Sri Lanka SEC issues rules on IPO pricing

EconomyNext – Sri Lanka’s securities regulator has issued rules to ‘justify’ pricing on initial public offers in the wake of stocks falling below issue price in the last stages of a stock market bubble in 2011.

The rules involve getting a competent, independent valuation and publishing  “a meaningful summary of the valuation report” in the prospectus.

Or the issuer could also publish a research report prepared an investment bank and IPO manager “for justifying the IPO Price”, a statement from the SEC said.

Sri Lanka used to follow a fully disclosure-based regulatory regime, and not a merit-based one.

Analysts say attempts to ‘justify’ a price could have the danger of misleading investors as different valuation techniques come up with different results.

Special care should be taken to make sure that a perception is not created that a price has some official sanction.