January 1, 2020: The Securities and Exchange Commission of Pakistan (SECP) has revamped the initial public offering (IPO) regime to make the IPO process simple, cost-effective and more efficient.
The amendments in IPO Regulations 2017, have been made after thorough consultation with market participants with an objective to promote capital formation by facilitating issuers and safeguarding the interest of the general public by enhancing disclosures.
In the new set of regulations, the objective eligibility criteria for listing companies have been simplified to promote capital formation through the securities market. Moreover, the issuers that have a track record of fewer than three years and were not making profit from the last two years are allowed to raise capital from the securities market. However, such Issuers are required to submit a business plan and provide enhanced risk disclosures in the offering document for prospective investors.
Further, with the perspective of providing ease and reducing the cost of IPOs, the requirement of submitting audited accounts has been reduced from 5 to 2 years. In addition, the time frame relating to the submission of a progress report by the Issuer has been increased from quarterly to half-yearly basis.
To safeguard the interest of the general public, certain parameters for greenfield projects (GFPs) have been introduced. The said parameters include: (i) At least 51% equity contribution by the sponsors; (ii) successful business track record of the sponsors; (iii) experience and skills of the management to run GFP; (iv) mandatory financial close; (v)risk-based disclosure in the offering document, etc. Further, an exit offer mechanism has been introduced to protect the investors in case of a change in the principal purpose of the issue.
In order to encourage foreign investment in the country, the Book Runner has been allowed to waive the margin requirement of the institutional investors including foreign investors. Moreover, related parties have been allowed to perform different roles in the same IPO Transaction.
The new IPO regime is a shift towards the disclosure-based regime. Disclosures pertaining to the principal purpose of the issue, risk factors, share capital, financial information, management of the issuer, legal proceedings and overdue loans are made part of the prospectus. A new section titled summary of the Prospectus has been introduced to help investors better understand the offering document.
Moreover, to facilitate small enterprises, startups and Greenfield companies that aspire to raise funds through capital markets, the SECP has already introduced an alternate board namely Growth Enterprise Market (GEM) at PSX. The GEM is in addition to PSX’s main board for listing and trading of equity securities.