MUSCAT, MAY 5 - Shaikh Abdullah Salim al Salmi, Executive President of the Capital Market Authority (CMA) has issued a decision approving new rules for specifying the price of shares in public offerings on the stock market.
Decision 43/2021 has been issued pursuant to the Regulation for Public Joint Stock Companies issued earlier this year. The latest decision aims to regulate the issuance of initial public offerings (IPO) by specifying the methods for determining the price of shares in IPOs and the procedures to be followed to ensure a sound pricing process.
Commenting on the significance of the new rules, Mohammed Said al Abri (pictured), Vice President, Capital Market Sector, said the new guidelines provide for a transparent and lucid legal framework governing mechanisms for determining the offer price for businesses planning to convert from closed to public joint stock companies. It provides them with an appropriate environment for determining a fair offer price objectively and transparently, he noted.
The rules had allowed the issuer to specify the offer price through the issue manager using a fixed price method applied for years. In such an event, the CMA appointed a third party from among the entities licensed to carry out issue management activities or licensed audit firms at the expense of the issuer to conduct independent evaluation to recommend the appropriate price for the offering. The issuer was then be obliged to offer the shares at the recommended price or the price proposed by the issuer manager, whichever is less.
In place of this methodology, the new guidelines recommend the adoption of the book-building process, which is hailed as the most transparent method for pricing initial public offerings in the regional and global markets as it specifies the fair price for the offering by involving a greater segment of investors to explore and determine the offer price. This contrasts with the earlier practice of only two parties involved in the fixed price method. The book-building process will enhance the efficiency and stability of the market, Al Abri said.
The method works on receiving the applications from large subscribers containing their proposals for the quantities and prices within specific price band and the highest offer price and the quantities will be determined and then small investors will be allowed to subscribe at such price or lower price if the issuer is desirous to grant a discount.
Al Abri added that there is another method to executing the book building process the issue manager may adopt by opening subscription for small and large subscribers at the same time and receive the applications of large subscribers within the specified price band while small investors submit their applications at the highest limit of the price band and after the end of subscription the offering price will be determined for the whole quantity of shares and this price would be applied for small subscribers or a lesser price if the issuer intends to grant discount, if the subscription price for this category is less than the highest limit of the price band the surplus amount will be refunded to their bank accounts.
The rules emphasise that the issuer manager should provide adequate information for the public on the offering and pricing method through book building in the various media to address any ambiguity or concerns of small subscribers specifically when subscribing at the highest limit of the price band.
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