SECP revises regulatory framework for issue of shares through book-building process

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As part of its mandate to promote the primary market and to extend maximum facilitation to Initial Public Offerings (IPOs) in Pakistan, the Securities and Exchange Commission of Pakistan (SECP) has approved the draft Book-Building Regulations 2015 for issue of shares to the public through the book-building.

Earlier, the book building mechanism in IPO was introduced by the SECP in 2008 through amendments to the listing regulations of the stock exchanges. The book building is a common practice in the developed markets and being used in emerging markets as well. Since introduction of the book building mechanism in our market, 17 issues have been offered through book building out of total 29 issues.

The existing book building regulations which are part of the listing regulations of the stock exchanges are not effectively enforceable due to non-applicability of these regulations on the book runners and non-availability of any penalty clause therein. To bring efficiency and transparency in the book building process, it is imperative that the existing regulatory framework for book building is reviewed and replaced with the one directly administered by the SECP.

The key features of the draft Book Building Regulations 2015 are as under: (a) Prospectus is required to be published and circulated just once i.e. before commencement of the book building. (b) Mechanism for pre-registration of the potential bidders with the institution providing the book building system. (c) IPO grading from a credit rating agency. (d) Permission for accepting bids by the book runner, on its own discretion, without margin money if the bidder is a foreign institutional investor and the book runner guarantee payment of the full bid money.

(e) Provision for payment of margin money through online transfer. (f) Restriction on making consolidated bid i.e. a bid which is fully or partially beneficially owned by persons other than the one named therein. (g) Maximum bid size by a single bidder is 5% of the book building portion. (h) No cap on upper limit of the bid size and (i) No revision of the bid once the bidding period is closed.

The regulations will now be placed before the SECP’s policy board for final approval. Once the regulations are approved by the policy board, they shall be published in the Official Gazette for soliciting public comments as required under Section 40 of the Securities and Exchange Commission of Pakistan Act, 1997.