SECP eases IPO rules to lure new listings

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) on Wednesday said it had revamped initial public offering (IPO) regime to make the process simple, cost effective, and more efficient, in a bid to attract new listings.

The amendments in IPO Regulations 2017 have been made after thorough consultation with market participants to promote capital formation by facilitating issuers and safeguarding the interest of general public by enhancing disclosures, the commission said in a statement.

The regulator said in the new set of regulations, the objective eligibility criteria for listing of companies had been simplified to promote capital formation through securities market. It added that the issuers having a track-record of less than three years and not making profit from the last two years would now be allowed to raise capital from securities market.

However, such issuers were required to submit a business plan and provide enhanced risk disclosures in the offering document for prospective investors, the statement said.

Further, with the perspective of providing ease and reducing cost of IPOs, the requirement of submitting audited accounts had been reduced from 5 to 2 years, the commission said, adding that the time frame relating to submission of progress report by the issuer had been increased from quarterly to half yearly basis.

To safeguard the interest of the general public, certain parameters for green field projects (GFPs) have been introduced in the new regime. The said parameters include: at least 51 percent equity contribution by the sponsors, successful business track record of the sponsors, experience and skills of the management to run GFP, mandatory financial close, risk-based disclosure in the offering document etc. Further, an exit offer mechanism had been introduced to protect the investors in case of change in the principal purpose of the issue, the SECP said.

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.

It further said the new IPO regime was a shift towards disclosure-based regime. Disclosures pertaining to 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 also 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 said it had already introduced an alternate board namely Growth Enterprise Market (GEM) at Pakistan Stock Exchange (PSX).

The GEM is in addition to PSX’s main board for listing and trading of equity securities.