Webinar on

Regulatory Framework of IPO, Right Issue, Private Placement and Alternative Investment.

Date: October 15, 2015

Presented By:Suman KunduSenior ManagerAlliance Financial Services Limited(Merchant Bank & Corporate Advisor)

Capital Market

Types of CompanyCompany means a legal entity, allowed by legislation, which permits a group of people, as shareholders, to apply to the government for an independent organization to be created, which can then focus on pursuing set objectives, and empowered with legal rights which are usually only reserved for individuals, such as to sue and be sued, own property, hire employees or loan and borrow money. A company limited by shares may be

1.A Private Limited Company or

2.A Public Limited Company - Non-Listed Company - Listed Company

Capital Market Laws (1)Bangladesh Securities and Exchange Commission (BSEC) was established on 8th June, 1993 as the regulator of the country’s capital market. BSEC enforced different law for development of capital market. All the private limited and public limited companies required to comply with these laws.

A. For Private Limited and Public Limited (Non-listed) Companies:

Issue of Capital Rules, 2001 Notifications issued under the Ordinance Private Placement of Debt Securities Rules, 2012 Alternative Investment Rules, 2015 Notification, Revaluation of Assets to Issue of Capital

Capital Market Laws (2)B. For Public Limited (listed) Companies:

Credit Rating Companies Rules, 1996 Issue of Capital Rules, 2001 Public Issue Rules, 2006 Rights Issue Rules, 2006 Notifications issued under the Ordinance Private Placement of Debt Securities Rules, 2012 Alternative Investment Rules, 2015 Notification, Revaluation of Assets to Issue of Capital Revised Corporate Governance Guidelines

Issue of Capital

When need permission from BSEC for capital Raising?

For Non-Listed Co.

I.A Public limited company whose paid up capital exceeds Tk. 1 crore

II.A Private Limited Company whose paid up capital exceeds Tk. 10 crore

(Reference: 1.BSEC Oder dated 28 March 2001

2.BSEC Oder dated 19 August 2004)

When need permission from BSEC for capital Raising?

For Listed Co.

I. Right Issue under Securities and Exchange Commission (Rights Issue) Rules, 2006

II. Repeat Public Offering (RPO) under Securities and Exchange Commission (Public Issue) Rules, 2006

III. Merger & Acquisition under Securities and Exchange Commission (Issue of Capital) Rules, 2001

Note:I. Capital raising against Convertible Securities: generally do

not require to take further permissionII. For Bonus Issue does not require to take permission from

BSEC(Reference:

1. BSEC Oder dated 17 February, 2002)

When Require to Appoint Merchant Bank for capital Raising?

For Non-Listed Co.

In case of Capital Raising from other than existing shareholders along with following conditions:

I.A Public limited company whose paid up capital exceeds Tk. 1 crore

II.A Private Limited Company whose paid up capital exceeds Tk. 10 crore

(Reference: 1.BSEC Notification dated 02 October 2011)

Requirement for Capital Raising

Company should convert itself into public limited when paid up capital exceeds Tk. 40 crore

No company shall approach to or take share money deposit from any person other than existing shareholder for subscribing shares of the company before obtaining consent from BSEC

Fund raised against allotment of shares or in the form of share money deposit shall be deposited in a separate bank account. All amount more than Tk. 5 lac shall be deposited through Account Payee cheque or payment order.

Distribution RestrictionIn case of Capital Raising from other than existing shareholders:

Additional capital may be raised from not more than one hundred (100) investors including institutions.

(Reference: 1.BSEC Notification dated 02 October 2011)

Public Issue

Initial Public Offering (IPO)1. It is a type of public offering where shares of a company

are sold to the general public, on a securities exchange, for the first time.

2. As per BSEC rules, It means first offering of security by an issuer to the general public.

Why Choose IPO?1. The Company which is considerable growth potential. 2. Required fund for expansion or introduce new unit or

new product line.3. Trading in the open markets means liquidity. So

Entrepreneurs get opportunity to liquid their investment at any time.

