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IPO rules: IPO Scenario of Bangladesh (1994-2008) The SEC was established in 1993 and has enacted numerous

rules and regulations to structure and develop the capital market, but the result is still stagnation. After the surge of events in the year 1990, starting from a general increase in 1994 and leading to a boom that eventually crashed in 1996. From 1994 to 2005 (up to July), the number of companies going public and subsequently listed on the DSE or on the Chittagong Stock Exchange (CSE) or on both exceeded one per month. However, the number of IPOs has varied from year to year, with some years having fewer than 10 IPOs, and others having more than 20. DSE market capitalization amounted to 2.52% of GDP at the end of 2001. The DSE All Share Price Index gained only 2.27% between 2001 and 2002. There were eight (8) IPOs during 2002, a decline from eleven (11) in the previous year. In the year 2006, only ten (10) companies offloaded BDT 3112.152 million of public share in the capital market .In 2007 the number of company issued their IPO was fourteen (14) with the total amount of BDT 3,3739 million of public share. This year the quantity of IPO increased compare to the last year. floated In 2008 there were twelve (12) companies

their share in the market. However, total issued shares, sponsors part, and public offer etc. in 2008 were not found to be very promising for potential investors. Oversubscription in the context of IPOs had made the share of public offer to decrease by about 49 per cent.

The Consultative Committee of Securities and Exchange Commission (SEC) yesterday decided to recommend that the regulator relax the IPO rules to encourage non-listed companies to go public. The committee said a company with at least Tk 25 crore in paid-up capital, including the IPO offer size, should be allowed for listing on the exchanges. Mansur Alam, convenor of the committee and also a member of the SEC, confirmed the recommendations after the meeting. The existing IPO (initial public offering) rules allow a company having minimum Tk 40 crore in paid-up capital, including the IPO offer size, to be listed on the exchanges. The issue managers at the meeting argued that many companies are interested to come to the market, but cannot due to the IPO conditions, officials present at the meeting said. If the rules are relaxed, they will be able to bring more new companies to the market that is now facing a dearth of fresh securities, the issue managers told the meeting. A senior official of the SEC said the regulator has set the existing IPO rules with the directives from the government, and so it may need to discuss with the government again on the recommendations placed by the consultative committee. The committee comprises representatives from Bangladesh Bank, Dhaka Stock Exchange, Chittagong Stock Exchange, Bangladesh Association of Publicly Listed Companies (BAPLC), Institute of Chartered Accountants of Bangladesh, Bangladesh Merchant Bankers' Association and the SEC. Representatives from Central Depository Bangladesh Ltd and the SEC also attended the meeting. The meeting also put forward a recommendation that pre-IPO private placement, or raising capital before IPO, should be through a regulatory framework, and necessary rules should be formulated to bring transparency in the private placement process. The committee has asked merchant bankers and stock exchanges to prepare with the help of BAPLC a set of recommendations on formulating rules for pre-IPO private placement. "Presently, there are no specific rules or guidelines for pre-IPO private placement," said Mansur Alam, adding that now the companies raise capital before public offer with permission from the SEC under the capital issue rules. But, there are no details about the pre-IPO placement in the rules, and many companies allegedly placed pre-IPO at will, taking advantage of the loopholes.

Following allegations, the SEC recently proposed an amendment to the capital issue rules. The proposed amendment says raising capital before public offer shall be through the over-the-counter (OTC) market, instead of the existing private placement. "The recommendations, set by the merchant bankers and stock exchanges, will be discussed at the next meeting of the consultative committee," Alam said. The committee also discussed the calculation method for margin loan maintenance. As another committee of the SEC -- Executive Directors' (EDs) Committee -- is working on the issue, the consultative committee asked the EDs Committee to submit its recommendations at the next meeting. The consultative committee further discussed the calculation method for determining indicative price of a stock under book building method, and opposed the existing computing system. As per the existing method, indicative price is determined by averaging the price offers of the participating bidders Sarwar A Chowdhury Tuesday, August 10, 2010 Daily Star

Regulator takes step to ease IPO rules Sarwar A Chowdhury The Securities and Exchange Commission (SEC) will seek permission from the government to relax the rules for initial public offerings to encourage more companies to go public. The chairman of the stockmarket regulator will talk to the finance minister on relaxing the rules, as the existing ones had been laid out on the government's prescription, SEC officials said. SEC Chairman Ziaul Haque Khondker yesterday sat with the commission's members and executive directors, and asked for their take on the matter. The meeting participants said the move would push non-listed companies to come to market. In line with the existing rules, a company must have a minimum of Tk 40 crore in paidup capital, including the IPO offer size, to list on the exchanges.

