Internship Report On A Comparative Analysis of Different Flotation Methods-

Fixed Pricing Vs Book Building Vs Direct Listing

In the first chapter of this report, I focused on the origin of the report, rationale of the study, objective of the study, sources of data collection, methodology of the report & limitations of the study. This section helps to establish the framework for preparing the report and provides the overall view of different flotation methods.The second chapter is regarding organizational orientation. The history of Dhaka stock exchange, its functions, organ gram, trading procedure, market & so on, which I have mentioned in this part. By studying this section, an overall idea about the DSE will be generated.
The third chapter of the report provides the conceptual framework of the report. This part describes about the different flotation methods in details. This chapter is subdivided into many parts. The introduction part shows the present status of Bangladesh capital market. The Bangladesh capital market is gradually taking its desired shape. The capital market has been relatively sheltered from the recent global meltdown in 2008.It was volatile in early 2009 but has stabilized with high turnover and market capitalization and showing impressive growth in liquidity in recent years. There have been strong deal issuances in 2008 and 2009 despite weak global market conditions. This part also introduces with concept of different flotation methods briefly. This chapter discusses the concept of the term flotation. Flotation is the process of launching a public company for the first time by inviting the public to subscribe in its shares (also known as ‘going public’). It also discusses about the reasons for going public by identifying the various benefits of shares issuance to the capital market. Going public is an important step in the life of a company, because it provides access to a large amount of equity for an indefinite period of time and helps the company to raise finance for its expansion. However, in case of direct listing, sponsor-shareholders offload their part of shares to the public in the exchange directly. But the company does not get the benefits of offloading shares as money goes to the sponsors only. Then, the third chapter of the reports shows the types of flotation method. There are mainly two types of flotation methods. The first one is IPO Flotation Method and the second one is Off-loading of shares. IPO Flotation Method is again divided into two types: Fixed Pricing Method and Book Building Method. On the other hand, Direct Listing and Direct Listing under Book Building are the ways of off-loading of sponsor-shares. Then details about each flotation method are discussed throughout the chapter.

IPO’s are the first sale of stock by a company to the public. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market. In a fixed price offering method, a fixed price at which the securities are offered is known in advance by the investors. Fixed pricing method is a single stage IPO flotation method. It is the process of selling shares at a single fixed price. Book building is a two stage method of price discovery of shares and offering to the public. Actually, book building is a process of price discovery for security that is intended to be issued through public offering. On the other hand, direct listing means listing of a company by directly offering the sponsor-securities to the public through a stock exchange. This chapter mainly includes the definition, process, advantages, disadvantages and impact of each flotation method in the capital market.
Chapter four is the impressive part of the report. It shows the comparative analysis among different flotation methods. Theoretical analysis helps to identify basic differences among different flotation methods. Case Study Analysis helps to understand about the method(s) which determines the fair share price more. For this purposes five companies following different flotation methods are selected. Analysis of price performance behavior in the aftermarket of the selected companies is shown to know about the method(s) which provides more initial abnormal return.
Findings, Recommendations and Conclusion are included in the final chapter of the report. From the analysis we can understand that IPOs are more underpriced in case of fixed pricing method. On the other hand in book building method, IPOs are less underpriced as price discovery process are done by institutional investor to determine fair price of the shares. Direct listing process was introduced to bring good performing companies to be listed in the capital market and to trade sponsor-shares in the exchange directly and to obtain fair price of the off-loaded shares. But from the price performance behavior analysis we can see that shares of directly listed companies provide more abnormal return than other methods. In this method sponsors got the benefits of by trading their part of shares by gaining high abnormal return. Again the abnormal return, in case of book building method is less than the fixed pricing method as price discovery process are performed by informed investors.. As we know to attract different investors in the capital market, shares should be underpriced to leave some money on the table for investors regardless the flotation method used for offer price determination. In bullish market, price of the shares determined under book building method is demand driven and has a upward trend and vice versa. Yet it dominates the other flotation methods and is very much essential to sustain the growth of emerging capital market of Bangladesh.

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