Muscat: A decision approving the new rules for specifying the price of shares in IPOs was released on Wednesday by Sheikh Abdullah Salim Al Salmi, executive chairman of the Capital Market Authority (CMA).
This decision aims to regulate the issuance of IPOs by specifying the methods for determining the prices of shares in public offerings and the procedures to be followed to ensure a sound pricing process.
Decision No 43/2021 was issued on the basis of the regulation on public joint stock companies which was issued earlier this year.
Regarding the importance of the rules, Mohammed Said Al Abri, Vice President, Financial Markets Sector, said the new bid price specification rules will help improve the readiness of the legislative infrastructure for initial bids. in Oman by providing a clear legal framework for the bid price specification mechanism for companies wishing to switch from closed stock companies to public stock companies by providing an appropriate environment to determine the fair bid price in a manner objective and transparent.
The rules allow the issuer to continue to specify the offer price through the issue manager using the fixed price method applied for years, however, in this case, the CMA will appoint a third among the entities authorized to carry out issuance management activities or authorized audit firms at the expense of the issuer to perform an independent assessment in order to recommend the appropriate price for the offer and the issuer will be obligated to offer the shares at the recommended price or at the price offered by the issuer’s manager, whichever is less.
The book building process is the most transparent method of pricing initial public offerings in regional and global markets as it specifies the fair price of the offer by involving a larger segment of investors to explore and determine the supply price compared to only two parties in the fixed price method which would improve the efficiency and stability of the market.
The method works on receiving requests from large subscribers containing their proposals for quantities and prices within a specific price range and the highest bid price and quantities will be determined, then small investors will be allowed to subscribe to such a price or at a lower price. if the issuer wishes to grant a discount.
Al Abri added that there is another method of performing the book creation process that the problem manager can adopt. This is by opening the subscription for small and large subscribers at the same time and receiving applications from large subscribers in the specified price range; While small investors submit their requests at the upper end of the price range and after the subscription is terminated, the offer price will be determined for the total quantity of shares and this price would be applied for the small subscribers or at a lower price if the issuer intends to give a discount.
If the subscription price for that category is lower than the upper limit of the price range, the excess amount will be refunded to their bank accounts.
The rules stress that the issuer’s manager should provide the public with adequate information about the offering and the book-building pricing method in the various media to address any ambiguity or concerns from small subscribers, especially when they subscribe to the higher end of the price range.