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The Securities and Exchange Commission of Pakistan (SECP) has issued certain amendments to the Public Offering Regulations, 2017 to promote capital formation by facilitating issuers, reducing the cost of an IPO and safeguarding the interest of general public by enhancing disclosures.

The SECP has issued SRO 1619(I)/2019 on Friday to amend the Public Offering Regulations, 2017.

In order to promote capital formation through securities market, 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. Such companies are, however, required to comply with certain conditions including enhanced risk disclosures in the offering document for information of the prospective investors.

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.

In order to safeguard the interest of general public, certain parameters for green field projects (GFP) have been introduced. Through such parameters, sponsors of GFPs are required to have successful business track record of running a listed company and to contribute in the form of equity and financial close should be in place. 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 officials added.

In case of green field project, following criteria shall be applicable: 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 companies, 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.

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.

Further, to ensure investor protection, in case of change in the principal purpose of the issue, an exit offer mechanism has been issued.

Under the Offering an Exit Opportunity in case of change in principal purpose of Issue as disclosed in prospectus: The Issuer shall not, at any time change the principal purpose of the issue as disclosed in the Prospectus.

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.

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.

The mechanism for an exit offer opportunity revealed that the 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.

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. The exit offer shall be executed by the sponsors with in a period of thirty days from the date of passing of special resolution.

Under the revised regulations, the Issuer shall appoint Consultant to the Issue, Book Runner, Underwriter, Balloter and Share Registrar and Banker to an Issue, where required, through separate agreements in writing. The Book Runner, Underwriter and Balloter and Share Registrar shall be independent of the Issuer in case of issuance of equity securities.

Copyright Business Recorder, 2019