September 01, 2010

SEC alters issue rules of convertible security

The issuance of any kind of convertible security by listed companies will be considered "repeat public offering", and the process will be complete under public issue rules, according to a directive by the regulator.

It means, the listed companies will no longer be allowed to issue convertible securities (into ordinary shares), such as preference shares, bonds and debentures, on their own choices.

The conversion features can also not be converted into ordinary shares within two years.

The Securities and Exchange Commission yesterday announced the move that will bring all convertible securities under specific guidelines.

The regulator said although listed companies were issuing convertible securities under public issue rules, there was no due diligence especially in price fixation including premium, distribution mechanism and information dissemination.

"Proper issuance was not possible," said ATM Tariquzzaman, executive director of the SEC.

"Now, the listed companies that will intend to issue convertible securities will have to follow Public Issue Rules 2006," he said, adding: "It will bring transparency in the process."

As per repeat public offering clause of the Public Issue Rules 2006, 40 percent of an issue is reserved for existing shareholders, while another 40 percent is for public offering, and a maximum 20 percent can be kept for private placement.

The stockmarket regulator recently sought and received public opinion on formulating specific guidelines for issuance of convertible securities.

Allegedly some irregularities especially in issuance of preference shares by some listed companies prompted the SEC to take the initiative.

Market experts said the SEC move will stop the ill practices by the issuer companies in issuing convertible securities.

* The Daily Star, September 1, 2010