IPO andd R
IPOs
Regulatory
l t
F
Framework
k
Amir M. Khan Afridi
Director (Capital Issues)
(Market Surveillance and Capital Issues Department), SMD, SECP
January 22, 2013
1
1/31/2013
2
I i i l Public
Initial
P bli Offering
Off i (IPO)

What is IPO:
The first time sale of securities by a company to the public.
One of the modes of fund raising by the corporates to meet their financial needs.

Wh IPO:
Why
IPO
The most common reason for a company to initiate an IPO is to raise more capital. Other reasons may
include monetization of the investments of early private investors, and to make the company
publicly traded enterprises.
enterprises

Funds can be raised through IPOs through issuance of various types of securities like Ordinary Shares,
Preference Shares, TFCs, PTCs, Sukuk etc.

Securities issued to the public are listed on the Stock Exchanges to provide the holders exit route.
1/31/2013
B fi off Listings
Benefits
Li i

For Issuer:






Cost effective additional avenues for fund raising through the capital market.
market
Improvement in the income generating capacity.
Improvement in the company’s credentials.
Broadening of the shareholders base.
Attainment
i
off listed
li d status by
b Issuer.
For Economy:







IIncrease in
i revenue in
i the
th form
f
off tax
t paid
id by
b the
th market
k t intermediaries.
i t
di i
Decrease in dependence on banking sector.
Increase in employment opportunities.
Povertyy reduction and rural development.
p
Increase in corporatization culture.
Global recognition of the Company and the capital market of the country.
Increased contribution of the Company in GDP.
3
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B fi off Listings…..Contd
Benefits
Listings…..
Li i
Contd
C d

For Shareholders:
 Value creation and liquidity for shareholders

For Investors:
 Investment opportunities for investors
 Ease of entry & exit

For the Capital Market:
 Boosting volumes at main Boards
4
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5
Procedure for Listing

Application to the concerned Stock Exchange for
listing under Section 9 of the Securities and
Exchange Ordinance, 1969 along-with all necessary
d
documents
as required
i d under
d the
h Listing
Li i Regulations.
R l i

After clearance
Aft
l
f
from
th Stock
the
St k Exchange,
E h
th
the
company shall seek approval of the SECP under
Section 57 or Section 62 of the Companies
Ordinance, 1984 (the Ordinance).
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6
Issue of Shares by a Company through IPO

For raising funds from the general public against issue of
securities, a document named “Prospectus” inviting general
public for subscription of securities is required to be issued.

Prospectus is issued, circulated and published only after
approval of the SECP under section 57 of the Ordinance.

Foreign company having place of business in Pakistan, can
issue prospectus under section 461 read with section 57 of the
Ordinance.
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7
Off for
Offer
f S
Sale off S
Shares by Existing
i i S
Shareholder

Person who holds more than ten percent shares in a
company or a body
b d corporate may offer
ff for
f sale
l such
h
shares in totality or a part thereof to the general public.

Offer for sale document i.e. prospectus is published,
issued and circulated after approval of the SECP under
section 62 read with section 57 of the Ordinance.
Ordinance

For sale of shares of a foreign
g company
p y having
gp
place of
business in Pakistan, prospectus can be issued under
section 62 read with section 57 and 461 of the Ordinance.
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8
Eli ibili for
Eligibility
f Li
Listing
i

Any public limited company or body corporate may
apply for listing on any Stock Exchange in Pakistan.

Minimum paid up capital of two hundred million
rupees (Rs.200 million).

A foreign company having place of business in
P ki t
Pakistan
can also
l
apply
l for
f
li ti
listing
on a Stock
St k
Exchange in Pakistan.
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9
All
Allocation
i off C
Capital
i l in
i Equity
E i Issues
I

Post issue paid-up capital of the issuing company is up to Rs.500 million,
e s 50%
%o
of suc
such ccapital
p
sshall be o
offered
e ed to
o thee ge
general
e pub
public.
c.
at least

Capital of the issuing company is beyond Rs.500 million, public offer shall
be at least Rs.250 million or 25% of the post issue paid-up capital,
whichever is higher.
higher

Offer for sale of shares by an existing shareholder, the offer size shall be at
paid up
p capital
p
of the company
p y
least Rs. 100 million or 25% of the p
whichever is lower.

Upto 5% of the issue size can be allocated to employees of the issuing
company.
company

Upto 20% of the issue size can be allocated to overseas Pakistanis.
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10
All
Allocation
i off C
Capital
i l in
i TFCs
TFC Issues
I

The total issue size is up to Rs. 500 million, at least
40% of the issue size shall be offered to the public.

