It shows the whole process of the primary market mechanism of Bangladesh Capital Market

1. Overview of Primary Market Mechanism Prepared for the participants of the comprehensive training course on Capital Market. organized by Chittagong Stock Exchange by Mohammed Kamal Uddin Jalal Manager, Market Development

3. In the light of Securities and Exchange Commission (Public Issue) Rules, 2006

6. IPO/RPO “ initial public offering (IPO )” means first offering of security by an issuer to the general public; Rule 2 (e): “ repeat public offering ” means further issuance of security through public offering by an issuer which has raised capital through initial public offering earlier; Rule 2 (i)

7. PLC Draft Prospectus Submit to SEC Issuer appoints Underwriter and Banker to the issue Distribution mechanism Banks receives subscription Appoint Issue Manager Publish the prospectus in newspapers Trading in the SE RW/AL NRB sends Application forms Apply for Listing Print, publish & supply the prospectus Approval rejection review Shares in BO Road Map Determine Offer Price Quota Mechanism In case of Fixed Price Institutional Investors Bid For their Quota at 20% +/- Of the Indicative Price Second and last chance If failed first range If successful Allot on Pro-rata basis In Case of Book-building Post the Prospectus in websites Fix subscription Open and Close dates Other related topics

8. Memorandum and Articles of Association Registrar of Joint Stock Companies Companies Act 1994

11. Offer Price based on Fixed Price method (a) If ordinary shares are being offered, the factors considered in determining the offering price shall be set forth in the prospectus. (b) If the issue price of the ordinary share is higher than the par value thereof, justification of the premium should be stated with reference to- (i) net asset value per share at historical or current costs; (ii) earning-based-value per share calculated on the basis of weighted average of net profit after tax for immediately preceding five years or such shorter period during which the issuer was in commercial operation; (iii) projected earnings per share/book value for the next three accounting year as per the issuers own assessment duly certified by the auditor of the issuer; (iv) average market price per share of similar stock for the last six months immediately prior to the offer for common stocks or if issuance is the repeat public offering market price per share of common stock of the issuer for the aforesaid period; and (v) all other factors with justification which have been taken into account by the issuer for fixing the premium: “ Provided that premium on public offering shall not exceed the amount of premium charged on shares issued (excluding the bonus share) within immediately preceding one year.” Rule 8, Clause B, sub-clause 16 (1)

13. Offer Price based on book-building method Two Prices to be discovered Indicative Price Cut-Off price “ indicative price” means the price which the issuer indicates in the draft prospectus taking input from the eligible institutional investors on which the bidders bid for final determination of price; “ cut-off price” means the lowest price offered by the bidders at which the total issue could be exhausted;

14. Offer Price based on book-building method Issuer arranges proper disclosure, presentation, document, seminar, road show etc. and invites Eligible Institutional Investors for indicative Price Offer indicative price range shall be determined as per price indications obtained from at least five eligible institutional investors covering at least three different categories of such investors; Indicative Price is determined Discover Indicative Price Eligible Institutional Investors Bid in writing to discover indicative Price Offer

15. Who are the Eligible Institutional Investors? The price discovery process for determining indicative price of security will involve the following institutional investors registered with or approved by the Commission in this regard:- (a) Merchant bankers excepting the issue manager concerned to the proposed issue; (b) Foreign institutional investors registered with or approved by the Commission; (c) Recognized pension funds and provident funds; (d) Bank and non-bank financial institutions under regulatory control of Bangladesh Bank; (e) Insurance companies regulated under Insurance Act, 1938 (Act No. IV of 1938); (f) Institutional venture capital and institutional investors registered with or approved by the Commission; (g) Stock Dealer registered with the Commission; and (h) Any other artificial juridical person permitted by the Commission for this purpos e.

16. Offer Price based on book-building method Quote the Indicative Price in the Draft Prospectus Issuer in association with issue manger and eligible institutional investors shall quote an indicative price in the prospectus and submit the same to the Commission with copy to the stock exchanges;

18. Quota Mechanism in Fixed Price Method 10% of total public offering shall be reserved for non-resident Bangladeshi (NRB) and 10% for mutual funds and collective investment schemes registered with the Commission, and the remaining 80% shall be open for subscription by the general public. Rule 12 (1)

19. Quota Mechanism in Book-Building Method

20. Draft Prospectus Rule -8: Format and contents of the prospectus. A. Material Information B. Information to be included in the prospectus.- (1) Cover Page of Prospectus: (2) Table of Contents: (3) Risk Factors and Management’s Perception about the Risks: (4) Use of Proceeds: (5) Description of Business: (6) Description of Property: (7) Plan of Operation and Discussion of Financial Condition: (8) Directors and Officers: (9) Involvement of Directors and Officers in Certain Legal Proceedings: (10) Certain Relationships and Related Transactions: (11) Executive Compensation: (12) Options granted to Directors, Officers and Employees: (13) Transaction with the Directors and Subscribers to the Memorandum: (14) Tangible assets per share: (15) Ownership of the Company’s Securities: (16) Determination of Offering Price: (17) Market for the Securities Being Offered: (18) Description of Securities Outstanding or Being Offered: (19) Debt Securities: (20) Financial Statement Requirements:

