the amended book-building method the indicative prices should be supported by at least 20 EIIs including at least three quotations from each of the categories that included merchant banks, commercial banks, asset management companies, stock brokers, insurance companies and non-bank financial institutions.
The approved book-building method also allocated a quota of 40 per cent for the EIIs imposing a four-month lock-in on share sales. It also said that the participating EII’s should have to buy at least 10 per cent shares.
According to the approved method, any company that wants to offload shares through book-building should publish advertisement in at least five well circulated newspapers 10 days prior to the road-show with EIIs. It also said the company will have to inform the indicative price to the SEC within three working days after the road show. 
On Tuesday the SEC also approved the final draft of guideline for issuing rights shares and placement shares. 
‘Right shares guideline will be made public for taking opinion soon and the commission will issue a notification regarding placement shares,’ Saifur told reporters.

-With New Age input

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