Small-cap companies that are after a premium will have to offload shares to institutional investors at the prices at which they place their bids as the stock market regulator looks to rein in collusion amongst companies and investors to set a higher premium.
At present, institutional investors buy shares of such companies at the cut-off price, which is a weighted average of all the bids received by the underwriter during the book-building method for an initial public offering.
The premium is the additional price that a company seeks apart from its face value when it offloads shares through an IPO.
It has been alleged that companies and institutional investors collude during the book-building process by bidding a higher price so that the cut-off price can be set higher.
“Now, institutional investors will be cautious because they will be losers if they overbid,” said a top official of the Bangladesh Securities and Exchange Commission requesting anonymity.
Since a higher premium ultimately affects all investors, the BSEC does not want small-cap companies to be burdened with over-valuation. The stock market regulator had earlier directed institutional investors to justify their bidding price to control over-estimation but the outcome was not satisfactory.
“If this turns into a success, the same method can be introduced on the main board too,” he added.
The small-cap board is set to be introduced next month, said KAM Majedur Rahman, managing director of the Dhaka stock Exchange.
The new board would open up a new avenue for small-cap companies, the paid-up capital of which would be between Tk 5 crore and Tk 30 crore after listing, according to the gazette notification made last month.
If a company seeks premium, it has had to log in profits for the last two financial years at least and have a minimum paid-up capital of Tk 10 crore. However, if the paid-up capital goes past Tk 30 crore, the firm will have to apply for listing on the main board of the exchanges.