Star (August 12, 2011)

Market stakeholders have urged the Securities and Exchange Commission to erase a proposed clause on valuation from the draft on an amended book building method.
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).
They have argued that if the clause is included in book building rules, an amendment to other sections or inclusion of new clauses will be meaningless.
The SEC discussed the book building system with Dhaka and Chittagong stock exchanges, Bangladesh Merchant Bankers Association, Bangladesh Association of Listed Companies and the Investment Corporation of Bangladesh.
The proposed 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 a share.
“We proposed that there should not be any limitation on price, meaning the price should not be determined by EPS and NAV,” said Ahsanul Islam, senior vice-president of Dhaka Stock Exchange.
The valuation based on the EPS and NAV does not match with the book building method, he said.
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 scam, the government instructed the SEC to alter the book building rules, instead of stopping the system, as it is well practised in other countries.
“The commission will examine their recommendations in the next meeting,” said Saifur Rahman, executive director of the SEC.
The stakeholders also recommended increasing the number of category of institutional investors who builds up the indicative price.
As per the draft amendment, the indicative prices should be supported by at least 20 EIIs including at least five quotations from each of the following category: merchant banks, commercial banks and asset management companies.
The stakeholders also opposed the proposal of having a committee composed of experts that will scrutinise and verify the audited financial statements submitted in connection with an IPO.
They argued that it will increase the complexity in the IPO process.
Some of them also recommended reducing the lock-in period for eligible institutional investors from six months to three months, while some others requested to keep the existing lock-in period of 15 days.
The market stakeholders gave different opinions and proposals or suggestions on each and every issue of the draft on amendment in the book building method, a meeting source added.