Friday, September 16, 2011

Regulator changes retail allotment rule expecting big IPO -Analysts

By Indika Sakalasooriya

Securities and Exchange Commission (SEC) yesterday announced that it has amended the 40 percent allotment rule for retail investors in Initial Public Offerings (IPOs), for share issues on or above Rs.3 billion.

According to the new directive, the IPOs which are on or above Rs.3 billion can either allot 40 percent of the total issued shares or shares to the maximum value of Rs.1.5 billion, whichever is lower to the retail investors.

The directive also said, 40 percent allotment rule for IPOs below the value of Rs.3 billion will remain the same.

According to analysts, the 40 percent retail allotments of the last two large IPOs, Expolanka and Softlogic were largely undersubscribed.

For example, only 22.793 million shares were applied for by retailers in Softlogic PLC’s IPO despite the retail portion of 55.6 million shares of Softlogic PLC (i.e. 40% of 139 million total shares offered).

“The regulator might have taken this into consideration in reviving the rule,” an analyst pointed out.

However, some of the analysts believe that this revision to the allotment rules were no coincidence, as the market is expecting its second largest IPO, which is believed to be around Rs.7 billion in value.

The new directive issued by the SEC also changed the definition of the retail investor when it comes to issues over Rs.3 billion.

According to an earlier directive, a retail investor was defined as an individual who subscribes up to the value of Rs.100, 000, but the new directive has increased this amount to Rs.200, 000.

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