Book-building for IPO within 3 months

Book-building, a modern and widely practised price fixing mechanism for IPO, will be introduced within three months in a bid to encourage the private sector entrepreneurs to list their companies on the stock exchanges, the Securities and Exchange Commission chairman said yesterday.
“Although there is a scope for further modification in the draft of the book-building system, it is in the final stage. We will now work to transform it into legal form and hope we can introduce the system after two or three months,” said Faruq Ahmad Siddiqi.
He was speaking at a seminar on 'Book-building methods and its practices' organised by Chittagong Stock Exchange in Dhaka.
Book-building is basically a capital issuance process used in initial public offering (IPO), which aids price and demand discovery. In the book-building process, the prices of shares are determined on the basis of market demand and thus the chances of over/under pricing are minimised. The issuer provides an indicative price in the Red Herring prospectus, a prospectus that does not have details of either price of number of shares being offered or the amount of issues.
The SEC chief said the country's capital market is dominated by financial sector companies, as banks, financial institutions and insurance companies have been listed on the stock exchanges to fulfil regulatory requirements. “Apart from this, as many as five state-owned enterprises offloaded shares during the last couple of years. But, the private sector companies are not being listed or raise capital from the stock market with that pace,” he said.
The reasons behind the private sector entrepreneurs' unwillingness to list their companies on the stock exchanges are that they do not want to share their family business with others, lack of knowledge about the capital market, and reluctance to disclose their financial statements, the SEC chief said.
“Another major reason is the absence of a fair and modern pricing mechanism. In most cases, the entrepreneurs feel they will not get accurate price for their companies' shares,” Ahmad said.
He, however, said the private sector entrepreneurs were making queries about listing, and processes of raising money from the capital market during the last two to three months.
Introduction of the book-building system will encourage them to list their companies on the stock exchanges, he added.
SEC Executive Director Abdul Hannan Zoarder presented a keynote paper, while CSE President Nasiruddin Ahmed and Chief Executive Officer AB Siddique also spoke at the seminar, moderated by CSE Vice President Al Maruf Khan.