4. Alternative source for traditional Bank Borrowing

Advantages of IPOA. Branding of the OrganizationB. Tax AdvantagesC. Exit Option Open for SponsorD. Easy Excess to cheap fund from Foreign InstitutionE. Increase Capital BaseF. Business PromotionG. Transparent in Financials & Corporate GovernanceH. Debt option is comparatively wider than non listed

companyI. Option to raise additional fund after listing through right

issue or RPO

Methods of IPO Offering

Eligibility for IPO- Fixed price Method1. Should be Public limited company.

2. Minimum paid-up capital (existing + proposed) requirement for public issue (i.e. IPO) shall be Tk. 30 (thirty) crore.

3. Minimum size of IPO shall be Tk. 12 (twenty) Crore or 10% of total capital (Proposed + IPO), whichever is higher.

4. Sponsor/promoter group should maintain a minimum post-issue shareholding of Thirty percent (30%)

5. Each Director should hold at least 2% of Share Capital except Independent Director

Eligibility for IPO- Direct Listing Method Applicable only for fully owned by government organization (Notification

14 January, 2010) and company interested to listed in Normal Market

from OTC market

Shall have minimum paid up capital of Tk. 100 (one hundred) million;

Shall have no accumulated loss;

Shall be in commercial operation for at least immediate last five years;

Shall have profit in three years out of the immediate last five completed

accounting/financial years with steady growth pattern;

Is regular in holding annual general meeting (AGM).

Sponsor/promoter group should maintain a minimum post-issue shareholding

of Thirty percent (30%)

Each Director should hold at least 2% of Share Capital except Independent

Director.

Eligibility for IPO- Book Building Method1. Must have at least Tk. 30 crore net-worth.

2. Shall offer at least 10% shares of paid up capital (including intended offer) or Tk. 30 crore at face value, whichever is higher;

3. Shall be in commercial operation for at least immediate last three years (One year for Thrust sector .i.e. power and Gas Infrastructure companies);

4. Shall have profit in two years out of the immediate last 3 completed financial year;

5. Shall have no accumulated loss at the time of application;

6. Shall be regular in holding annual general meeting;

7. Financial Statements shall be audited by the Foreign Affiliated Audit Firm

8. Sponsor/promoter group should maintain a minimum post-issue shareholding of Thirty percent (30%)

9. Each Director should hold at least 2% of Share Capital except Independent Director.

Pre IPO Works Structuring Financial Statements as per BAS, BFRS & Company Act,

1994 Audited Financial Statement not older than 120 days Engage Lead Banker, Underwriter, Stock Brokers & Merchant Banker Prepare Draft Prospectus as per BSEC (Public Issue) Rules, 2006 and

relevant amendments Prepare IPO Application and submit to BSEC, DSE & CSE

Additional work Under Book Building Method:

Prepare Information Memorandum and arrange road show for EII to received quotation (received at least from 20 EIIs, minimum 3 from each category out of six category of EII)

Complete Draft prospectus mentioning Indicative price

Pre IPO Works If the issue price of the ordinary share is higher than the par value

thereof, justification of the premium should be disclosed.

Recently Used:A. Valuation based on Net Asset ValueB. Valuation based on Historical Earning Based Value Per Share

Note:1. Under Fixed Price Method-no public offering shall not exceed

the amount of premium charged on shares (except bonus share) within immediately preceding one year

2. Offering price under book building method determined based on Indicative price received from Eligible Institutional Investors (EII)

Post IPO Comply BSEC procedure as advised in the consent letter

Appoint Post Issue Manger to carry out post IPO activities .i.e. NRB application received, data processing, arrange for lottery and arrange for refund warrant and allotment letter.

Apply to DSE and CSE for Listing

Received Consent letter for Trading from DSE & CSE

Book Building Method

Arrange for online bidding Apply again for final consent to BSEC after incorporating Cut Off price Getting Consent Letter

Lock-in Period Three years Lock in applicable- for all Directors, Sponsors and

those who hold 5% or more

Three years Lock in applicable- for shareholder, who received shares through transfer of shares from Directors, Sponsors within preceding 12 months of submitting application for IPO

One year Lock in applicable- other than above, who have subscribed the shares of the company within immediately preceding two years of according consent.

