The Securities and Exchange Commission of Pakistan (SECP) has revamped initial public offering (IPO) regime to make the IPO process simple, cost effective and more efficient. The amendments in IPO Regulations 2017, have been made after thorough consultation with market participants with an objective to promote capital formation by facilitating issuers and safeguarding the interest of general public by enhancing disclosures. In the new set of regulations, the objective eligibility criteria for listing of companies have been simplified to promote capital formation through securities market.
Moreover, the issuers that have a track-record of less than three years and were not making profit from last two years are allowed to raise capital from securities market. However, such Issuers are required to submit a business plan and provide enhanced risk disclosures in the offering document for prospective investors. Further, with perspective of providing ease and reducing cost of IPOs, the requirement of submitting audited accounts has been reduced from 5 to 2 years. In addition, the time frame relating to submission of progress report by the Issuer has 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.
The said parameters include: (i) At least 51% equity contribution by the sponsors; (ii) successful business track record of the sponsors; (iii) experience and skills of the management to run GFP; (iv) mandatory financial close; (v)risk-based disclosure in the offering document etc. Further, an exit offer mechanism has been introduced to protect the investors in case of change in the principal purpose of the issue. In order 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. The new IPO regime is 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 Securities and Exchange Commission of Pakistan NICL Building, 63 Jinnah Avenue, Islamabad Tel: 051-9214005 titled summary of the Prospectus has 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 has already introduced an alternate board namely Growth Enterprise Market (GEM) at PSX. The GEM is in addition to PSX’s main board for listing and trading of equity securities.