Bangladesh Securities and Exchange Commission (BSEC) is likely to announce a series of changes to the Initial Public Offering (IPO) framework to increase institutional investors’ participation and widen issue mangers responsibility.
The changes planned are keeping quota in IPO for the institutional investors and foreign investors as well, enhancing issue manager responsibility, setting up a separate trading platform for small firms to raise funds and lowering paid-up capital required for public offer under book-building method, according to sources.
The tweaks to the IPO framework are being planned at a time when a slew of companies, particularly small one, are gearing up to hit the market for raising capital.
The changes, sources indicated, are expected to be proposed at the BSEC’s board meeting by this year. After that, the regulator will post the changes in its website seeking public opinion and stakeholders before giving it final shape.
“The regulator is planning to allocate quota for the institutional investors in public issues under fixed price method,” said an official.
At present, institutional investors enjoy IPO quota in book building method but not in fixed price method.
“The move is to bring synchronisation in quota allocation for the institutional investors and retailers between the two methods.”
It has recently been noticed that some individuals opening hundreds of BO (Beneficiary Owner) accounts takes part in IPO and have tendency, in most cases, to exit from the market by selling lottery-owned shares immediately after beginning of trading, creating instability in the market, he said.
Without specifying the new cap, he said the rise in quota for such investors would be carved out from the retail investors’ share, to ease price volatility at debut.
Institutional investors are like banks, non-banking financial institution, stock dealers, merchant banks and insurers.
Under the book building method, in a Tk30 to 50 crore IPO size, 40% quota are meant for institutional investors and 35% for retail investors.
In a Tk50 to 100 crore IPO, 50% quota are allotted for institutional investors, while 25% quota is for retail investors and over Tk100 crore IPO, 60% quota is for institutional investors, while 15% for retailers. In all the cases, 15% quota is for mutual funds and 10% for non-resident Bangladeshis.
“The move is good for the market, as more institutional participation will help stabilise the market,” said Mirza Azizul Islam, former finance adviser to the caretaker government and also ex-chairman of Bangladesh Securities and Exchange Commission.
He said retailers having heard-mentality create instability in the market.
For issue manager, the regulator also plans to widen responsibility from prior to the IPO approval to the issuers’ utilisation of raised money from the public, as currently there is no rule in this regard.
“I don’t know how much it will be good for the . Prior approval of an IPO is the responsibility of an issue manager, but monitoring fund utilisation is the responsibility of the regulator and stock exchanges,” said Aziz.
In a new wave of reforms, small firms are also likely to get a separate platform to raise funds and list their shares with an easier set of regulations.
Under the new norms for small firms, the BSEC is likely to provide ‘Alternate Capital Raising Platform’, which will allow such firms to raise funds, sources said.
Paid up capital required for public offering by a company is likely to be relaxed by reducing to Tk20crore from existing Tk30 crore under the book building method.
