ISLAMABAD: In a bid to improve and ensure transparency in the process for capital formation, the Securities and Exchange Commission of Pakistan (SECP) has recommended a revamp of Companies (Further Issue of Shares) Regulations 2020.

Suggesting new modes and mechanics through a concept paper, the regulator has proposed companies to adopt an enhanced disclosure-based regime for issuance of right shares by the listed companies to raise capital.

In this regime, the focus is increased to provide sufficient information to investors, enabling them to make informed decisions, increase investor protection.

The lacuna in the current law as identified by the SECP is that the size of the right issue are unusually high even up to 1,000 per cent, with minimal and incomplete risk disclosures that are insufficient to enable the investors to take informed decisions.

Restricts issue size to 50pc of paid-up capital

Besides the current regime does not allow cancelled, withdrawn, varied or postponement of the right issue once announced.

However, in case the issue is not subscribed, underwriters fail to subscribe the unsubscribed portion and board fails to allot the shares, there is no remedy available in the regulatory framework and apparently, it remains open for an unlimited period of time.

Therefore it has been proposed in the amendment that to enhance transparency and symmetric information dissemination, the right issue proceeds by a listed company is to be less than Rs500 million or 50pc of the paid-up capital of a listed issuer whichever is lower.

For the right issue proceeds by a listed company that exceeds Rs500m or 50pc of the paid-up capital of a listed issuer whichever is lower, the requirements are stringent and broader.

The proposed disclosure-based regime will include, preparation of offering document with enhanced disclosures; seeking public comments of the apex and front-line regulator and publishing final offering document after incorporating the same, leading to completion of right issue.

There are additional requirement, irrespective of issue size such as the concept of “Minimum Level of Subscription” (MLS) irrespective of size of the issue.

Published in Dawn,May 3rd, 2022