The total issue size is beyond Rs. 500 million, the
public offer shall be at least Rs. 200 million or 25%
off the
th total
t t l issue
i
size,
i whichever
hi h
i higher.
is
hi h
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11
P bli i off P
Publication
Prospectus

Prospectus to be circulated to the Stock Exchange at which the
company is listed or proposed to be listed and all the bankers
to the issue in addition to make it available at the registered
office of the issuer.

Prospectus to be published at least in one Urdu and one
English daily Newspaper.

Law allows publication of the prospectus in abridged form.

Prospectus should contain at least such material information
and statements as required under Section 53 read with 2nd
Schedule of the Ordinance.
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12
Major Disclosures in the Prospectus

All material risk factors associated with investment in shares.

Financial information including latest balance sheet and five years income
statement.

Purpose of the issue and utilization of the proceeds.

Dividend Policy of the company.

Overview and history,
history information about the management including
sponsor/ promoters.

Future business prospects of the Issuer.

Complete procedure regarding Book Building where the issue is through
Book Building.
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13
Major Disclosures in the Prospectus

Complete procedure for making application both manually and
electronically (e-IPO), minimum amount of application, basis for
allotment of
shares, refund of subscription money to
unsuccessful applicants and minimum subscription for allotment.

Issue and dispatch
p
of share certificates.

Justification for premium being charged.

Underwriting commissions, brokerage and other expenses.

W
Warning
g for
o investors
ves o s regarding
eg d g p
prohibition
o b o o
of Sub
Submission
ss o o
of
multiple and fictitious applications

Memorandum and Articles of Association.
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14
Additional Disclosures in case of TFCs Prospectus

Details about the security backing the instrument in case of
secured issue.
issue

Redemption
p
and pprofit ppayment
y
Schedule.

Credit rating of the instrument and the entity.

Details about the Debt Security Trustee.

Details about call and put option, if any.
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15
Main Laws applicable to IPO’s
IPO s and Listing
Relevant laws applicable to listing of a company/security on a stock exchange and issue of
prospectus are as under:
1 P
1.
Part V off the
h O
Ordinance
di
namely,
l “P
“Prospectus, All
Allotment, IIssue and
dT
Transfer
f off shares
h
and debentures, Deposits etc.” mainly section 53, 57 and 62 and second Schedule and
Section 461 of part XIV of the Ordinance:
http://www.secp.gov.pk/corporatelaws/pdf/CompaniesOrdinance984-17-03 2011.pdf
2 S
2.
Section
i 9 off S
Securities
i i & Exchange
E h
Ordinance,
O di
1969:
1969
http://www.secp.gov.pk/corporatelaws/pdf/secord1969_sep08.pdf
3. The Companies (Issue of Capital) Rules, 1996:
http://www.secp.gov.pk/corporatelaws/pdf/Feb_02_1996.pdf
4. Guidelines for the preparation of Prospectus:
http://www.secp.gov.pk/otherlinks/GuidelinesChecklist/Guidelines.pdf
5. Guidelines for the issue of Term Finance Certificates (TFCs) to General Public.
http://www secp gov pk/SECGuideSeries/PDF/Guidelines TFC pdf
http://www.secp.gov.pk/SECGuideSeries/PDF/Guidelines_TFC.pdf
6. Listing Regulations of the Stock Exchanges: http://www.kse.net.pk
1/31/2013
Methods of Offering of Shares through IPO

Fixed Price Method

Book Building Method
16
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17
Fixed Price Method





Offer price is set by the issuer or the Offerer.
P i may be
Price
b att par or att premium,
i
sett on the
th basis
b i off
issuer/offerer own valuation based on the companies financials
and/or the prevalent market demand and/or the due diligence
conducted by the underwriters or Pre-IPO investors.
Issue is underwritten through independent institutions which
provide comfort to the prospective investors as for as the offer
price is concerned.
Basis of issue price is disclosed in the prospectus where the
issuer gives detail about the qualitative and quantitative factors
justifying the issue price.
Investors subscribe for the shares at the price already decided
by the issuer.
Book Building Method
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18

Mechanism of price determination based on Dutch auction method.

Floor Price is decided in consultation with the Book Runner and is disclosed in
the preliminary Prospectus.

Indication of interest for investment in the shares offered is collected from
Institutional Investors (IIs) and High Net Worth Individual Investors (HNWIS)
through making of bids during the bidding period.

Book is built and displayed online in descending order on the basis of bids
received from IIs and HNWIs which gives a picture of demand for the shares at
different p
price levels.

Strike Price is determined at the end of the bidding period on the basis of bids
received.

