Regulator keeps valuation clause in book building

The Securities and Exchange Commission has decided in principle to keep a proposed clause on valuation in the final amendment to the book building method, although market stakeholders urged the regulator a week ago to eliminate the clause.
The clause is related to determining the indicative price of shares of a company, which will use the book building system for an initial public offer (IPO), based on the firm's earnings per share (EPS) and net asset value (NAV).
The clause reads: indicative price will be such that it does not exceed the following yardstick: 15 times of weighted average EPS of the preceding three years or three times of net asset value, whichever is lower but no less than NAV of a share.
“The commission at a meeting yesterday decided to keep the clause as had been proposed,” said Saifur Rahman, the SEC spokesman.
However, he said, before issuing the gazette notification on the book building amendment, the draft proposal will be published in the national dailies for public opinion.
After the stockmarket debacle, the government in January directed the SEC to suspend the book building method. Following recommendations by a high-profile probe committee on the share market crash, the government instructed the SEC to alter the book building rules, instead of stopping the system, as it is well practised in other countries.
He said the commission has reduced the lock-in period for eligible institutional investors (EIIs) to four months, instead of the previously proposed six months.
The SEC has added three more categories to the indicative price discovery section. Along with merchant banks, commercial banks and asset management companies, non-banking financial institutions (NBFIs), insurance companies and stock dealers should also support the indicative price, he said.
“The indicative price should be supported by at least 20 EIIs including at least three quotations from each of the six categories,” said Rahman, also an executive director of the SEC.
The commission removed the proposal of having a committee for verification of audited financial statements of companies that will use book building method.
However, he said, the SEC would re-examine the audited financial statements through the panel of auditors if the regulator receives any allegation or have any doubts about the statement.