IPO Process from the Context of Bangladesh

IPO Process from the Context of Bangladesh


First step of the process is the determination of indicative price. The issuer is required to invite offer for indicative price. Institutional investors approved by the Commission are eligible to participate in the process. The determination of indicative price involves the following institutional investors registered with or approved by SEC in this regard - 
  • Merchant Bankers accept the issue manager of the proposed issue
  • Foreign institutional investors
  • Recognized pension funds and provident funds
  • Banks and NBFIs under regulatory control of Bangladesh Bank
  • Insurance Companies regulated under Insurance Act, 1938
  • Institutional venture capital and institutional investors

Stock Dealers

Any other artificial juridical person permitted by the SEC for this purpose

Price so established shall be the basis for formal price building with an upward and downward band of 20%. Issuer in association with eligible investors shall quote indicative price to the Commission for its consent.

The second step starts with eligible institutional investors taking part in book bidding within the price band. The bidding period will be three to five days and no bidder shall be allowed to bid for more than 10% of the total security offered for sale.

The allotment to institutional investors will be made on the basis of the weighted average price of the bids that would clear the total number of securities set aside for them.

The third step is the allotment process to general investors and starts with the opening of subscription to them. IPO price for the general investors shall be fixed at the cut-off price of institutional bidding. General investors will include Mutual Funds and NRBs also.

How the issuer and regulator promote investor participation and eliminate flipping?

Depending on size of the issue, quota for institutional investors will vary from 20% to 50%. As usual, quota for Mutual Funds and NRBs will remain at 10% each. Public portion of the issue will therefore vary from 30% to 60%. Notable features of the method are that IPO price discovery is being made on the basis of market mechanism without intervention by the SEC. The price discovery process is restricted to participation of the institutional investors only. This is likely to ensure mature and responsible bidding on the basis of proper assessment by the professionals. The system also ensures that under no circumstances a general investor pays more than an institutional investor. There is also provision for lock-in of fifteen trading days from the first trading day on the security issued to institutional investors. Presumably, this has been done to ensure that institutional investors do not sell shares in bulk disturbing the market before the price stabilizes. However, since a company is required to have a minimum net worth of Taka 300 million to qualify under the system, smaller companies will not have access to the book building method.

It is expected that by ensuring market-based price of the public offer the new policy will encourage bigger and performing companies to come to the capital market. Proper IPO price is likely to open up an alternative source of cheaper funding. Besides, with the growth of economy the banks may not be in a position to offer long-term credit in the future. At that point of time the capital market is likely to grow very fast. The hesitant entrepreneurs may also come to realize that their business cannot grow beyond a point unless they come out of family management and ownership concept and opt for corporate governance by the professionals.

The country is facing both inflation and unemployment and policymakers are scratching their head about optimal monetary policy to cure the problem. Some economists are suggesting contraction and some are suggesting expansionary policy. Without taking any side, a brief by supporting both policies with logic and arguments.

Fiscal policy is the use of government spending and tax policy to influence the path of the economy over time. Automatic stabilizers, which we learned about in the last section, are a passive type of fiscal policy, since once the system is set up, Congress need not take any further action. On the other hand, discretionary fiscal policy is an active fiscal policy that uses expansionary or contractionary measures to speed the economy up or slow the economy down

Expansionary fiscal policy occurs when the Congress acts to cut tax rates or increase government spending, shifting the aggregate demand curve to the right. Contractionary fiscal policy occurs when Congress raises tax rates or cuts government spending, shifting aggregate demand to the left.

Expansionary Fiscal Policy

Expansionary fiscal policy increases the level of aggregate demand, through either increases in government spending or reductions in taxes. Expansionary policy can do this by:

  • increasing consumption by raising disposable income through cuts in personal income taxes or payroll taxes;
  • increasing investments by raising after-tax profits through cuts in business taxes; and
  • increasing government purchases through increased spending by the federal government on final goods and services and raising federal grants to state and local governments to increase their expenditures on final goods and services.

Contractionary fiscal policy does the reverse: it decreases the level of aggregate demand by decreasing consumption, decreasing investments, and decreasing government spending, either through cuts in government spending or increases in taxes. The aggregate demand/aggregate supply model is useful in judging whether expansionary or contractionary fiscal policy is appropriate.

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