RAK Ceramics to float shares within next three weeks

RAK Ceramics, a Bangladesh-UAE joint venture, has started process under book-building method to hit the country's stock market.

It is the first company, which will make debut on Dhaka Stock Exchange (DSE) and Chittagong StockExchange (CSE), using such modern pricing mechanism for initial public offering (IPO) introduced in March of last year.

As part of the process, the tiles and sanitary-ware maker held an IPO road show to woo the eligible institutional investors in a city hotel Saturday. RAK received primary approval for floating shares from the securities regulator in December.

Within next three weeks, it will begin to sell shares among the institutional investors after receiving SEC consent's on bidding. Institutional bidding will be executed by DSE and CSE.

Subscription for general investors will open 25 days from the closure of the institutional bidding.

Chairman of RAK Ceramics (Bangladesh) Khater Massaad described the company's prospects and future plan to impress the institutional investors.

"We feel very proud to come in Bangladesh," said Massaad. A large number of people and growing per capita income have been creating demands for products, which mainly attracted us to invest in the growing market of Bangladesh, he said.

He said, "Meeting the local demands, the company has already begun to export products to India, Sri Lanka and Nepal and plans to enter in European market".

IDLC Finance is the lead issue manager of the RAK Ceramic IPO, while BRAC-EPL Investments Ltd is the joint issue manager.

Arif Khan, deputy managing director of IDLC Finance Ltd, presented the company's financial strength while Saiful Islam, director of BRAC-EPL, explained logic of the company's indicative price and described the bidding process.

Mr Arif also responded to the volley of questions asked by the institutional investors about the company's financial side.

DSE president Md Rakibur Rahman and local investors SAK Ekramuzzaman, who holds 10 per cent of RAK Ceramics, also spoke in the road show programme.

RAK offers 34.51 million equity shares worth Tk 10 each in face value under the book-building method. Of which, 20 per cent will be funded by eligibleinstitutional investors, 10 per cent by mutual funds, 10 per cent by non-resident Bangladeshis and 60 per cent by public.

An indicative price for each RAK share has already been built at Tk 40, including a premium of Tk 30, through bidding by seven institutions from four sectors.

According to the book building method, bidders cannot quote 20 percent more or less than the indicative price, meaning they will have to offer between Tk 32 and Tk 48 for each share. Fixing the indicative price is required to obtain regulatory approval.

As of December 31, 2009, RAK's pre-IPO paid-up capital is Tk 1.86 billion. The company's net asset value was Tk 13.69 a share and earning per share (EPS) was Tk 1.83.

Foreign entrepreneurs own 90 percent of the company, while local entrepreneurs own the rest, but local ownership will increase to 20 per cent after post-IPO.

RAK started commercial operation in Bangladesh in late 2000. Presently, the company has the market shares over one-fourth of tiles and more than three-fourth of sanitary ware products.

Book Building is a method through which companies determine the values of their IPOs based on the bidding prices from the eligible institutional investors. The SEC introduced the method in March aiming to encourage private-sector entrepreneurs to list their large and profitable companies with bourses at fair prices.

It is the process by which a price will be determined by institutional investorson the basis of an indicative price offered by the issuer company.

Using the method, the issuer company will first ask for share prices from theinstitutional investors by organising road shows, projection meeting and seminar on the company.

Then the company in association with its issue manager will fix an indicative price, which will have to be based on offering prices by at least five institutions in three categories, and send it to the securities regulator andstock exchanges.

Based on the indicative price, the institutions will bid for shares.

However, the bidders could not quote 20 percent more or less from the indicative price. Then a weighted average price will be fixed based on the higher and lower prices and shares will be allotted for institutions at the weighted average price.

The lowest will be considered as cut-off price for public offerings or general investors.

The institutions will not be allowed to sell shares in the first 15 trading days under the book building's lock-in system