Tag Archives: book building

Book building and stock market schemers

Shamsul Huq Zahid

The Securities and Exchange Commission (SEC) and the so-called stakeholders have been in brain-storming sessions to right the Book Building Method (BBM) that was deliberately wronged during the recent heydays of the stock market.

What is being done now to correct a method can be better described as the post-facto evaluation of the BBM that is widely practiced in the capital markets across the globe. The Bangladeshmarket has been exposed to it only recently and the experience gathered so far is highly unpalatable, thanks to capital market schemers and an otherwise lenient securities regulator.

Following widespread criticisms from different quarters against fleecing of small investors through the abuse of the BBM, the SEC on March 14 recommended some changes in it and sought opinion from the stakeholders concerned.

The securities regulator has proposed that the maximum allowable price earning (PE) ratio will be 15 for a company willing to go public under the BBM and offer price must not exceed five times its net asset value per share. And the P/E should be calculated on the basis of the average earning per share in preceding three years. The SEC has also suggested 60 days’ lock-in period for successful bidders under BBM, instead of existing 15 days and subscription period to 15 days down from 25 days. It has also recommended a cut in institutional bidding period from 72 hours down to 48 hours.

The stakeholders, according to media reports, at a meeting convened by the SEC last Monday, did not agree with most of the SEC proposals and recommended that the exercise be postponed until the publication of the much-hyped report of the stock market probe committee, headed by Khandaker Ibrahim Khaled.

The stakeholders who included people from the country’s two bourses, associations of merchant bankers and publicly listed companies said since the probe committee would deal with the BBM and suggest necessary changes in it, it would be better to wait until the publication of its report. The SEC later endorsed this view.

In fact, there is nothing wrong with the BBM, introduced through a gazette notification on March 19, 2009. It is almost identical to the BBM introduced in neighbouring India more than two decades back.

The problems, it seems, were with the issuers, the bidders, the auditors and the securities regulator. There are ample reasons to believe that the BBM was deliberately abused in a market dominated by ignorant retail investors who were under the sway of rumours. The investors devoured everything that came in their way.

The issuers who included people with strong political connections made the best use of the opportunity as the regulator proved to be less assertive and vulnerable to outside pressure.

That the regulator is weak was well demonstrated when in a notification issued on November 14, 2010, it relaxed some mandatory BBM provisions for power and gas companies included in the so-called thrust sectors. In the original rules, a company willing to go public under BBM, was required to be in commercial operation for at least immediate past three years and profit-earning entity for two out of last three complete financial years. But the SEC in its November 14 amendments to the BBM rules reduced both the periods to one year for the ‘thrust sector’ companies, namely power and gas infrastructure companies. The people concerned are in the know of the things that had prompted the SEC to amend the rules.

Actually, the introduction of the BBM was aimed at luring big companies to the stock market since the method offers the opportunities to companies with strong fundamentals to get real worth of their stocks which is not possible under the fixed price floatation of issues. But, unfortunately, not a single big company has availed itself of the BBM facility to become public. The proponents of the BBM do need to examine the reasons behind the reluctance of large companies about not exploiting the BBM.

The expectation of the stakeholders and the regulator from the probe committee, which is expected to submit its report to the government soon, appears to be high, to some extent. The primary task of the probe body to identify the individuals and institutions involved in the stock market scam, methods used to siphon off money from the market and suggest remedial measures. But it would be too much to expect that the probe body would look into all the provisions of the BBM, locate loopholes in the same and suggest amendments.

Realistically speaking, what happened in the name of BBM in recent months would not happen now if any company decides to go public following the existing BBM provisions. Institutional investors who clamoured for bidding issues are unlikely to be enthusiastic now because of the prevailing market conditions. Manipulators, no matter how expert they are, would find it hard to lure retail investors to new issues.

Source: The financial express, 30 March, 2011

Book building reforms hinge on probe report

Regulators will decide on reforms to the controversial book building system after a stockmarket probe committee submits its report to the government early next month.

Stakeholders proposed that the stockmarket regulator should decide the fate of the book building system after submission of the probe report. The Securities and Exchange Commission accepted it.

The SEC sat with the stakeholders, who were earlier asked to come up with suggestions on modifications of the book building method. The commission’s Chairman Ziaul Haque Khondker presided over the meeting.

Representatives of Dhaka and Chittagong stock exchanges, Bangladesh Merchant Bankers’ Association and Bangladesh Association of Publicly Listed Companies Association were present.

Apart from its findings on the recent stockmarket debacle, the probe committee is expected to give advice on amendments to securities rules and regulations, including the book building regulation, an IPO pricing mechanism that was criticised by economists, market experts and analysts before it was suspended in January.

“If so, it will be better putting the issue on the table after seeing the probe committee’s recommendations,” said an SEC official who attended the meeting.

