Al Abri: Book Building is breakthrough in specifying fair price of the shares

HE Sheikh Abdullah Salim Al Salmi,  Executive President of the Capital Market Authority has issued a decision approving new rules for specifying the  price of shares in public offerings which aims to regulate the issuances in initial public offering through specifying  the methods for determination of the prices of shares in public offerings and the procedures to be followed to ensure sound pricing process.

Decision No. 43/2021 was issued based on the Regulation for Public Joint Stock Companies  which was issued earlier this year.

On the importance of the rules, Mohammed Said Al Abri, Vice President, Capital Market Sector said the new rules for specifying the offering prices will contribute in enhancing the readiness of the legislative infrastructure  of the initial offerings in Oman through providing clear legal framework for the mechanism of specifying the offering price for the companies desirous of converting from closed to public joint stock companies by furnishing appropriate environment for determining fair offering price objectively and transparently.

The rules allowed the issuer to continue in specifying the offer price through the issue manager using fixed price method applied  for years, however, in such case, the CMA will appoint a third party from among the entities licensed to carry out issue management business  or the  licensed audit firms on the expense of  the issuer to conduct independent evaluation  to recommend the appropriate price for the offering and  the issuer will be obliged to offer the shares at the recommended price or the price proposed by the issuer manager whichever is less.

The book building process is most transparent method for pricing initial public offerings in the regional and global markets as it specifies the fair price for the offering through involving greater segment of  investors to explore and determine the offer price compared to only two  parties in the fixed price method which would enhance the efficiency and stability of the market.

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 emphasize 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.