Lock in applicable from the date of issuance of prospectus or commercial operation, whichever comes later.

Under book building method 4 (four) months lock-in applicable for the EII, starting from the first trading day.

Post IPO Activities

A compliance report on Corporate Governance shall be submitted to the commission before 7 (seven) working days of the IPO subscription opening

The company shall furnish status repot on utilization of IPO fund audited by foreign affiliated auditors and authenticated by the Board of Directors to the Commission and stock exchanges within 15 days of the closing of each month until such fund is fully utilized

IPO Process – at a Glance

Quick Poll

Right Issue

Why Choose Rights Offer?

1. Company which has considerable growth potential

2. Required fund for expansion or introduce new unit or new product

line

3. Alternative source for traditional Bank Borrowing

4. Sponsor & Director shareholders get opportunity to maintain their

existing control of the business

5. Rights issues are a relatively cheap way of raising capital for a

quoted company

Disadvantages of Rights OfferA. Company’s earnings per share will decrease as earnings

allocated to each ordinary share an investor has invested in will be diluted

B. company faces much more intense scrutiny and regulations from the BSEC, DSE,CSE and shareholders

Eligibility for Rights Offer

1. Such rights issue and price thereof have been approved by the

shareholders in a general meeting;

2. Proceed of previous IPO, RPO & rights issue has been utilized

fully;

3. AGM has been held regularly;

4. Financial statements of the company is prepared as per BFRS &

BAS

5. Issuer or any of its directors is not a bank defaulter;

Eligibility for Rights Offer (2)6. Profitability record in the immediate preceding year;

7. Full compliance of corporate governance guidelines

8. Sponsor/promoter and Directors group should maintain a minimum

post-issue shareholding of Thirty percent (30%)

9. Each Director should hold at least 2% of Share Capital except

Independent Director.(Reference:

1. Rights Issue Rules, 20 February, 20062. BSEC Notification dated 02 November, 20113. BSEC Notification dated 22 November, 2011

4. BSEC Notification dated 18 August, 2013)

Additional Conditions for Premium

1. Issuer has been credit rated by a credit rating company, if the offer

is at a premium

2. No issuer of a listed security shall price its rights share above par

value, if it has not been in commercial operation for immediate past

three years having a track record of profitability.

(Reference: 1. Rights Issue Rules, 20 February, 2006

2. BSEC Notification dated 02 November, 2011)

Other Additional Conditions

1. Number of rights share proposed shall not exceed five for each

existing share held in the company (i.e. 5R:1).

2. Rights issue has been fully underwritten on a firm commitment

basis by the underwriter (Merchant Banks are only eligible for

underwriting of Rights Issue)

Private Placement of Debt Securities

Applicable of This Law

This law shall be applicable for the issuance of debt securities by any issuer though private placement.

Issuer shall not offer debt securities and publish an IM unless it obtains consent of Commission

DefinitionsDebt Securities or Debt Instruments: means securities those evidence the indebtedness of the issuer to the eligible investors in the form of bond or debt or any other instrument of indebtedness, whether secured or not.

Secured Debt Instruments: means debt securities, in which the issuer owes the holders an indebtedness and which is secured by first claims over all present and future assets of the issuer

Unsecured Debt Instruments: means debt securities, in which the issuer owes the holders an indebtedness and which is secured by claims over all present and future assets of the issuer subsequent to all secured lenders/eligible investors.

Eligible InvestorEligible Investors:

a)Banksb)Insurance companiesc)Financial institutionsd)Mutual fundse)Provident fundsf)Pension fundsg)Corporatesh)Primary dealersi)Non-resident Bangladeshisj)Individuals

Eligibility for Issuance of Debt Securities Issuer should have good track record of profitability and liquidity or its

forecasted financial position indicates a significant profitability, liquidity and ability to pay-back with reasonable basis of making such forecasts.

