The Securities and Exchange Commission in a meeting on Wednesday approved in principle the draft amendments to the book building system, setting a cap on the price-earning ratio for calculating the indicative price of initial public offering of any issue.
The SEC in principle also approved a number of changes in the Mutual Fund Rule, 2001 to facilitate and ensure effective participation of the MFs in the capital market.
The SEC in the last week of July finalised the draft amendments to the book building system under the Securities and Exchange Commission (Public Issue) Rules, 2006 and sent it to different stakeholders, seeking their opinions.
The two bourses of the country, in response, made a number of suggestions to the commission, with the Dhaka Stock Exchange proposing withdrawal of the cap in setting the P/E ratio, which the SEC set at 15, and the Chittaging Stock Exchange suggesting lowering the P/E ration to 10.
The amendments to the book building system drafted by the SEC said the indicative price 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 net asset value per share of the issuing company, whichever was lower.
'Although the stakeholders proposed changes regarding the section, the commission decided to stick to its own stance,' SEC executive director Saifur Rahman told reporters.
Besides merchant banks, commercial banks, and asset management companies, the SEC included three more types of institutions – non-bank financial institutions, insurance companies, and stock dealers – in the 'eligible institutional investors' category.
It also said the indicative prices should be supported by at least 20 EIIs including at least three quotations, instead of previous five, from each EII.
The commission in Wednesday's meeting decided to scrap the draft provision for forming a committee for verification of audited financial statements and replace it with the recommendation made by the DSE. The DSE said, instead of forming such a committee, the SEC might re-audit any financial document, if it found it doubtful, by engaging a panel at the expense of the IPO-issuer.
'The commission decided not to form any committee to verify audited financial statements, rather it will engage a panel of auditors, if it found any such statement doubtful,' Saifur told reporters.
The commission in the meeting also set the lock-in period for the bidders at four months, he said.
'The draft will now go for public opinion and then will be published as a gadget notification,' said Saifur.
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 the system allowed for floatation of over-priced shares.
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.
The SEC on Wednesday also decided to bring changes in the Mutual Fund Rule, 2001. According to the new rule, the quota of IPO for mutual funds will be raised from earlier 10 per cent to 15 per cent.
Under the new rule, at least 25 per cent of the total size of any mutual fund should be offered to the public. Earlier, this percentage was at least 50.
Saifur Rahman, also the spokesman of the commission, said the SEC wanted increased participation of the mutual funds in the market. 'To encourage more participation of the mutual funds in the market, the commission decided to reduce the minimum size of any open-ended mutual fund from Tk 20 crore to Tk 10 crore,' he said.
He also said, once the new rule was passed, the asset managers could also sponsor their own mutual funds.
'The SEC also decided that the name of any mutual fund would have to start with the name of its asset manager, like the mutual funds of the Investment Corporation of Bangladesh,' Saifur said.
Source : New Age
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