The securities regulator's move on limiting the sale of pre-IPO placement shares to individuals or companies will not be justified under the prevailing market scenario, experts said.
They said there is no strong reason for the proposed SEC (Securities and Exchange Commission) move since it would have the potentials of concentrating stocks in the hands of a chosen few.
If the planned move of the SEC is implemented, there is every reason to suspect that the company concerned would distribute its pre-placement shares among its subsidiaries and hand-picked people, stock market watchers said.
More participation in private placement means the proper distribution. Besides, the commission with the help of CDBL (central depository of Bangladesh Ltd) should monitor that the locked in shares are not traded before one year, they observed.
The observation came after the Securities and Exchange Commission (SEC) plans to tighten rules on pre-IPO placement to prevent making of windfall profit through trading on such shares by the beneficiaries.
Under the plan, the regulator is seeking to introduce a specific guideline, under which a company intending to go public will not be allowed to sell pre-IPO private placement to not more than 50 institutions or individuals.
If the said limit exceeds, the pre-IPO placement or capital raised before IPO will be treated as public offering.
But the market analysts suggested increase in the share of public offering instead of limiting on pre-IPO placement. They said the SEC should reduce the size of the pre-IPO placement, so that the major part of stakes can be subscribed by general investors.
Currently, there is no bar on the number of individuals or institutions chosen for private placement.
Pre-IPO placement is a portion of an IPO placed with private investors before the IPO is scheduled to hit the market.
The price paid for shares in a pre-IPO placement is usually less than the prospective IPO price. But there is a lock-in period for one year for these investors.
But an official of the SEC argued that the commission plans to introduce guideline in a bid to check the abuse of private placement.
"Presently, there are no specific rules or guidelines for pre-IPO private placement and the companies raise capital before the public offer with permission from the SEC under the capital issue rules," he added.
Taking advantage of the loopholes, many companies allegedly allotted pre-IPO placement in a discretionary way.
Following the allegations, the SEC recently proposed an amendment to the capital issue rules saying raising capital before the public offer should be through the over-the-counter (OTC) market, instead of the existing private placement.
Source: http://thefinancialexpress-bd.com
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