21. Submit to SEC for approval General requirements for filing application for consent to an issue of capital through public offering.- (1) Ten copies of the prospectus, (2) Any amendment to the prospectus, (3) All stock exchanges shall be supplied simultaneously by the issuer with one copy each of the said prospectus, (4) The audited financial statements of the issuer ( Rule 3)

22. (1) Memorandum and Articles of Association (2) Certificate of Incorporation and Certificate of Commencement of Business (3) Extract from the Minutes of Meeting of the Board of Directors (4) Consent of the Directors to serve, in original, signed by all directors. (5) Land Title Deed with current rent receipts (6) If plant & machinery is reconditioned or second-hand – a certificate from SGS or Lloyds agency on its economic life and price competitiveness duly certified by the Chamber of Commerce of the exporting country or the country of origin – all in original. (7) Loan agreements, if any (8) Banker’s letter confirming opening of separate bank account for public issue purposes (9) Due Diligence Certificate from the Manager to the Issue (10) Due Diligence Certificate from Underwriter (11) Due Diligence Certificate from Debenture Trustee (12) Agreement with (a) Investment Adviser, (b) Issue Manager, (c) Underwriter(s) and (d) Debenture Trustee (13) Bankers’ to the issue’s letter accepting their appointment as such (14) Joint venture agreement if any, (15) Tax Holiday Approval Letter from NBR (16) Copy of return of allotment and particulars of directors certified by the RJSC (17) Banker’s certificate/ bank statement showing deposit of an amount equivalent to the paid up capital/ auditor’s certificate in that regard, (18) Undertakings of the issuer company and its directors for obtaining CIB Report from Bangladesh Bank, (19) Copies of valid license from the regulatory authority, where applicable, (20) Deed of Trust (in case of debt securities) (21) Credit rating report, if applicable

23. An issuer of a listed security may make repeat public offering, subject to compliance with the following:- (1) disseminated as a price sensitive information (2) shall be subject to approval of the Commission. (3) Such offering and price have been approved by the Board, the shareholders and the consent from the Commission. (4) The proceed of either initial public offering or previous rights issue has been utilized fully and relevant reports were duly submitted to the Commission. 5) Annual general meeting has been held regularly. (6) The issue has been fully underwritten on a firm commitment basis by the underwriter. (7) International Accounting Standards (IAS); (8) The issuer or any of its directors is not a bank defaulter. (Rule 4) Conditions to be fulfilled prior to making a Repeat Public Offerin g.

24. SEC after due scrutiny accords approval, rejects or advise to reproduce If SEC approves, the next steps are: In case of IPO In Case of Book-Building

25. Post the prospectus in the websites Prospectus will have to be posted on the Websites of the Commission, stock exchanges, issue manager and issuer at least two weeks prior to the start of the bidding to facilitate investors to know about the company and all aspect of offering;

26. Institutional Investors Bid for their Quota Bidding period: 3 to 5 working days Bid @: 20% +/- of the Indicative Price. Advance deposit: 20% of the bid amount Through: Automated System Not more than: 10% of the total securities, subject to maximum of 5 bids Display: All bids will be displayed on the monitor without identifying the bidder Final Bidding starts

27. Institutional Investors Bid for their Quota If institutional quota is not cleared at 20% (twenty percent) below indicative price, the issue will be considered cancelled unless the floor price is further lowered within the face value of security: Provided that, the issuer’s chance to lower the price shall not be more than once; Second and last chance

28. Institutional Investors Bid for their Quota Allotment of Institutional Quota The institutional bidders will be allotted security on pro-rata basis at the weighted average price of the bids that would clear the total number of securities being issued to them;

29. Institutional Investors Bid for their Quota the rest amount to settle the dues against security to be issued to them shall be deposited within 5 (five) working days prior to the date of opening subscription for general investors; In case of failure to deposit remaining amount that is required to be paid by institutional bidders for full settlement of the security to be issued in their favor, 50% (fifty percent) of bid money deposited by them shall be forfeited by the Commission. The securities earmarked for the bidder who defaulted in making payment shall be added to the general investor quota. Settlement of the rest of the amount

30. Fix the Subscription Open and Close dates for General Public There shall be a time gap of 25 (twenty five) working days or as may be determined by the Commission between closure of bidding by eligible institutional investors and subscription opening for general investors; General investors, which include mutual funds and NRBs, shall buy at the cut-off price ; General investors shall place their application through banker to the issue;