Issue should be rated by a credit rating company and its periodical surveillance rating shall be done by the said rating company up to the full and final redemption or conversion of the debt securities.

Issuer should have a valid enforceable interest over its assets and the right to create charges thereon in course of issuance of the debt instruments.

Issuer should obtain necessary permissions or consents from its primary regulator in order to issue of debt securities, if required.

Eligibility for Issuance of Debt SecuritiesIssuer should appoint a trustee for the issue.

Financial Statements of the issuer is prepared as per Bangladesh Accounting Standards (BAS) as applicable in Bangladesh

Issue has been approved by the Board of Directors or governing body of the issuer and in case the issuer is a listed company, by the shareholders in a general meeting.

In case the issuer is a listed company, the information concerning the issue is disseminated as price sensitive information immediately upon Board decision as well as upon approval at the general meeting

Trustee to the issue, if applicable, has examined all the documents including the legal and title documents and has provided a due diligence certificate as per Schedule ‘D’.

Application ProcedureApplication shall submit within 120 days of the end of the period of

accounting period

Approval Time LimitCommission shall accord consent in writing to the issue of debt securities

within 07 (seven) working days of receipt of the application with all required documents.

If Commission finds that the application does not fulfill all the requirements, it may, within 15 (fifteen) days of receipt of the application, direct the applicant to fulfill the requirements within such time as the Commission may determine, and on fulfillment of such requirements the Commission shall accord the consent as prayed for, within 07 (seven) working days of such fulfillment.

If the applicant has failed to fulfill such requirements, Commission may reject the application, stating the reasons thereof.

Issuer may apply to the Commission for review of its decision within 30 (thirty) days from the date of such rejection, and the decision of the Commission thereon shall be final.

Consent Fee & ValidityPay consent fee at the rate of 0.10% on the total face value of securities

to be issued through a bank draft or payment order issued in favour of the Securities and Exchange Commission within 15 (fifteen) days of issuance of the letter of intent.

1 (one) year from the date of consent or for such a period as determined by the Commission in the consent letter.

Conditions After ConsentBefore Issuance Of The Debt Securities Issuer Required To Fulfill:Issuer shall execute the deed of trust as approved by the Commission in

favor of the trustee and register the same under the Registration Act, 1908 (XVI of 1908) and shall submit a copy of the registered trust deed to Commission

Issuer shall create charges over the assets only for issuance of secured bond, through execution of Charge Document(s) in favor of the trustee

Issuer shall execute guarantee(s) in favor of the trustee through observation of required legal procedures;

Trustee shall submit a report to the Commission to the effect that all charges and/or guarantee(s) as per the deed of trust, Subscription Agreements and IM have been executed properly;

Issuer of a listed company shall place the IM and the Deed of Trust in electronic form on the websites of the issuer and the trustee up to closing of subscription.

Issuer shall submit a status report to the Commission within 30 days of issue of the securities or expiry of consent letter, whichever comes earlier.

TrusteeTrustee shall be registered by the commission under these rules and not

be a person

The Trustee shall apply for registration to the Commission as per Schedule ‘E’ along with required information and documents and application fee of Tk. 5,000 only

Alternative Investment

Alternative Investment Fund“Alternative Investment Fund” means any fund established or constituted in Bangladesh in the form of a trust which,

i.is a “private equity fund” or a “venture capital fund” or an “impact fund” or any other type of fund as declared by the Commission as alternative investment fund from time to time;ii.is a privately pooled investment vehicle which collects funds from eligible investorsiii.is a closed end fund with specific tenure;iv.collect subscription by way of private placement only and does not offer its units for public subscription;

Types of Alternative Investment FundPrivate Equity Fund: means an alternative investment fund which invests primarily in equity or equity linked instruments of potentially high growth non-listed portfolio companies with minimum 02 (two) years’ operational history or to conduct buyouts of listed companies according to the stated objective of the fund.

