Sri Lanka's markets regulator said companies planning initial public offerings in future will have to allocate a minimum of 40 percent of shares initially to retail individual investors.
The Securities and Exchange Commission (SEC) said the move is aimed at helping broad base share ownership in the country.
The new rules will be effective from March 15, 2011.
"The SEC has observed that the recent IPOs were heavily oversubscribed due to investors using the bank guarantee option to submit IPO applications for a very large quantity of shares," the statement said."This has resulted in a majority of retail investors being allotted a small portion of the shares applied and has not created a level playing field in the primary market thereby hindering the process of broad basing share ownership in the country."
The SEC said a minimum of 40 percent of the offered shares for a particular share class in a public offer must be initially made available for allotment to retail individual investors.A ‘retail individual investor’ is as an individual investor who applies for up to a maximum of 3,000 shares or for a value of not more than 100,000 rupees, whichever is higher.
Applicants submitting applications under other investor categories shall not make applications under the retail individual investor category, the statement said.
The SEC also said a minimum of 10 percent of the offered shares in an IPO must be initially made available for allotment to Sri Lankan growth or balanced unit trust funds comprising of not less than 500 unit holders resident in Sri Lanka making up of at least half of the fund.
If there is an under-subscription in the unit trust investor category and an over-subscription in other investor categories, the oversubscription in the retail individual investor category shall be given first priority in allotment of under-subscribed shares, the SEC said.
If there is an under-subscription in the retail individual investor category and an over-subscription in other investor categories, over-subscription in the unit trust investor category shall be given first priority in the allotment of under-subscribed shares.
The new rules come after talks with the Colombo Stock Exchange, Colombo Stock Brokers Association and IPO managers.
The rules were mooted after increasing concern that big investors using bank guarantees to apply for large volumes of IPO shares were edging out small investors.
Stock market analysts have said new IPOs are coming at increasingly higher valuations.
A flood of IPOs is expected this year as companies move to raise cash in a market which has been hitting record highs in recent months, although it has fallen this week.
Related Info :
• Sri Lanka Securities Watchdog Eases Rules on Price Cap & Private Placements
• Sri Lanka to See app 50 IPO's in 2011 with atleast Two over Rs5bn by April
• Sri Lanka’s Equity & Capital Market Sees $459mn Net Inflow in 2010 from Total Inflow of $1.91bn
A right move by the SEC. Otherwise retail investors would be the ones to bear the brunt while heavy weights always carrying the day.
ReplyDelete