Book-building method being abused: BSEC

The book-building system is being abused in defining cut-off price of ordinary shares, M Khairul Hossain, chairman of Bangladesh Securities and Exchange Commission, said yesterday.

“We are taking corrective measures on a case-by-case basis to stop misuse and the process will continue,” he said.

The BSEC chief cited the name of a company as an example and said there has been unusual price bidding of ordinary shares of the company under the book-building process.  “There is a huge gap between the highest and lowest prices proposed by the institutional investors.”

“We asked the institutional investors about their logic for bidding such high prices,” he said, adding that action will be taken after reviewing their response.

Earlier in October, the company held its price bidding, where institutional investors proposed prices between Tk 12 and Tk 90. Later, BSEC formed an inquiry committee against the unusual price bidding.

Hossain's comments came at the seminar titled “Importance of capital market as a source of long term finance: Bangladesh perspective”.

The Bangladesh Merchant Bankers Association (BMBA) organised the event at the capital's Westin hotel.

At the event, Hossain asked merchant banks to sound out their objections if any non-fundamental company is given approval by the BSEC to get listed.

He went on to urge private sector investors to use the stockmarket as a source of financing instead of banks.

“The situation in the banking sector is not good because there is a culture of not returning money to the banks.”

The capital market is the best source of financing because investors do not need collateral here, he said.

Hossain also urged the government to take initiatives such as increasing the tax rebates with a view to bringing the multinomial companies to the capital market. The share prices of companies with weak fundamentals are on the rise, said Azam J Chowdhury, president of the Bangladesh Association of Publicly Listed Companies.

Even some companies that are not operational are seeing an increase in share price, he said.

“BSEC should take action against such companies to recover investor confidence because there is still fear in the market after the debacle of 2010,” he added.

Ahsan Khan Chowdhury, CEO of Pran-RFL Group, urged BSEC to make the processes for initial public offering and rights share offer easier such that private companies are tempted to get listed.

BMBA President Sayedur Rahman urged the government to increase the tax rebate for listed companies to 20 percent from existing 10 percent to encourage more companies to get listed.