SECP tightens corporate disclosure norms, eases rights issue process

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has announced a series of amendments to the Companies (Further Issue of Shares) Regulations, 2020, aimed at improving the process for issuing rights and enhancing market transparency.

The regulatory body said on Thursday that the changes, which followed extensive consultations with stakeholders and the public, are designed to streamline the rights issuance process, bolster disclosures in offer documents, and revise post-issuance share sale restrictions.

Under the revised regulations, the process of right issuance has been streamlined, with uniform disclosure and reporting standards now applicable to all right issues, irrespective of size. Issuers are mandated to seek feedback from both the Pakistan Stock Exchange (PSX) and SECP on draft offer documents.

To provide investors with crucial information, amendments strengthen disclosures in the right issue offer documents, offering insights into the issuer's profile, specific risk factors, and their potential impact on company operations and performance. A notable change includes the requirement for directors and substantial shareholders to subscribe to the right issue or arrange for the subscription of their entitled shares, which has been streamlined.

This requirement was previously applicable to all directors/substantial shareholders, including the directors/substantial shareholders who do not agree to the decision to proceed with the right issue.

Dissenting directors or substantial shareholders are no longer obligated to submit an undertaking; instead, their share entitlement can be underwritten alongside the portion offered to the general public.

In the further issue of shares by way other than a right offer, where issuance of shares is contingent upon a future event, it was not practically possible for applicants to ensure compliance with certain requirements at the time of seeking approval under section 83(1)(b) of the Companies Act, 2017.

To resolve this issue, specific exceptions have been introduced to facilitate the share issuance process. To curtail any discretionary interpretation in deciding the applicability of the exceptions, the future contingent event that would attract such exceptions has been clearly explained in the regulations.

Restrictions on the sale of shares post-issuance have been modified, extending the holding period to two years for sponsors and associated entities, while reducing it to six months for other parties.

Following the amendments, the Companies (Further Issue of Shares) Regulations, 2020 will exclusively apply to listed companies. Separate regulations notified in February 2024 cater to further share issuance by unlisted public and private limited companies.

The SECP emphasises that these amendments signify a significant stride towards bolstering capital markets and safeguarding investor interests. By augmenting transparency and accountability, the SECP aims to cultivate investor confidence and stimulate sustainable growth.