Shares allocated to HNWIs and IIs at Strike Price.
Price

The Offer of shares to retail investor can be made at or below the strike price.
1/31/2013
Equity Issues During the last 21 years (1991(1991-2012)
19
20
1/31/2013
Equity Issues During the last 21 years (1991(1991-2012)
60
100
55.654
90
86
80
73
70
Rs. in billion
40
61
25 641
25.641
30
22.635
15.283
30
5 595
5.595
10
50
17.895 41
38
20
60
32.538
40
14.563
16.011
14.322
30
12.041
5.297
6.318
4
3 4
3.005
2.27 1 0
2.035
0.221 0
4
4 9
1.858
11
14
3.961
0
Year
Paid up Capital of Companies Listed During the Year (Rs. in billion)
Companies Listed During the year
Companies Listed During the year
3
20
8.556
7.403
9
10
3
6
4
6
0
No. of Comp
panies
50
Listed TFCs Issues During the last 18 years
(1995--2012)
(1995
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21
Listed TFCs Issues During the last 18 years
(1995--2012)
(1995
22
1/31/2013
30
18
17
17
16
25.9
15
14
Rs. in billion
14
20
12
16 6
16.6
6
15
12.0
6
11.1
9.6
10
4
5
2
0.7
1.3
64
6.4
2
2
0
0.0
10
8
8
6
62
6.2
4.0
3
0.6
1.9
8
8.0
10.2
6
2
1.2
1
0
4.3
3.0
2
4
2
0
Year
Amount (Rs. in billion)
No. of TFCs's Floated
Numb
ber of TFCs
25
1/31/2013
Some IPOs during 20052005-2012
S.No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Name of Company
Attock Petroleum Limited
Kot Addu Power Company Limited
United Bank Limited
EYE Television Network Limited
(Hum Network)
Allied Rental Modaraba
Oil & Gas Development Co. Ltd.
Sitara Peroxide Limited
Invest & Finance Securities Limited
Thatta Cement Limited
Nishat Power Limited
Nishat Chunian Power Limited
Ghani Gases Limited
Fatima Fertilizer Co. Limited
Engro Foods Limited
Subscription
Date
23
Price
Formal
Offer Price
(as on Jan 18, 2012)
Listing Date
(Rs.)
(Rs.)
28 29 Jan 2005 77-Mar-05
28-29
Mar 05
21-24 Feb 2005 18-Apr-05
03-08 Jun 2005 25-Jul-05
57.75
57
75
30
50
500.10
500
10
50.02
85.08
27-28
27
28 Jun 2005 88-Aug-05
Aug 05
10
23 55
23.55
28-Nov-06
11-13 Jan 2007
13-14
13
14 Jun 2007
11-12 Feb 2008
26-27 Feb 2008
28-31 Aug 2009
10-12 Sept 2009
02-03 Dec 2009
29-30 Jan 2010
05-07 Jul 2011
10
110
10
10
22.5
10
10
14
13.5
25
31.50
185.56
12 19
12.19
11.49
25.00
19.45
20.77
17.35
25.53
98 93
98.93
8-Jan-07
already listed
23-Jul-07
23
Jul 07
20-Mar-08
07-Apr-08
07-Oct-09
22-Oct-09
05-Jan-10
08-Mar-10
10-Aug-11
Recent Reforms in Primary Market
e-IPO





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24
Submission of application for shares by IPO investors
electronically by using internet banking facility i.e
i e 24 hrs access.
access
Investors are not required to physically go to the Bank and wait in
longg qqueues for makingg application
pp
for subscription
p
of shares.
e-IPO is efficient, cost effective and will lead to increase the
turnover.
First ever e-IPO facility provided in the Offer for Sale of Shares
of Aisha Steel Mills (03-04 July 2012) through UBL’s e-IPO
system.
y
A Committee has been constituted by SECP To further broaden
this concept.
1/31/2013
25
Recent Reforms in Primary Market






Introduction and implementation of the concept of the book
buildingg and e-IPO;;
Formulation of guidelines for preparation of prospectus;
Filing and examination of e-prospectus;
Publication of the Listing Guide Book;
Revision of the checklist of documents filed with application for
approval of prospectus and omission of the unnecessary
documents from the list to facilitate the issuers;
Provision of the option for dividend mandate in the IPO shares
subscription
b i i form.
f
Upon opting
i for
f this
hi option,
i shareholders
h h ld may
get their cash dividend through direct credit of cash in their bank
q y issue off International Steels Limited))
accounts. (1st time used in Equity
1/31/2013
26
Recent Reforms in Primary Market

Provision of the option for Profit Payment/Redemption mandate
for TFCs subscription
p
form. Upon
p
opting
p g for this
option, applicants may get their profit payments/redemptions
through direct credit of Profit Payment/Redemption in their bank
accounts (1st time used in TFC issue of Engro Corporation
accounts.
Limited.)

Formation of a Technical Committee for the purpose to look as to
how the listing process can be made simple and efficient and how
listing of SMEs can be facilitated.
facilitated

Drafting of Issuance of Sukuk Regulations.
1/31/2013
Thank You
You
27