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.