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October 17, 2019

SECP proposes legal amendments to boost IPOs


October 17, 2019

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) on Wednesday proposed legal amendments to encourage companies to raise capital from the primary equity market that saw an average three initial public offerings (IPO) a year in the last three years.

SECP proposed certain amendments into the Public offering Regulations 2017 for seeking public comments. Public and stakeholders were invited to comment on the draft of the proposed amendments available on the SECP’s website by October 24, 2019.

“The objective behind the proposed amendments is to promote capital formation by facilitating issuers, reducing the cost of an IPO and safeguarding the interest of general public by enhancing disclosures,” SECP said in a statement.

The drought in primary equity market has been extending for the last couple of years. Exactly three companies went to the market to issue public offerings in 2018, 2017 and 2016. The numbers remained low compared to the scheduled issuance at the start of each year.

In 2017, Pakistan Stock Exchange raised Rs4.49 billion in primary offerings through floating 160.3 million shares at a floor price of 28/share. Its strike price remained the same. The issue was 20 percent of the PSX’s stake. Earlier, its 40 percent strategic stake was sold to a consortium of Chinese investors.

An analyst said low number of public offerings reflected the subdued appetite of private sector. The SECP said the objective eligibility criteria for listing of companies is being reviewed to enable companies that presents a viable time bound business plan to raise funds in order to promote capital formation through securities market.

“Such companies are, however, required to comply with certain conditions including enhanced risk disclosures in the offering document for information of the prospective investors,” the commission said.

“To help reduce the cost of an IPO, the role of consultant to the Issue and book runner may be performed by same entity provided such entity is independent of the issuer.” The SECP is further introducing certain parameters for green field projects (GFP) to safeguard the interest of general public.

“Through such parameters, sponsors of GFPs are required to have successful business track record of running a listed company and to contribute at least 75 percent in the form of equity and financial close should be in place,” it said. “The issuer shall also make certain risk related disclosures in the offering document and shall offer the shares through fixed price method only.” The SECP proposed an exit offer mechanism for investors to ensure their protection in case of change in the principal purpose of the issue.

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