Capital formation, investment: SECP revamps public offering framework, introduces ‘GEM’

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) under the directions of the SECP Policy Board revamped the public offering framework, reviewed Securities Act, 2015 and introduced Growth Enterprise Market (GEM) to provide enabling environment for capital formation and investment opportunities to the investors and mobilising savings of the individuals.

Sharing new measures on the development of capital formation, the senior SECP officials informed at the SECP Headquarters, here on Wednesday that Pakistan’s primary market faced a long dry spell, and there was no public offering since March 2019 till March this year.

Owing to the fact and with the objective to attract potential issuers to tap capital market for fund raising and make IPO process more efficient, the SECP revamped the public offering framework.

The changes targeted encouraging new issuers to tap capital market especially equity market for fund raising; promoting ease in doing business; reducing regulatory burden both on the issuers and the financial market intermediaries, officials said.

To make primary market more competitive and to reduce the overall time involved, the SECP assessed the needs of different internal committees involved in the IPO approval process and has substantially reduced the approval timelines to 15 working days, they said.

Among other changes, revision in listing eligibility criteria of issuers is one.

Issuers having a track record of less than three years and profitable track record of less than two years are now able to raise funds through Pakistan Stock Exchange. Requirement of audited accounts has been reduced from five years to two years and certain parameters for green field projects have been introduced.

Another area of core interest to regulator is to ensure effective disclosures, in the same wake recent amendments include introduction of exit opportunity mechanism and enhanced disclosures in the offering document.

To a query, officials responded that the SECP in collaboration with the PSX has introduced an alternative board, the Growth Enterprise Market (GEM) to encourage smaller companies to list equity securities and avail the benefits of listing at the exchange.

Introduction of GEM at PSX will facilitate all those companies that do not meet the prescribed criteria for regular listing at PSX but are aspiring to raise funds through capital markets.

Moreover, the SECP slashed the fee to 50 percent for approval for issue, circulation and publication of prospectus for issuance of Sukuk and debt securities.

Officials highlighted that the market making framework has been reviewed and amended with the objective to create liquidity in secondary debt market.

Book building mechanism for the discovery of profit rates in case of fixed rate debt instruments has been introduced.

This automated book building mechanism for public offering of debt securities has been used by Power Holding Limited (PHL), a public sector entity owned by the Ministry of Energy to raise an amount of approximately Rs200 billion from the capital market, officials maintained.

This is the first time ever that book building mechanism for spread discovery of any debt instrument has been done through Pakistan’s capital market and due to this the government has been able to borrow long term financing at rate less than the Kibor resulting in approximate saving of Rs17.6bn over a period of 10 years on account of debt servicing cost, they said.

The changes introduced by the SECP in its regulatory framework and processes are now bearing fruits and several potential issuers have started applying for IPO.

Subsequent to the aforesaid changes, six issuers from different sectors have been conducted or are in the process of conducting public offering both debt and equity for fundraising.

These issues include Bank Islami Pakistan Limited (sukuk), The Organic Meat Company Limited, TPL Trakker limited; Agha Steel Industries Limited; Engro Polymer and Chemicals Limited and K-Electric Limited (sukuk).

Two equity issuances and one debt issuance is under process with the stock exchange and SECP and will soon be tapping capital market of Pakistan.

Presently, the SECP is in the process of reviewing the Securities Act, 2015 aligned, with the objective to promote ease of doing business, and to make the IPO process more efficient and shift towards registration-based regime instead of regulatory approvals.

Creating room for equity crowd funding; issuance by multilateral agencies.

The SECP in its efforts of adopting technology has recently issued Digital Assets concept note with the aim to engage with the stakeholders.

The SECP, as an apex regulator intends to provide enabling environment for capital formation and ensure that technology plays its roles as enabler, the SECP officials added.

Copyright Business Recorder, 2021