Venture Capital Fund: means an alternative investment fund which invests primarily in non-listed equity and equity linked securities of start-ups with less than 02 (two) years’ operational history or green field companies or emerging early-stage undertakings mainly involved in new products, services, technologies or intellectual property rights based activities or new business models.

Impact Fund: means an alternative investment fund which invests in equity or equity linked instruments of companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact in addition to financial returns.

Registration of Fund Manger Fund manager of any alternative investment fund shall be

registered by the Commission

No person shall act as fund manager of any alternative investment fund without such registration

Existing fund management company, which is not registered with the Commission, shall submit application for registration under these Rules within 01 year from commencement of these Rules

A foreign entity or foreign fund management company intends to act as fund manager in Bangladesh, it shall form a fund management company incorporated in Bangladesh and such company shall thereafter get registration under these Rules.

Registration of Alternative Investment Fund

No alternative investment fund shall be formed or operate unless it has obtained registration from the Commission:

A fund already in operation on the date of commencement of these Rules and falling within the definition of alternative investment fund which is not registered with the Commission, may continue to operate, without having registration under these Rules, to complete its agreed tenure but shall not raise any fresh money other than realization of commitments already received

If a foreign fund intends to operate as an alternative investment fund in Bangladesh, it shall get registration or invest through a fund registered under these Rules.

Prohibition of Listing1. The units of a fund shall not be listed on any Exchange.

2. A non-listed portfolio company in which any alternative investment fund invests shall not apply for listing with any exchange within 02(two) years from the date of last investment made in it by an alternative investment fund.

Quick Poll

Revaluation of Assets

Eligibility of ValuerRevaluation of Assets should be done by an auditor from panel “A” auditors of the Bangladesh Bank

Requirements for Revaluation1. The valuer shall provide a report and fairness opinion where the

valuer shall confirm that the valuation has been undertaken in accordance with the International Valuation Standards (IVS) and other applicable law, regulation and notifications.

2. Revalued amount of asset should be included in the Financial Statement as per BAS & BFRS

3. Valuation Report shall be present as annexure of the Financial Statement of the period in which valuation was done

4. Auditor should examine all the documents and furnish their opinion in the Audit Report regarding whether the Valuation Report has been prepared as per BAS, BFRS

5. Auditor also certify that proper accounting treatment has been made in the Financial Statement to consider the Valuation Report

(Ref: BSEC Notification dated 18.08.2013)

Eligible Fixed Assets for Upward Valuation

Upward Valuation of following assets are not allowed:

1.Leasehold lands and buildings of which total lease period is below 99 years and remaining lease period below 10 years2.Plants and machineries acquired in second hand condition3.Plants and machineries having remaining economic life of less than 50% of its total useful life and acquired in brand new condition4.Vehicles, furniture & fitting s, office equipments, loose tools and intangible assets;5.Tin-shed buildings, buildings having remaining economic life of less than 50% of its total useful life,

Corporate Governance Guidelines

Compliance of Corporate Governance Guidelines Board Size: Shall not be less than 5 (five) & more than 20

(twenty)

Independent Directors: At least one fifth (1/5) of the total board size

Chairman of the Board & CEO: Chairman of the Board and the Chief Executive Officer of the Company shall be filled by different individuals

CFO, Head of Internal Audit & CS: Company shall appoint a Chief Financial Officer (CFO), a Head of Internal Audit (Internal Control and Compliance) and a Company Secretary (CS) with clearly define respective roles, responsibilities and duties of each.

(Reference: 1. BSEC Notification dated 07 August, 2012

2. BSEC Notification dated 18 August, 2013)

Compliance of Corporate Governance Guidelines (2)

Audit Committee:

1. Company shall have an Audit Committee (at least 3 members)

as a sub-committee of the Board of Directors.

2. Chairman of the Audit Committee shall be an independent

director

3. All members of the audit committee should be “financially

literate” and at least 1 member shall have accounting or related

financial management experience

Thank You

Q & A