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CSE recommends changes to book building method

Gazi Towhid Ahmed
The Chittagong Stock Exchange has made a series of recommendations about the book building method to make the price discovery system of a company's shares effective.
The Chittagong bourse has already submitted its proposals to the Securities and Exchange Commission on the regulator's draft on the method, said Fakhor Uddin Ali Ahmed, president of CSE.
The government suspended the method in January following criticisms that companies misused the system to list on the capital market.
SEC initiated the move to
amend the system after the government-sponsored probe committee on the stockmarket made recommendations to make a "unique guideline" for all stakeholders.
For determining the indicative price, CSE has urged the SEC to consider 25 percent of net asset value (NAV), 25 percent of past earnings per share (EPS) and 30 percent of future EPS of a company.
The price earnings ratio of similar stock should be 10 percent, while the book value of a similar stock should be the same as the PE ratio to discover the indicative price.
If fixed asset re-valuation is done within three years, the
indicative price will be equal to current NAV the bourse said.
EPS should be computed on a fully-diluted basis, using the projected post-IPO number of shares outstanding, the bourse said.
In case of P/E and price book value of similar stock, the issue manager should use reasonable due diligence. The checklist of due diligence should be provided by the SEC to the issuer manager, the CSE recommended.
Syed Sajid Hossain, deputy chief executive officer of CSE, said: "Our proposal will help discover a perfect indicative price of a company.”
CSE recommended that the bid price during the book build-
ing process will be more or less 10 percent of the indicative price, while the institutional investors shall be allowed to quote more than 5 percent of the total security offered for sale.
It said a draft copy of the proposal should also be sent to Bangladesh Association of Publicly Listed Companies, apart from five associations.
CSE said the role of the two bourses and other associations mentioned in the SEC proposal need to be defined by SEC.
The SEC proposal says hardcopy of draft prospectus will be sent to Bangladesh Merchant Bankers Association, Dhaka Stock Exchange, CSE, Bankers Association, Bangladesh Leasing
and Finance Companies Association, Insurance Association of Bangladesh.
CSE recommended the indicative price discovery form should be submitted online after the roadshow and within two workdays. The application form should be available online, it said.
It said the lock-in period for institutional investors should be 30 days.
The CSE also suggested the SEC form a panel of experts and auditors to securitise and verify audited financial statements. The fee of such panel should be determined and paid by the SEC.
gazitowhid@thedailystar.net