SEC backpedals on pre-IPO rules

Kayes M Sohel

The securities regulator has shelved its plan to tighten private placement regulations after theFinance Ministry poured cold water on it, officials said.

The Securities and Exchange Commission (SEC) had planned a new guideline under which no company would be allowed to sell pre-IPO placement to more than 50 institutions or individuals.

If a firm exceeds the cutoff point, the pre-IPO placement–capital mobilisation before the initial offers–will be treated as public offering.

“The commission has put the plan on ice as the finance minister AMA Muhith has opposed the move,” said a high official of the SEC who asked not to be named.

“The minister verbally voiced his reservation about the move,” the official added.

Experts also flayed the SEC’s plan saying it will create discrepancy in selecting investors for the distribution of pre-IPO placement shares.

Currently, there is no bar on the number of individuals or institutions chosen for private placement.

In early September, the SEC moved ahead with introducing the guideline in an attempt to stem the abuse of private placement.

Pre-IPO placement is a portion of an IPO placed with private investors before the IPO is scheduled to hit the market.

The price paid for shares in a pre-IPO placement is usually less than the prospective IPO price. But there is a lock-in period for one year for those investors.

Mirza Azizul Islam, ex-finance adviser to the caretaker government, said, “I see no strong rationale behind such an SEC move as there is lock-in period for such investors for one year.”

“More participation in private placement means the proper distribution. The commission with the help of CDBL (central depository of Bangladesh Ltd) can rather monitor that the locked shares are not traded before one year,” he said.

In April, the SEC slapped some conditions on private sale of mutual funds under which an individual can buy a maximum of Tk 1.0 million worth of units in the private placement of a mutual fund.

A listed company will be able to buy Tk 10 million worth of units and a non-listed company Tk 5.0 million worth of units.

Source: The financial express, 30 October, 2010

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