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NBS Professors call for tighter rules on IPO funds sold through book-building.
Should your company intend to go public, beware.
In a press conference on 12 June 2003, A/P Ho Kim Wai and A/P Chong Beng Soon warned the capital market that as more and more Singapore companies turn to book-building to raise funds, they could end up as unwitting victims of a potentially errant system.
With bookbuilding, a lead underwriter is hired by the issuing company, and the underwriter (an investment banking firm) and issuing firm then conduct a marketing campaign and finally decide on the offer price.
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Importantly, if the offer is oversubscribed (more shares are asked for than are being sold), the underwriter decides who receives the shares. The discretion can be used for desirable purposes, but it can be abused, with the underwriter trading allocations of "hot" IPOs in return for commission business.
The professors argued that if Asian regulators are not stringent with enforcement procedures, they could end up in the same boat as the American experience, where US$30 billion per year is believed to have been handed out as kickbacks in Year 1999 and 2000.
The conference was co-chaired by Prof Jay Ritter, UOB Professor of Banking, and Joe Cordell Eminent Scholar at the University of Florida, who is widely respected as the IPO expert in the US.
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