Following introduction of the new rules last year, only a few companies entered the market. Even though many others were interested, they were deterred by the IPO conditions. The condition of a required capital base of Tk 40 crore contradicts the book-building method, which allows a company to go for IPO with shares equivalent to 10 percent of the company's paid-up capital, or Tk 30 crore, whichever is higher, analysts say. In August, SEC's Consultative Committee recommended relaxation of the IPO rules to encourage more companies to be listed. The committee said a company with at least Tk 25 crore in paid-up capital, including IPO offer size, should be allowed to go for listing. The Bangladesh Association of Publicly Listed Companies at a meeting of the parliamentary standing committee on the finance ministry last month urged the government and SEC to ease the IPO rules. In addition, Bangladesh Merchant Bankers' Association, on several occasions, urged SEC to move on the matter. Merchant bankers, who manage IPO floatation, said if the rules were relaxed, they would be able to attract newcomers into the market Wednesday, October 20, 2010

DSE wants lower PE ratio for IPO Font size: Ahmed Shawki The Dhaka Stock Exchange at a board meeting on Tuesday decided that it would put forward some suggestions to the Securities and Exchange Commission on the amendments of the bookbuilding method proposed by the SEC. 'The bourse has decided to suggest that the maximum price earning ratio set for a company for issuing initial public offering under the method should be at or below 10 instead of 15 as proposed by the commission,' said a DSE director who was present in the meeting.

The book-building method is a widely used method in the world and we should follow the international standard in this regard, he said. 'In other countries, PE ratio set for a company for issuing IPO under the method do not exceed 10 and we will suggest the commission to follow the practice,' he said. The DSE also decided to suggest for a more precise guidelines on assessing the net asset value of an issuer company. He said, 'In the SEC's drafts on amendments of book-building method, the commission have only stated that price of the shares of a company willing to issue IPO under the book-building method should be less than or equal to five times of the company's net asset value. But we decided to suggest the commission that it should have rules for a clear assessment of the net asset value of a company.' 'If the NAV is not assessed on the core business unit of the company it may give an incorrect picture of the company as we have seen some companies are making huge profits from their investments in the stock market but their core business has been suffering,' he said. The DSE director also said the bourse would suggest for a strict action against an issue manager if it is found involved in any improper practice in the process of book-building method. On Monday a meeting of senior official of the SEC, two stock exchanges and leaders of the Bangladesh Merchant Bankers' Association and the Bangladesh Association of Publicly Listed Companies decided that the stakeholders would table their suggestions to the commission after analysing the drafts of proposed changes made by the commission in the rules in their respective board of directors' meetings.

22 OCTOBER, 2010 Regulator

SEC for conditional approval to go public


Syful Islam The Securities and Exchange Commission (SEC) has opined to offer conditional approval of floating initial public offerings (IPO) by the insurance companies with low paid up capital, officials said Tuesday. The Insurance Act 2010 has set paid up capital for life and general insurance companies to Tk 300 million and Tk 400 million respectively. In line with the act, SEC in November last year has set minimum paid up capital to Tk 300 million for insurance companies intending to float IPO. Besides, it set the minimum IPO size at Tk 120 million which won't be less than 10 per cent of the paid up capital of the company. Insurance companies which started business under the Insurance Act-1938 got approval with paid up capital for life insurance at Tk 75 million and for general insurance Tk 150 million. With the new act passed in the parliament last year, many existing insurance companies whose paid up capital is below the newly set minimum level failed to go public. The Ministry of Finance last month sought opinion of the SEC on how to allow the existing insurance companies to float IPO with paid up capital below the new minimum level. The SEC on Sunday last opined that the insurance companies can get approval to float IPO and those can be given time to raise their paid up capital within a time frame. Besides, they can be allowed to raise paid up capital through issuing rights and bonus shares. But they won't be allowed to pay cash dividend before their paid up capital reach at newly set minimum level. Secretary General of Bangladesh Insurance Association (BIA) Molla Nurul Islam told the FE that a good number of insurance companies failed to float IPO due to the newly set minimum paid-up capital.

