Regulatory support: SECP gives nod of approval to new book-building laws

Offer size will not be less than 25m shares, curbs placed on consolidated bids

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has approved the 2015 Book-Building Regulations, a statement said on Monday.

The approval of the new set of regulations follows the publication of draft regulations in January to elicit public opinion.

The book-building mechanism as part of the initial public offering (IPO) was initially introduced by the SECP in 2008 through amendments to the listing regulations of stock exchanges.

Book building is a common practice in developed markets and is being used in emerging markets as well. It leads to better price discovery through institutional and high net worth individual investors. Since the introduction of book building in Pakistan, 22 out of 33 issues have held IPOs using this mechanism.

The new book-building regulations entail that the total offer size should not be less than 25 million shares while the maximum bid size by a single bidder is 10% of the book-building portion of the issue. The regulations stipulate that associated companies and associated undertakings of the issuer will not in aggregate make bids for shares in excess of 5% of the book-building portion.

The prospectus for the issue - a document with details of the transaction - is now required to be published and circulated only once, ie, before the commencement of the book-building procedure.

The new regulations put a restriction on making a consolidated bid, which is fully or partially beneficially owned by persons other than the one named therein. Similarly, an eligible investor will not be allowed to make a bid with price variation of more than 20% of the prevailing indicative strike price. The new regulations mandate that the bidding process remains open for at least two days.

The new laws forbid ‘related employees’ - employees who are directly involved in the issue or the offer for sale of the issuer, offerer, book runner and sub-book runner - from participating in the bidding for share.

The SECP said the existing book-building regulations, which are part of listing regulations of the stock exchanges, are not effectively enforceable. This is because of non-applicability of these regulations to the book-runners and non-availability of any penalty clause.

“To bring about efficiency and transparency in the book-building process, it was imperative to replace the regulatory framework for book building with the one directly administered by the SECP,” it said.

Published in The Express Tribune, June 30^th,  2015.

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