KARACHI - The floor price for book building of Hascol was set by the Hascol at Rs.20 per share, Securities and Exchange Commission of Pakistan rejected the concept of price band or cap on the floor price during the recent Book Building Process.  

The strike price was determined through the book building at Rs.56.50 per share, i.e. 182.5pc above the floor price. Some of the investors were of the view that the strike price determined is inflated, exaggerated and manipulated. Some of the investors suggested introduction of the concept of the price band. The SECP on demand of the market introduced concept of price band on July 24, 2014. The price band was first implemented in the Initial Public Offering of Saif Power Limited in September 2014. The entire shares under the book building portion of the issue were subscribed at the upper limit of the price band.

It is noteworthy to mention here that SECP has no role in setting of the lower limit of the price band. However the above-mentioned book building criteria restricts the upper limit. After book building of Saif Power Limited, two IPOs of two companies, i.e. System Limited (SL) and Synthetic Products Enterprise Limited (SPEL) have been held through the book building and both these have been conducted in accordance with the SECP’s above-mentioned criteria. So there is no inconsistency in the SECP’s Book Building policy.

Furthermore, the statistics shows that in case of Saif Power Limited, System Limited and SPEL not only investors’ participation was encouraging, but base of the successful bidders was also diversified.

Under the SECP’s Book Building criteria, the issuer has full liberty to fix the price band, however, the spread in the price band shall not exceed a certain threshold. In case an issuer is confident that its shares worth high, it may accordingly set the lower limit of the price band high. In case the upper limit on the price band or cap is removed then we may face same situation and complaints as faced in the book building of Hascol Petroleum Limited. As regard to the Association’s proposal regarding allocation of shares on pro rata basis, it is stated that, pro rata allocation in book building is against the spirit of the book building; it hampers fair price discovery and   it exposes the book building process to manipulation by the investors by making bid immediate before the closing of the bidding for huge number of shares.

On the other side, KSE Stock Broker Association express concern over recent “Book Building Process” held for Initial Public Offerings in a number of companies, investors feel that the SECP is not following a consistent policy as it keeps on changing the regulations frequently. This state of affairs undermines investors’ confidence and gives a poor impression of the book building mechanism.