SECP Vide S.R.O. No. 1619 (I)/2019 dated December 26th, 2019 made amendments in the Public Offering Regulations, 2017, (afterwards referred as the “Regulations”). Amendments mainly relate to the followings: –
Amendments in General Conditions for Public Offer of Securities
Amendments in Conditions for Public Offer of Shares
Amendments in Conditions for Offer of Shares through Book Building
Amendments in Procedure for Public Offer of Shares through Book Building
Amendments in Restrictions
Amendments in General Conditions for Public Offer of Debt Securities
Amendments in Post Issue Reporting and Disclosures
Insertion of new regulation “Offering an Exit Opportunity in Case of Change in Principal Purpose of Issue as Disclosed in Prospectus”
Substitution of first schedule – Format of the Prospectus and Reports to be set out there
Amendments in General Conditions for Public Offer of Securities:
Condition for the issuer to remain in Operations for at-least 3 Financial Years before Public Offer is omitted.
Condition for Issuer to have profitable track record for at least 2 preceding financial years from its core business activities was mandatory, however SECP has specified alternative, that in-case of non-compliance with profitability criteria: –
o the sponsors of the Issuer shall retain at least 51% of the post issue paid-up capital till the company reports net profit after tax for two consecutive financial years including profit from its core business activities; and
o the issuer shall: (a) submit a business plan to turnaround the company into a profitable venture; and (b) disclose the following on the cover page of the Prospectus in bold language:
“This is a loss-making company. The risks associated with loss making companies are comparatively much higher than profitable companies. The prospective investor should, therefore, be aware of the risk of investing in such companies and should make the decision to invest only after careful due diligence. It is advisable to consult any independent investment advisor before making any investment.”
Condition for Holding of 51% of the shares of the issuer by same persons for at least 2 preceding financial years, will not be applicable in case of new issuance of shares by the issuer.
In case of Green Field Project, Requirement to have profitable track record and holding of 51% shareholding of the issuer will not be applicable.
Criteria, for green field project, with respect value of share, will be as follows: –
a. Sponsors’ contribution, in the form of equity in a green field project at the time of IPO, shall not be less than 51% of the entire equity and shall be retained till the commencement of commercial production.
b. In case the project requires debt financing, in addition to equity funding, financial close shall be mandatory.
c. Successful business track record of sponsors preferably running a listed company/ies, manufacturing/industrial units etc. considering various parameters such as operational profitability, operating cash flows, EPS and dividend payout etc.
d. Experience and skills of the Management to run the proposed project.
e. If required, Engineering, Procurement and Construction (EPC) contract shall be in place.
f. Land for the project, if required is acquired by the Issuer and the same is in the name of the issuer.
g. the sponsors of the Issuer shall retain at least 51% of the post issue paid-up capital till the company reports net profit after tax for two consecutive financial years including profit from its core business activities.
h. The Issuer shall disclose the following on the cover page of the Prospectus in bold language: –
“It is a green field project. The risks associated with the green field project are much higher than a project that has commenced commercial production/operations. The prospective investor should, therefore, be aware of the risk of investing in such projects and should make the decision to invest only after careful due diligence. It is advisable to consult any independent investment advisor before making any investment.”
Restriction to make public offer in case of default / overdue by associates of the issuer, as per credit information bureau report, is now removed.
There are certain other amendments under this caption, related to better understanding / clarity and the role of SECP under the revised Regulations. Please refer to notification for complete details.
Amendments in Conditions for Public Offer of Shares:
Condition to submit Certificate from Consultants and quarterly reporting requirements are omitted, previously such certificate was required to be submitted to Commission from Consultant conforming financial plan, share allotted to sponsors, investors etc, and submission of progress report on quarterly basis to commission.
Amendments in Conditions for Offer of Shares through Book Building:
Bidding threshold for the associates of the Consultant to the Issue and Book Runner is extended from “five percent” to “ten percent” and exemption from this threshold is now granted to the Insurance Companies which are Associates of the Consultant to the Issue along-with Financial Institutions and Mutual Funds”.
