The securities regulator will adopt the pure Dutch Auction Method for market-based valuation of primary shares, replacing the existing mechanism under the book-building method.
Under the current system, 40 per cent of shares are allotted to eligible investors (EIs) at the cut-off price, even if many of them have bid above that price. The new valuation mechanism will require EIs to receive shares at their respective bidding prices.
“The existing method of share allotment does not reflect fair valuation of shares. That’s why the provision will be scrapped to help facilitate careful bidding by EIs,” said Masud Khan, chairman of the securities regulator.
Under the book-building method presently followed, bids are opened with a 25 per cent price band on the indicative price of the shares of a company that is in the process of going public.
That means institutional bidders can quote prices within 25 per cent below or above the indicative price approved by the regulator.
Take, for example, Tk 100 as the indicative price. Bidders would then be allowed to bid between Tk 75 and Tk 125 for the shares of the company seeking to get listed. During the bidding process, if the 40 per cent quota for EIs gets exhausted at Tk 75, all EIs will receive shares at the cut-off price of Tk 75, even if many bidders have quoted prices above the cut-off price, up to Tk 125.
According to the changed rules that the securities regulator seeks to put in place, EIs will receive shares based on their own valuation of the company that is going to be listed.
The present system is also called the Dutch Auction Method, but it will be replaced by the pure Dutch Auction Method, said Mahmud-Ur-Rashid, chief business officer at Shanta Equity.
“The provision of receiving shares at their own bidding prices will compel eligible investors to think 10 times before quoting a price in the bidding,” Mr Mahmud said. The existing system has allowed EIs to overvalue shares.
EIs will bid responsibly to avoid losses under the revised share valuation mechanism, which will rule out the possibility of unjustified prices.
Currently, a company is required to offload at least 10 per cent of shares compared to its paid-up capital. It has to hold a roadshow and receive valuations from at least 45 EIs — 15 from portfolio managers, 15 from stock dealers and 15 from asset managers — which proves to be a challenging task before fixing the indicative price.
The Bangladesh Securities and Exchange Commission (BSEC) has considered scrapping the mandatory provision of collecting valuations from EIs.
A new provision will be incorporated, allowing the issue manager and the issuer company to set an indicative price, supported by absolute and relative valuation as mentioned in the public issue rules. The indicative price will be verified by the stock exchanges and the securities regulator. If the price is accepted by the regulator, bidding will occur within a 25 per cent price band on the approved price.
The company will need to hold roadshows to present its financial position and projections. EIs will receive shares at the prices they have bid, while general investors will get shares at the cut-off price.
Another major change to be brought to the public issue rules is a mandatory “extended audit” for companies seeking to go public. This audit will have to be conducted by independent auditors based on terms of reference (ToR) set by the securities regulator.
BSEC officials said such an audit would significantly reduce IPO processing time.
The stock exchanges and the securities regulator will no longer verify the authenticity of the submitted papers after an extended audit of the issuer. They will simply focus on checking whether the company’s valuation and overall condition are appropriate for listing.
The Bangladesh Securities and Exchange Commission (Public Offer of Equity Securities) Rules, 2025 came into effect in December last year after an amendment to the Public Issue Rules, 2015. The amendment was executed by the previous securities commission.
However, no company has been listed under the 2025 rules.
In fact, the market has seen no issue since the approval of the IPO proposal of Techno Drugs in March 2024.
Source: The Business Standard
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