SECP revamps public offerings’ regulations to ensure transparency

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) on Friday revamped the regulations governing the public offerings in a bid to ensure transparency and quality of listings.

The SECP, under its new framework, cut down the numbers of regulations related to the debt and equity securities. “The numbers of regulations have been reduced to two,” it said in a statement. “The main objective of the measure is to promote the ease of doing business and streamline the entire public offering process.”

The SECP held consultative sessions with the industry participants in March and September prior to the approval of the new framework. Seven rules and regulations guidelines, relating to public offering, in addition to six other rules and regulations guidelines were initially circulated for public consultation.   “Without objective consolidation of the framework, the same would have resulted in 10 different rules and regulations guidelines, governing the public offering process,” the SECP said.

The public offering regulations, however, have been divided into three parts: process for public offering; methods of public offering and functions and responsibilities of intermediaries (consultant or underwriter banker to an issue).

Under the new framework, an issuer will be ineligible to make a public offer if the issuer or its directors/sponsors or substantial shareholders have overdue defaults or have been declared defaulter by the exchange.

“Securities brokers appointed by companies as consultants to their public offering play a pivotal role in promoting quality listing and development of capital markets,” the commission said. “Therefore, their role as consultants to the Issue is being notified as a regulated securities activity.”

The SECP has also drafted regulations related to licensing of a consultant. “Only licensed securities brokers will be eligible to undertake consultancy to the issue activity,” it said. Under the framework, the consultants will be required to carry out due diligence, encompassing eligibility and suitability aspects of the proposed issue in order to protect the public interest.  It also binds a consultant to the issue to justify the price set by the issuer, taking into account the record of the issuer management expertise, inherent risks, past financial performance and financial projections. A requirement of separate valuation section has been introduced for the consultants.

The securities exchange will also be required to examine the proposed issue from various aspects, including eligibility requirements and suitability of the issue, considering the public interest.

“The securities exchange is now required to place the prospectus on its website for public consultation purposes,” the commission said. “The conflict of interest has been reduced through an appointment of independent consultant/underwriter/book runner/banker to the issue…,”

The new framework also allows 100 percent book building with no retail offer and such companies will be traded only among the investors on a separate board other than main ready board.

“The issuer has been allowed determination of strike price through 100 percent book building and in case of under-subscription of retail portion the same will be allotted to successful bidders on a pro rata basis,” the commission said.

The process of post-subscription time allowed for balloting allotment and credit dispatch of shares to the public has been reduced from 30 to 10 days.  Following the implementation of the new regulations, the Underwriter Rules 2015 Book, Building Regulations 2015, Guidelines for Issuance of Prospectus 2002 and Guidelines for issuance of Term Finance Certificates to the General Public 2002 will stand repealed.

“Further the portion of Commercial Paper Regulations 2013, Sukuk Regulations 2015 and Companies (Issue of Capital) Rules 1996, dealing with public offering, have been shifted to the new public offering regulations and these frameworks shall not apply to public offering of securities,” said the commission.

It said the new framework will be effective after notification of consultant and banker to the Issue as regulated securities activities and approval of amendments into the Companies (Issue of Capital) Rules 1996 by the federal government.