DSE proposes ceiling on pre-IPO placement shares

Mohammad Mufazzal | Published: April 19, 2019 10:39:20 | Updated: April 21, 2019 16:10:18

The country's premier bourse has made a set of proposals including a provision for putting a cap on issuing pre-IPO (initial public offering) placement shares to ensure discipline in the capital market.

A delegation of Dhaka Stock Exchange (DSE) submitted the proposals to the Bangladesh Securities and Exchange Commission (BSEC) on Thursday.

After submitting the proposals, the DSE's broad of directors also held a discussion with the chairman and commissioners of the securities regulator.

"The securities regulator has warmly welcomed our proposals. They assured us of active consideration of our proposals on completion of securitisation," DSE Managing Director K. A. M. Majedur Rahman told the FE.

The DSE made their proposals in four categories-pre-IPO placement process, sale of shares by sponsor-directors, supply of securities having good fundamentals, and revision of the limit of banks' exposure to the capital market.

The DSE proposed a ceiling--25 per cent of a company's paid-up capital--on pre-IPO placement shares.

It also proposed one-year lock-in on the shares of the placement holders from the date of debut trading, instead of the date of approving the IPO prospectus.

"The number of pre-IPO placement shareholders should be limited to 50," the DSE proposal mentioned.

The DSE made the proposal to avert any sudden sale pressure from the placement holders after their lock-in period.

According to the DSE managing director, presently a company can issue shares up to 50 per cent of the paid-up capital to the sponsors and placement holders.

"For different reasons, the lock-in system on placement shares almost ends just after debut trading. As a result, the market faces a sale pressure from the placement holders," the DSE managing director said.

In its proposal the DSE also said there had been reports about unhealthy practices in issuing private placement shares in recent times.

"We have made the proposals regarding issuance of placement shares to thwart any abuse," the DSE said.

To prevent share sales without declaration by sponsor-directors and private placement holders, the DSE sought flagging the system for identification of such shares.

"The share sales by the sponsor-directors shall be executed after 15 days from the date of declaration to provide the opportunity of taking a decision on holding or offloading shares by general investors."

The DSE said a three-year lock-in system should be imposed on the shares of sponsor-directors from the date of debut trading, instead of the date of approving the IPO prospectus by the regulator.

"At the time of share sales by sponsor-directors, the compliance regarding mandatory holding of 2.0 per cent and 30 per cent shares must be ensured," the DSE said.

The category of a listed company should be changed, if its sponsor-directors fail to hold the minimum amount of shares as per the securities rules, the DSE proposed.

"The directorship should be cancelled automatically, if a sponsor-director fails to hold the minimum 2.0 per cent shares compared to the company's total paid-up capital."

The DSE demanded a joint initiative by the government and the securities regulator for offloading the shares of state-owned enterprises (SoEs).

"The BSEC should take an initiative to bring multinational companies to the capital market as those are listed with the stock exchanges in other countries," the DSE proposal mentioned.

In its proposal, the DSE said the banks' limit on exposure to the capital market should be based on the cost price of securities, instead of mark to market.

"The investment capacity of the Investment Corporation of Bangladesh (ICB) should be enhanced easing restriction on its single-party exposure and capital market exposure," the DSE said.


Share if you like