31. Issuer appoints Underwriter and Banker to the issue The issuer making public offering shall appoint underwriter(s), having certificate of registration from the Securities and Exchange Commission or allowed by the Commission to carry out underwriting on a firm commitment basis. Rule 16 (ii): Underwriting fee shall be calculated on 50% of public offer amount, and the said amount shall not exceed 1% on the amount underwritten. (iii) Bankers to the issue fee: maximum 0.1% on the amount collected against public offering applications. Rule 14 (1)

32. Apply for Listing The issuer shall apply to all the stock exchanges in Bangladesh within seven working days from the date of consent accorded by the Commission to issue prospectus. Rule 8 (17) Listing Fees: (a) Listing fee for ordinary share s: i. Up to Taka 10 crore of paid-up capital @ 0.25%. ii. Above Taka 10 crore of paid- up capital @ 0.15%. (b) Listing fee for preferred shares and fixed income securities: i. Up to Taka 10 crore of size of the issue @ 0.25%. ii. Above Taka 10 crore of size of the issue @ 0.15%. However, the total listing fee shall be minimum of Taka 10,000 (ten thousand) and maximum of Taka 20 lacs for each of the categories mentioned under sub-rule (1)(iv).

33. Publish the prospectus in the newspapers The abridged version of the prospectus, as approved by the Commission, shall be published by the issuer in four national daily newspapers (in two Bengali and two English), Rule 5 (1)

34. Print, publish & supply the prospectus The full prospectus shall, however, be posted on web site of the SEC, stock exchanges, issuer and the issue manager within 3 working days after consent. (Rule- 5(1) & 6 (2) Sufficient copies of prospectus shall be made available by the issuer so that any person requesting a copy may receive one. Rule -6 (1) The issuer shall submit to SEC, stock exchanges and the issue manager a diskette containing the text of the vetted Prospectus in “MS-Word” format. Rule -6 (2)

35. Banks receives subscription from investors other than NRB

36. NRBs send Application forms and subscription by post or by hand delivery at the head office or prescribed venue A non-resident Bangladeshi shall apply either directly by enclosing a foreign demand draft drawn on a bank payable at Dhaka, or through a nominee by paying out of foreign currency deposit account maintained in Bangladesh or in Taka, supported by foreign currency encashment certificate issued by the concerned bank, for the value of securities applied for through crossed bank cheque marking “Account Payee only”. (2) The value of securities applied for by such person may be paid in Taka or US Dollar or UK Pound Sterling or Euro at the rate of exchange mentioned in the securities application form. ( Rule 11)

37. Distribution mechanism of General Investors’ Quota In case of over-subscription the issue manager shall conduct an open lottery of all the applications received under each category separately in accordance with the letter of consent issued by the Securities and Exchange Commission. - Rule 12 (3) In case of under-subscription under any of the 10% categories mentioned in sub-rule (1), the unsubscribed portion shall be added to the general public category and, if after such addition, there is over subscription in the general public category, the issuer and the issue manager shall jointly conduct an open lottery of all the applicants added together. - Rule 12 (4) In case of under-subscription of the public offering, the unsubscribed portion of securities shall be taken up by the underwriter(s).Rule 12 (5) The lottery shall be conducted in presence of representatives from the issuer, the stock exchanges, and the applicants, if there be any. Rule 12 (6)

38. Refund Warrant / Allotment Letter In the case of non-allotment of securities, refund of subscription money of applicants resident in Bangladesh shall be made by account payee cheque/warrant payable to applicant.(Rule 10) NRB: Refund against over subscription shall be made in the currency in which the value of securities was paid for by the applicant through Account Payee bank cheque payable at Dhaka with bank account number, Bank’s name and Branch as indicated in the securities application form.Rule -11(3)

39. Issuer deposits the allotted shares to BO Account of the respective holder

40. Transaction in the Stock Exchanges starts

41. Lock-in Sponsors - 3 years All issued shares of the issuer at the time of according consent to public offering shall be subject to a lock- in period of three years from the date of issuance of prospectus or commercial operation, whichever comes later: Private placement - 1 year the persons, other than directors and those who hold 5% or more, who have subscribed to the shares of the company within immediately preceding two years of according consent, shall be subject to a lock- in period of one year from the date of issuance of prospectus or commercial operation, whichever comes later. (Rule 9) Institutional Investors – 15 days There shall be lock-in of 15 (fifteen) trading days from the first trading day on the security issued to the eligible institutional investors.

42. Credit Rating Credit rating report, if applicable – attested by the Managing Director/ Chief Executive Officer to be enclosed . Rule 17(21) Bank’s fundamentals Asset quality Profitability Growth rate Capital Adequacy Ratio Liquidity AAA - Highest safety AA+ AA AA- High safety A+ A A- Adequate safety BBB+ BBB BBB- Moderate safety BB+ BB BB- Inadequate safety B+ B B- High risk C - Very High risk D - Default ST-1 Highest certainty ST-2 High certainty ST-3 Good certainty ST-4 Satisfactory liquidity

43. Thank you