SECP amends regulations to increase investments via quality listings

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) on Monday said it had amended Public Offering Regulations, 2017 to encourage investments and ensure fair-price discovery through quality listings.

The SECP issued statutory regulatory orders (SRO) in this regard after consultation and consensus of the leading market participants, a statement said.

The notification and amended copy of the regulations is available on the SECP’s website.

The SECP has introduced specific requirements to encourage quality listing and minimise the subjectivity involved in the approval process.

As per the amendments, the company should have at least a three-year operational track record with two years profitability from its core business activity, while the book value/share of the company should be less than its face value per share.

Moreover, the company sponsors or persons holding not less than 51 percent shares should be the same for the last two years.

However, there is an exception in case of a green field project, the SECP statement said.

The concept of price band with the upper limit of not more than 40 percent of the floor price has been introduced in the amendments to ensure fair price discovery for IPOs through the book building mechanism. Floor price in case of book-building means the minimum offer price per share set by the issuer.

The concept of price band, the SECP statement said would encourage a more realistic floor price by the issuers for the IPOs through the book-building method.

The SECP has also changed the basis of allotment from time priority basis to proportionate basis to increase the investor base.

Also, the SECP has reviewed the minimum bid size from rupees one million to rupees two million, while minimum number of bids required have been increased from 40 to 100 to arrive at a more transparent bidding process. This, the statement said should ensure participation of high net worth individuals in the price discovery process.

To facilitate the book-building process, the bidders have been allowed by the SECP to revise their bid downward in terms of volume, provided the total bid amount remains the same.

Moreover, associated institutional investors of the issuer have been allowed to make bids in aggregate up to 10 percent, instead of the earlier limit of five percent, of the shares allocated under the book-building portion.

In addition, financial institutions and mutual funds that are associates of the consultant to the issue and the book runner have also been allowed to invest in an IPO through book-building at par with other institutional investors, as per the SRO.

“To facilitate investors to make a well informed decision, additional disclosures have been prescribed with regard to peer group companies comparison encompassing earning per share, book value per share, market value per share; P/E multiple, return on equity; return on assets and free float, etc.”

The said amendments are expected to provide a more conducive regulatory environment for capital formation in the economy through the primary market.

To promote ease of doing business, the concept of e-IPO has already been implemented and the SECP has also expedited its approval processing time which has significantly reduced the time and cost associated with an IPO.