PSX seeks feedback on SECP's proposed regulation amendments by April 16

April 10, 2025 (MLN): The Securities and Exchange Commission of Pakistan (SECP), after thoroughly reviewing the proposed amendments to the Pakistan Stock Exchange (PSX) regulations, is now proposing certain changes and therefore, all concerned parties are invited by PSX to review the revised amendments and provide written comments by April 16, 2025.

One of the key stipulations is that no unlisted company can list or attain listing status through the Scheme of Arrangement.

An exception is made in the case of a demerger of an operating business segment of a listed company into an unlisted company, where shares of the unlisted company are issued to the shareholders of the listed company.

This development refers to the proposed amendments to PSX regulations concerning the listing of companies pursuant to the approval of a Scheme of Arrangement, according to the notice issued by PSX.

These amendments were earlier notified by PSX through a Notice dated October 7, 2024, for seeking public comments in terms of Section 7 of the Securities Act, 2015.

The proposed amendments were aimed at introducing certain conditions for compliance by companies attaining listing at PSX through approval of a Scheme of Arrangement granted by the relevant competent authority under applicable laws.

The objective is to ensure that such companies are treated at par with those applying for listing through an Initial Public Offering (IPO).

Subsequent to the completion of the public consultation period and the approval from the PSX Board, the proposed amendments to PSX Regulations were submitted to the SECP for its final approval.

In light of the foregoing, PSX is now notifying the revised proposed amendments to its regulations, which include a definition for a business component of a listed company that engages in business activities from which it earns revenue and incurs expenses.

Moreover, it is proposed that the revenue from the Operating Business Segment must account for at least 10% of the total revenue of the listed company as per the last audited accounts, or the assets of the operating business segment must account for 10% of the total assets of the listed company as per the last audited accounts.

Additionally, the Operating Business Segment to be demerged must have been profitable during the preceding financial year, according to the last audited accounts.

Any listed company entering into a Scheme of Arrangement involving the demerger of an Operating Business Segment into an unlisted company shall be required to obtain a No Objection Certificate (NOC) from the Exchange. \

This is required subsequent to the approval of the Board of Directors for entering into the Scheme of Arrangement.

Under the proposed framework, the listed company shall prepare special accounts for the Operating Business Segment for the most recent financial year, and these accounts shall be audited by a QCR-rated audit firm.

Furthermore, the listed company must be compliant with the requirements of the financial statements as per the relevant provisions of the Companies Act, 2017.

In addition, the listed company must not be placed in the Non-Compliant Segment and/or have its trading suspended at the time of application to PSX for obtaining the No Objection Certificate (NOC) or at the time of filing of the Scheme of Arrangement.

Moreover, the listed company shall obtain approval from the shareholders through a special resolution for entering into the Scheme of Arrangement involving demerger of the Operating Business Segment into an unlisted company.

To further formalize the process, the listed company shall submit an undertaking on non-judicial stamp paper to the Exchange.

The undertaking shall state that the company to be listed through the Scheme of Arrangement will comply with listing requirements, including being a public limited company incorporated under the Companies Act, 2017, with the minimum paid-up capital.

Additionally, free-float requirements have been introduced based on the size of paid-up capital (PUC).

For companies with a PUC of up to Rs2.5bn, the free-float requirement is at least 10% of PUC at the date of listing and must increase to 25% within the next three years.

For companies with a PUC above Rs2.5bn and up to Rs5bn, the free-float requirement is at least 10% at the date of listing and must increase to 15% within three years.

For companies with a PUC above Rs5bn and up to Rs10bn, the free-float requirement remains at least 10% of PUC at the date of listing. For companies with a PUC above Rs10bn, the free-float requirement is at least 5% of PUC at the date of listing.

Furthermore, the company’s principal line of business must be to hold and manage operations of the Operating Business Segment.

Its promoters, sponsors, and directors must not be promoters, sponsors, or directors in any other listed company that is in the Non-Compliant Segment or Winding-Up Segment.

It must also not be an associated company of any other listed company—over which the company has control—that is placed in the Non-Compliant Segment or Winding-Up Segment.

the Chief Executive Officer of the company must not have served in the past three years, nor currently serve, as the CEO of a listed company that was placed in the Non-Compliant Segment or Winding-Up Segment during his tenure.

In addition, the company, along with its sponsors, promoters, substantial shareholders, and directors, must have no overdues or defaults—regardless of the amount—appearing in the report obtained from the Credit Information Bureau.

However, this condition will not apply to directors nominated by the Federal Government, any Provincial Government, or Financial Institutions.

Moreover, sponsors of the company shall be required to hold their entire shareholding for a period of one year from the date of listing.

Furthermore, they must retain not less than 25% of the paid-up capital of the company for a period of three years from the date of listing.

Provided that the shares held by sponsors under the aforementioned clause shall remain unencumbered and be placed in a blocked account with the Central Depository Company (CDC).

Subject to compliance with this clause and with the approval of the Exchange, the sponsors may sell their shareholding through a block-sale to any other person who will assume the role of sponsor and adhere to the specified requirements.

Additionally, the company must comply with any other requirements as may be prescribed by the Commission or the Exchange.

Following the sanction of the Scheme of Arrangement by the competent authority, the unlisted company shall submit an application to the Exchange in accordance with, along with the applicable documents for listing.

The Exchange, if satisfied that the company is compliant with the prescribed listing requirements, shall approve the listing application.

the Exchange may reject a listing application, at its sole discretion, if it deems that the listing of the company is not in the interest of the market or if the company fails to meet any of the prescribed listing requirements.

Provided that the company shall be given an opportunity of hearing by the Exchange before the listing application is rejected.

The opening price of the shares on the first trading day shall be disseminated within five working days from the dissemination of the certified true copy of the Order of the relevant competent authority sanctioning the Scheme.

However, this shall not be later than the announcement of the final date of book closure by the listed company.

Provided that the management shall also provide justification in support of the opening price.

In addition to the listing application, the company’s management shall share with the Exchange the following information and documents for dissemination to the public through a notice of listing.

These include the company history and background, shareholding pattern, name(s) of sponsors, and the names and profiles of the Board of Directors and management.

Also included are details about the capital structure, business model, products, major customers and suppliers, material properties and infrastructure, as well as a justification in support of the opening price.

Lastly, the company must provide information on legal proceedings, risk factors, and past financial performance, including key ratios.

Pursuant to the sanction of the Scheme of Arrangement involving the listed company by the competent authority, the Exchange shall suspend trading in the shares of the listed company as per the Exchange’s trading schedule already notified.

This will occur upon the announcement of final dates of closure of share transfer registers by the listed company for determining entitlement.

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