A total of 60 private insurance companies, including a foreign company, are now operating in the country. Of them, 18 are life insurance, and 42 are the general insurance, companies. Besides, two state-owned entities -- Jiban Bima Corporation (JBC) and Sadharan Bima Corporation (SBC) -- are also operating in life and insurance business respectively. Some 44 insurance companies with an issued capital worth Tk.9.08 billion are listed with the stock exchanges. The insurance sector witnessed a growth of about 30 per cent last fiscal which in China was 34 per cent and in India 32 per cent.

The Securities and ExchangeCommission (SEC) has opined to offer conditional approval of floating initial public offerings (IPO) by the insurance companies with low paid up capital, officials said Tuesday. The Insurance Act 2010 has set paid up capital for life and general insurance companies to Tk 300 million and Tk 400 million respectively. In line with the act, SEC in November last year has set minimum paid up capital to Tk 300 million for insurance companies intending to float IPO. Besides, it set the minimum IPO size at Tk 120 million which wont be less than 10 per cent of the paid up capital of the company. Insurance companies which started business under the Insurance Act-1938 got approval with paid up capital for life insurance at Tk 75 million and for general insurance Tk 150 million. With the new act passed in the parliament last year, many existing insurance companies whose paid up capital is below the newly set minimum level failed to go public. The Ministry of Finance last month sought opinion of the SEC on how to allow the existing insurance companies to float IPO with paid up capital below the new minimum level. The SEC on Sunday last opined that the insurance companies can get approval to float IPO and those can be given time to raise their paid up capital within a time frame. Besides, they can be allowed to raise paid up capital through issuing rights and bonus shares. But they wont be allowed to pay cash dividend before their paid up capital reach at newly set minimum level. Secretary General of Bangladesh Insurance Association (BIA) Molla Nurul Islam told the FE that a good number of insurance companies failed to float IPO due to the newly set minimum paid-up capital.

A total of 60 private insurance companies, including a foreign company, are now operating in the country. Of them, 18 are life insurance, and 42 are the general insurance, companies. Besides, two state-owned entities Jiban Bima Corporation (JBC) and Sadharan Bima Corporation (SBC) are also operating in life and insurance business respectively. Some 44 insurance companies with an issued capital worth Tk.9.08 billion are listed with the stock exchanges. The insurance sector witnessed a growth of about 30 per cent last fiscal which in China was 34 per cent and in India 32 per cent. Source: The financial express, 6 April, 2011

IPO RULES:

Companies with Tk 18 crore in minimum paid-up capital will be allowed to go public, according to new rules set by the Securities and Exchange Commission (SEC) yesterday.

The minimum size of an initial public offering (IPO) should be Tk 12 crore, meaning a company with at least Tk 30 crore paid-up capital, including the minimum IPO size, can go public.

A company with big capital will have to go for an IPO with minimum shares equivalent to 10 percent of the total of its paid-up capital and IPO size. For example, if a company's existing paidup capital is Tk 150 crore and it wants to raise Tk 10 crore from the stockmarket, its IPO size should be at least Tk 16 crore, which is 10 percent of Tk 160 crore.

Market experts and merchant bankers welcomed the SEC move on the IPO rules, but said the regulator should have relaxed the rules much earlier. They said it will encourage more new companies to go public at a time when the demand for fresh issues is increasing day by day.

In line with the previous IPO rules that were laid out in March this year on the government's prescription, a company must had a minimum of Tk 40 crore in paid-up capital, including the IPO size, to list on the exchanges.

If the company's existing paid-up capital and IPO offer size was Tk 75 crore, it had to offer new shares equivalent to 40 percent of Tk 75 crore, while the percentage ratio for paid-up capital above Tk 75 crore to Tk 150 crore was 25 percent or Tk 30 crore, whichever higher; and for more than Tk 150 crore it was 15 percent or Tk 40 crore, whichever higher.

Now, as per the relaxed IPO rules, there will be no such slabs.

The IPO rules were relaxed following continuous criticisms from economists, entrepreneurs and merchant bankers during the last seven months.

In August, the consultative committee of the SEC recommended relaxation of the IPO rules to encourage more companies to be listed.

With the previous rules in place, only a few companies entered the market.

Source: The Daily Star (22 October 2010)