Ahasanul Islam Titu, senior vice-president of Dhaka Stock Exchange, said: “After reviewing the concrete proposals of the probe committee, if there is any, we will fine-tune the book-building method.”

Echoing Titu, Chittagong Stock Exchange President Fakhor Uddin Ali Ahmed said, “A modified book-building method depends on the report of the probe committee that, we expect, will propose a new guideline on the system.”

Earlier on March 14, the SEC recommended some changes in the book building method and sought suggestions from the market stakeholders on the proposed changes.

But the stakeholders opposed some of the SEC’s suggestions on fixing an indicative price based on price-earnings (PE) and net asset value (NAV), and calculation method of earnings per share (EPS), meeting participants said.

In line with the SEC recommendations, the offer price of a company’s share will be no more than 15 PE (price-earnings), or must not exceed five times its net asset value per share, or whichever is lower, under the book building system.

The PE should be calculated based on the company’s preceding three years’ average earnings per share (EPS) mentioned in the audited accounts.

A committee comprising the Institute of Chartered Accountants of Bangladesh, the Institute of Cost and Management Accountants of Bangladesh and Dhaka and Chittagong bourses will scrutinise the audited accounts submitted by the companies before IPO.

The officials of other departments concerned will also be on the committee. If the committee has any comments or opinions after the scrutiny, those will have to be sent to the commission within seven working days.

The lock-in period for institutional investors has been proposed to be 60 days instead of 15, while the subscription period at 15 days, down from 25.

The SEC also recommended a cut in the institutional bidding period from 72 hours down to 48 hours.

After the bidding, the issuer company and the issue manager will have to submit the final IPO prospectus to the SEC within 48 hours.

The printed draft IPO prospectus will have to be sent to the related institutions and organisations at least five days before the road-show, where DSE and CSE officials will be present.

Source: The daily star, 29 March, 2011

 

Amendment a must in book building method

The stakeholders of the stock market have decided not to favour the proposed amendment to the book building method that will include maximum P/E ratio for a company to go public, officials said.

On the other hand, the experts said amendment is a must to increase the share supply in a balanced way so that both the entrepreneurs and investors feel comfort to participate in the market.

The stakeholders’ decision came Saturday at a joint meeting attended by both the bourses, Bangladesh Merchant Bankers’ Association (BMBA) and Bangladesh Association of Publicly Listed Companies (BAPLC).

Their opinion comes after the Securities and Exchange Commission (SEC) placed a recommendation regarding the amendment on book building method at a meeting held March 21 last with the stakeholders.

The stakeholders sought time up to March 27, to give their opinion regarding the recommendation of the SEC and the next meeting is scheduled to be held today (Monday).

The SEC fixes the maximum allowable price-earning (P/E) ratio at 15, the average P/E ratio of preceding three years, for a company willing to go public under the book building method.

With other proposals, the SEC included a suggestion of a review committee to justify and scrutinise the audited balance sheets of the intending companies to go public.

The stakeholders said at the moment they feel no necessity of amending the book building method and favoured to identify the misuses of the method.

At the same time, the stakeholders want to wait until the probe body on recent stock market publishes its report.

Ahasanul Islam, senior vice president of DSE, said they are not in favour of changing the laws of book building method.

“This method is widely practiced all over the world. We can only bring amendment to the method by identifying its misuses,” Mr. Islam told the FE.

“On the other hand, we should await the findings of probe body that will express their opinion on the book building method,” he added.

Professor Salahuddin Ahmed Khan, the former chief executive officer of DhakaStock Exchange (DSE), said “The regulator should bring significant amendment to book building method.”

Source: The financial express, 28 March, 2011

Govt to postpone book building for price fixing

The government has decided to postpone temporarily book building (BB) method for price fixing of shares to protect siphoning off money from thestock market through over-pricing, sources said.

The decision came at a meeting Wednesday at the residence of Finance Minister A M A Muhith.

It was said at the meeting that under BB method manycompanies are fixing very high price of their shares before offloading in the stock market. As a result, huge amount of money is being siphoned off from the stock market, and liquidity crisis has been created.

“In such a situation, it was proposed to suspend the BB method temporarily, and the finance minister gave his nod,” it added.

Another source said the Securities and Exchange Commission (SEC) has decided in principle to suspend BB method following the decision of the meeting. The stock regulator is likely to issue a gazette notification within two or three days regarding the matter.

However, some companies have submitted their IPO proposals to the SEC to go public under BB method.

“These companies can be listed under fixed price method, if they intend to go public. But the companies, which have already completed their subscriptions, have no bar to go public under BB method,” an SEC source said.

The SEC issued a guideline on March 9, 2010 to introduce BB method. But the experts criticised high prices of shares, fixed under it. Those who buy shares at the bidding can easily come out of the market by selling shares due to minimum lock-in period imposed on their shares.