Amendments in Procedure for Public Offer of Shares through Book Building:
Through this Amendment, The Book Building process shall be considered as cancelled if the total number of bids received is less than Forty, whereas Previously it was Hundred
Amendments in Restrictions:
Now any bidder can bid up-to “10%” previously it was limited to 5%, whereas only institutional investors were allowed to make bid up to 10% of the shares allocated under the Book Building Portion.
Amendments in General Conditions for Public Offer of Debt Securities:
In regulation 13, sub-regulation (3), in the second proviso, after the words; “Sovereign Sukuk”, for the word “and” a comma “(,)” shall be substituted and after the words “Government Guaranteed Sukuk” the words “and any other debt security whose debt servicing is guaranteed from the Government” shall be inserted.
In sub-regulation (7), after clause (xii) following proviso shall be inserted, namely: –
“Provided that this clause shall not apply in case of issuance of Tier 1 and Tier 2 instruments by Scheduled Banks.”
Amendments in Post Issue Reporting and Disclosures: –
The issuer upon completion of public offering of securities shall submit report detailed break-up of the utilization of the proceeds of the issue in its post issue quarterly/half-yearly and annual accounts previously it was for the period of “for three years.
Requirement to submit a quarterly report providing the status of the commitments mentioned in the prospectus and conditions imposed at the time of granting approval of the prospectus, for at least three years to the securities exchange and the Commission has been replaced with the following: –
Submit a: (a) Half yearly progress report; and (b) annual progress report reviewed by the auditor, to the securities exchange till the fulfillment of the commitments mentioned in the prospectus stating the following:
a. Implementation status of the project/commitment made in the Prospectus as per format given below:
made in the Prospectus Start date
(disclosed in the
Date (disclosed in the Prospectus) Current
b. Detailed break-up utilization of the proceeds raised from the issue.
c. after clause (ii), following new clause shall be inserted, namely: –
Submit a final report reviewed by the auditor after the fulfillment of the commitments mentioned in the Prospectus.”
Insertion of new regulation “Offering an Exit Opportunity in Case of Change in Principal Purpose of Issue as Disclosed in Prospectus”:
“16a. Offering an Exit Opportunity in case of change in principal purpose of Issue as disclosed in prospectus:
1. The Issuer shall not, at any time change the principal purpose of the issue as disclosed in the Prospectus.
2. In exceptional circumstances, the issuer may change the principal purpose of the issue subject to passing of special resolution and offering an exit opportunity to dissenting shareholders who have not agreed to the change in principal purpose of the issue as disclosed in the Prospectus.
3. Offering an exit opportunity shall also be mandatory where the principal purpose of issue was undertaken and thereafter funds were diverted to other purposes, which resulted in non-completion of principal purpose of issue in a timely manner as disclosed in the prospectus.
4. The mechanism for an exit offer opportunity shall be as under:
(i) EOGM notice in respect of any change in the principal purpose of the issue as disclosed in the prospectus shall be given along with draft special resolution as required under the provisions of Companies Act, 2017.
(ii) Subject to approval of special resolution as defined in the Companies Act, 2017, the shareholders who have dissented against the special resolution and conveyed their dissent to the company secretary under intimation to PSX, shall be provided an opportunity to exit by offering a price per share, by the sponsors of the issuer that shall be highest of the following:
a) Intrinsic value based on the latest available audited accounts.
b) Weighted average closing price for last six preceding months.
c) offer price at which the shares were subscribed through IPO.
(iii) The exit offer shall be executed by the sponsors with in a period of thirty days from the date of passing of special resolution.”
Substitution of first schedule – Format of the Prospectus and Reports to be set out there:
Format of the Fist Schedule containing Format of The Prospectus and Reports has been substituted, please refer to the notification for complete details.
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