CMA issues new rules for initial public offerings

Muscat: A decision approving new rules for specifying the price of shares in initial public offerings (IPOs) was issued by Sheikh Abdullah Salim Al Salmi, Executive President of the Capital Market Authority (CMA) on Wednesday.

The move is aimed to regulate the issuance of IPOs by specifying the methods for the determination of 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 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 to enhancing the readiness of the legislative infrastructure of the initial offerings in Oman by providing a 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 allow the issuer to continue in specifying the offer price through the issue manager using the 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 at the expense of the issuer to conduct an 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 the most transparent method for pricing initial public offerings in the regional and global markets as it specifies the fair price for the offering by involving a 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 a 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 a 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. This is by opening subscription for small and large subscribers at the same time and receiving 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 a 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 emphasise 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.