New method proposed to set share listing prices

An initial public offering will have to be worth at least Tk30 crore and amount to at least 10 percent of the shares in a company if it is to make use of the book-building process to set the stocks price.
The suggestion by the Consultative Committee of the Securities and Exchange Commission is part of the recommendations it has submitted to the SEC for approval at a meeting expected to be held later this week, sources said.
The book-building system is a process by which an underwriter attempts to determine at what price to offer shares in a company based on demand from institutional investors. Its introduction is aimed at encouraging large, quality companies to list their shares on the Dhaka Stock Exchange.
The present system of setting a share price in an initial public offering has been criticised for failing to produce a true reflection of the market value of a company.
For example in October shares in Trust Bank were listed for Tk150 but on the first day of trading rocketed to Tk849. In May, shares in Premier Bank, with an issue price of Tk100, closed on the first day at Tk360.
With the country's largest ever listings, the mobile telecom operators Grameenphone and AKTEL, expected next year, the SEC is keen to put in place systems that will ensure a smooth process.
However in order to use the book-building process, companies will have to fulfill certain conditions. A company will have to be in commercial operation for the last five years and made a net profit for the last three years, showing steady growth in earnings.
The company will also have to show it has no accumulated loss at the time of application, have a minimum rating of investment grade and hold regular annual general meetings.
Under the proposed system, the company will be required to conduct an independent audit of the last five years, annual reports by a chartered accountant firm selected by the SEC.
The proposals say institutional investors licensed by the SEC can participate in the price discovery process under the book-building system. The 'base price'/'cut off' price for public offer will be determined through the 'True Dutch Auction' method. This means the bidders will be allotted shares at the price the institutions have made their bid.