Changes in rules of book building system in the offing

The securities regulator again will bring changes in the rules of book building (BB) system to curb alleged ‘nexus’ of fixing indicative price of the companies willing to go public under such system, officials said.

An official of the Bangladesh Securities and Exchange Commission (BSEC) said possible changes will be brought to the upcoming amendment of public issue rules.

The regulatory move on bringing changes in BB system came following alleged ‘nexus’ in fixing the indicative price of a company which is await the public subscription.

That company recently submitted the list of prices quoted by 42 institutional investors to the securities regulator.

According to the list, out of 42 institutional investors, 37 offered Tk 80 and the remaining seven offered price within the range of Tk 80.15 to Tk 86.

Experts and market insiders said the identical price offered by 88 per cent institutional investors indicates the strong possibility of ‘nexus’ occurred before offering price.

“It clearly seems to us that a nexus occurred during offering of same indicative price by majority number of institutional investors. But we have no proof and no one will speak on the issue,” said a BSEC official.

He said the securities regulator is presently working to bring amendment to the public issue rules.

“The regulator will bring changes in BB system in an effort to curb alleged nexus of fixing indicative price. The possible change in BB system will be cleared when the amendment to public issue rules will be completed,” the official said.

Another BSEC official said the regulator is also reviewing the allegations of fixing indicative price through nexus.

BB system means the process by which an issuer attempts to determine the price to offer its security based on demand from institutional investors.

The government postponed the BB system in early January, 2011 amid the allegation of siphoning off money from the stock market through over-pricing under BB system.

Later in early August, 2011 the securities regulator brought amendment to the BB method to curb the anomalies allegedly practiced before the December (2010)-January (2011) stock market debacle.

As per revised rules, the issue manager will have to submit the price offered by at least 20 institutional investors and among those prices 18 must be from six categories.

And final indicative price will have to be supported by at least 15 institutional investors who will receive shares preserved for them.

The securities regulator also extended the lock-in period to six months from previous 15 days for the shares of eligible institutional investors.

Under the amended BB system, so far three companies moved to go public. The companies are: Energypac Power Generation (EPG), United Power Generation & Distribution Company Limited (UPGD) and Acme Laboratories.

The BSEC officials said Energypac Power Generation (EPG), which earlier completed road show, changed their decision of going public under BB system.

United Power Generation & Distribution Company Limited (UPGD) is awaiting the public subscription which will be started from today (Sunday).

Another company Acme Laboratories received prices offered by eligible institutional investors ahead of going for electronic bidding.