Source: The financial express,  20 January, 2011

Road show for price discovery of KYCR Coil Industries on 31 January, 2011

Road show for price discovery of indicative price of KYCR Coil Industries Ltd. will be held in Grand Ballroom of Pan Pacific Sonargaon Hotel, Dhaka on January 31, 2011. Eligible Institutinal Investors can participate in the road show to discover the indicative price of KYCR Coil Industries Ltd through IPO under book building method.

Alliance Financial & Services Limited is the issue manager of this IPO.

The details of the road show are as follows:

DETAIL OF ROAD SHOW:

Venue : Grand Ballroom, Pan Pacific Sonargaon Hotel, Dhaka
Date  :  January 31, 2011

Time : 06:30 P.M

Source: Own correspondence, bdipo.com

Road show for price discovery of Summit Shipping Ltd on 20 January, 2011

Road show for price discovery of indicative price of Summit Shipping Ltd will be held in Ballroom, Sonargaon Hotel, Dhaka on January 20, 2011. Eligible Institutinal Investors can participate in the road show to discover the indicative price for issuance of 30,000,000 ordinary shares of Summit Shipping Ltd through IPO under book building method.

Banco Finance & Investment Limited is the issue manager of this IPO.

The details of the road show are as follows:

OFFERING SUMMARY:
Public Offer  : 30,000,000 Ordinary shares
Face Value    : Tk. 10/- each share

Indicative Price    : Tk. 80/- each share (including a premium of 70/-)

DETAIL OF ROAD SHOW:
Vanue : Ballroom, Sonargaon Hotel, Dhaka
Date  :  January 20, 2011

Time : 07:30 P.M

Source: Own correspondence, bdipo.com

Road show for price discovery of Orion Pharma Limited

Road show for price discovery of indicative price of Orion Pharma Limited will be held in Harmony hall, Bangabandhu International Conference Center , Dhaka on 18 January 2011. Eligible Institutinal Investors can participate in the road show to discover the indicative price for issuance of 40,000,000 ordinary shares of Orion Pharma Limited through IPO under book building method.

ICB capital management limited is the issue manager of this IPO.

The details of the road show are as follows:

OFFERING SUMMARY:
Public Offer  : 40,000,000 Ordinary shares
Face Value    : Tk. 10/- each share

DETAIL OF ROAD SHOW:
Venue : Harmony hall, Bangabandhu International Conference Center (BICC), Sher-e-Bangla Nagar, Agargaon, Dhaka
Date  :  18 January 2011
Time  : 6:30 PM

Source: Own correspondence, bdipo.com

Road show for price discovery of Ananda Shipyard and Slipways

Road show for price discovery of Ananda Shipyard and slipways Limited will be held in Grand Ballroom, Radisson Water Garden Hotel, Dhaka on 17th January 2011. Eligible Institutional Investors[as per Securities & Exchange Commission (Public Issue) Rules 2006] can participate in the road show to discover the indicative price of Ananda Shipyard and slipways Limited through IPO under book building method.

Prime finance capital management ttd. is the issue manager of this IPO.

The details of the road show are as follows:

DETAIL OF ROAD SHOW:

Venue : Grand Ballroom, Radisson Water Garden Hotel, Dhaka
Date  : Monday, 17th January 2011
Time  : 6:00 PM

Source: own correspondence, bdipo.com

Road show for price discovery of Fareast knitting and dyeing

Road show for price discovery of Fareast knitting and dyeing industries Limited will be held in Winter Garden, Dhaka Sheraton Hotel on 16th January 2011. Eligible Institutional Investors[as per Securities & Exchange Commission (Public Issue) Rules 2006] can participate in the road show to discover the indicative price for issuance of 30,000,000 ordinary shares of Fareast knitting and dyeing industries Limited through IPO under book building method.

IDLC finance Ltd. is the issue manager of this IPO.

The details of the road show are as follows:

OFFERING SUMMARY:
Public Offer  : 30,000,000 Ordinary shares

Face Value: 10.00/=

Indicative Price: 50.00/=

DETAIL OF ROAD SHOW:

Venue : Winter garden, Dhaka Sheraton hotel
Date  : Sunday, 16th January 2011
Time  : 6:00 PM

Source: own correspondence, bdipo.com

Road show for price discovery of GMG Airlines

Road show for price discovery of indicative price of GMG Airlines will be held in Sheraton Grand Ballroom on 30 November 2010. Eligible Institutinal Investors can participate in the road show to discover the indicative price for issuance of 60,000,000 ordinary shares of GMG Airlines through IPO under book building method.

BRAC EPL Investments Limited is the issue manager of this IPO.

The details of the road show are as follows:

OFFERING SUMMARY:
Public Offer  : 60,000,000 Ordinary shares
Face Value    : Tk. 10/- each share

DETAIL OF ROAD SHOW:
Vanue : Sheraton Grand Ballroom
Date  :  30 November 2010
Time  : 6:00 PM (followed by dinner)

Source: Own correspondence, bdipo.com