Companies that will offer primary shares with premium prices will have to follow the book building method to raise capital from public.
Bangladesh Securities and Exchange Commission has made the system mandatory for the premium seekers to ensure the accountability and responsibility of issuer companies, issue managers, auditors and other stakeholders.
Book building is a process through which an issuer attempts to determine the price to offer for its security based on demand from institutional investors.
The price of an IPO share is determined through automated bidding joined by different financial institutions.
The shares are then opened for the IPO participants at the bidding cut-off price.
The method was suspended and then revised by the regulator following the 2011 market crash.
Previously, the book building method was not mandatory for companies that raised capital from public through issuing primary shares with premium price in addition to the face value.
The BSEC made the obligation after revising its public issue rules, a draft of which was approved at a meeting of the stockmarket regulator last week.
The regulator is now receiving public opinion on the changes.
After scrutinising the opinion, the BSEC will finalise the rules and will issue a gazette on it.
Only the companies that will offer primary shares at face value will be allowed to use the fixed price method for their initial public offerings (IPOs), according to the latest amendments to public issue rules.
As per the revised rules, an aspirant company must have Tk 15 crore in paid-up capital to go for public offering and the company must raise at least Tk 15 crore or float 10 percent shares of its paid-up capital, whichever is higher.
Under the book building method, 70 percent shares of an IPO will be kept for institutional investors, including foreign ones, while the rest 30 percent will be kept for general public.
The general investors will have primary shares on 10 percent discounts from the cut-off price, which will be determined through bidding by institutional investors.
In the case of fixed price system, the ratio will be 50:50 for both institutional and general investors.
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Earlier, there was no quota for institutional investors in the IPOs under the fixed price method.
To use the book building method, a company must be in commercial operation for the last three years and must have profit records for the last two financial years.
The company also has to have positive net current assets and net operating cash flow for the last two financial years.
The regulator has also increased the number of disclosures and due diligence requirements by the issuer companies and issue managers.