IPO floatation guidelines set to be revised next week

FE Report

The Ministry of Finance (MoF) is set to revise the guidelines it issued about three and a half months back on minimum paid-up capital requirement -- 40 per cent of total paid-up capital -- for an intending company to qualify for making initial public offerings (IPOs), officials in the ministry said.

The restriction, made effective from November 5, 2009, drew criticism from capital market analysts and investors, which virtually discouraged many potential companies to raise their needed capital from the booming share market.

The finance ministry at a meeting early last November decided that a company would have to go for offloading minimum 40 per cent of its paid-up capital through IPO.

According to the revised guidelines, which are likely to be issued early next week, the percentage of IPO of an intending company has been tagged with the amount of paid-up capital under three categories, sources said.

A company having paid-up capital worth above Tk 1.5 billion has to go for IPO to offload a minimum of 15 per cent of its paid-up capital. However, the value of such a company's IPO has to be minimum Tk 400 million, according to category-one of the revised guidelines.

Under the new guidelines for the second category, a company having paid-up capital between Tk 750 million and Tk 1.5 billion has to go for IPO with the minimum of shares equivalent to 25 per cent of its paid-up capital. The amount of such company for IPO has to be minimum of Tk 300 million, sources said.

Under the last category a company having the paid-up capital worth less than Tk 750 million must raise at least 40 per cent of its paid up capital through IPOs.

Officials in the MoF said they have finalised the revised regulations for IPOs in consultations with the Securities and Exchange Commission (SEC) as the latter, being asked by the ministry, has recently submitted the new guidelines in this respect to replace the earlier one.

"We would issue the revised regulations of IPOs early next week to ensure the entry of new securities to the capital market," a top MoF official told the FE last Thursday.

He said the new guidelines on IPOs would help flow of shares from good companies.

Officials in the SEC said the regulations have been made in line with the recommendations made by the Commission.

At least three companies have been awaiting nods from the SEC for long for floating their IPOs without meeting the 40 per cent criteria and these companies will now be given permission for IPOs after the new IPO regulations are issued, the officials in the SEC said.

The companies are: RAK Ceramics, Beacon Pharmaceuticals and IIDFC, it is learnt.

The amounts of share offloading by the three companies are below the government's existing requirement for floating an IPO.

RAK Ceramics IPO size is Tk 300 million, which is more than 16 per cent of its existing paid up capital of Tk 1.85 billion, while Beacon Pharmaceuticals' Tk 300 million is around 16 per cent of its Tk 1.9 billion paid-up capital.

As of June 2009, IIDFC's paid up capital was Tk 140 million, and with the IPO floatation, another Tk 50 million will be added to the existing paid up capital. The company is offering Tk 70.5 million worth of shares, which include premium amounting to Tk 50 million, sources in the SEC said.