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The country's capital market watchdog is set to introduce a fresh guideline for floating primary shares with a view to encouraging the reputed local, foreign and joint venture companies to go public.
"The consultative committee of the Securities and Exchange Commission (SEC) is now examining the nitty-gritty of the proposed rule - 'book building' - in floating initial public offerings (IPOs) by the business enterprises," SEC Chairman Mirza Azizul Islam told the FE.
The SEC top brass, however, expressed his guarded optimism about the proposed 'book building' system.
Under the proposed 'book building' method, underwriters would buy all the shares to be floated by business enterprises into the stock markets through competitive bidding procedure.
Underwriters would then choose some seller groups or brokers to put up those shares for sell to the retail investors.
The share issuing companies will get their share prices from the underwriter who will be the highest bidder in the bidding procedure.
SEC sources said the paid up capital of the share issuing companies would be enhanced significantly through the book building process.
They said unlike the existing IPO allotment system, no lottery will be held for selecting the shareholders under the book building regulation.
"The business enterprises with strong fundamentals would be encouraged to step into the country's stock markets and thus a vibrant capital market with listing of quality scrips could be established once the method is implemented," he said pointing to the positive side of it. He however admitted that small investors would be cut-off from the IPO process of these enterprises," he added.
Stock market players are strongly in favour of the 'book building' system saying that the quality companies would be encouraged to step into the capital market.
"A level playing field would be established in the stock markets if the proposed method in floating IPOs is introduced," said Vice President of the Dhaka Stock Exchange (DSE) Ahmed Rashid.
At present the number of applicants for IPOs is huge. But most of those who get allotment of primary shares dispose of the same immediately after initiation of trading of respective shares in the bourses, he said.
It would be beneficial for the capital market if the price benefit goes to the companies concerned through the book building system, the DSE senior official said.
The system is well in practice in the almost all the developed countries including India, he added.
Country's both the bourses - the DSE and the Chittagong Stock Exchange (CSE) - already placed formal proposals separately to the SEC relating to the proposed change in the current IPO system to attract quality shares in the stock markets.
Under the existing system of IPO floatation the share issuing companies float IPOs to raise their capital base from the stock markets.
Interested beneficiary owners (BO) account holders apply for shares depositing required amount of money with banks.
Commenting on the 'book building' system the Convenor of the SEC Consultative Committee Executive Director Mansur Ahmed said: "The book building method is the demand of the market and the country's economy."
The system should be introduced to attract quality companies in the capital market, he said.
The interest of the small investors also have be protected, he said.
He, however, said that initially the existing IPO system and the 'book building' system might run in parallel.
The commission is now fixing the criteria to determine which company deserves the book building system to float IPOs at the initial level, he added.
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