AIRLINK 196.38 Increased By ▲ 4.54 (2.37%)
BOP 10.11 Increased By ▲ 0.24 (2.43%)
CNERGY 7.75 Increased By ▲ 0.08 (1.04%)
FCCL 38.10 Increased By ▲ 0.24 (0.63%)
FFL 15.74 Decreased By ▼ -0.02 (-0.13%)
FLYNG 24.54 Decreased By ▼ -0.77 (-3.04%)
HUBC 130.38 Increased By ▲ 0.21 (0.16%)
HUMNL 13.73 Increased By ▲ 0.14 (1.03%)
KEL 4.60 Decreased By ▼ -0.07 (-1.5%)
KOSM 6.19 Decreased By ▼ -0.02 (-0.32%)
MLCF 44.85 Increased By ▲ 0.56 (1.26%)
OGDC 206.51 Decreased By ▼ -0.36 (-0.17%)
PACE 6.58 Increased By ▲ 0.02 (0.3%)
PAEL 39.77 Decreased By ▼ -0.78 (-1.92%)
PIAHCLA 17.20 Decreased By ▼ -0.39 (-2.22%)
PIBTL 7.99 Decreased By ▼ -0.08 (-0.99%)
POWER 9.20 Decreased By ▼ -0.04 (-0.43%)
PPL 178.91 Increased By ▲ 0.35 (0.2%)
PRL 38.93 Decreased By ▼ -0.15 (-0.38%)
PTC 24.31 Increased By ▲ 0.17 (0.7%)
SEARL 109.27 Increased By ▲ 1.42 (1.32%)
SILK 1.00 Increased By ▲ 0.03 (3.09%)
SSGC 37.75 Decreased By ▼ -1.36 (-3.48%)
SYM 18.83 Decreased By ▼ -0.29 (-1.52%)
TELE 8.53 Decreased By ▼ -0.07 (-0.81%)
TPLP 12.14 Decreased By ▼ -0.23 (-1.86%)
TRG 64.76 Decreased By ▼ -1.25 (-1.89%)
WAVESAPP 12.11 Decreased By ▼ -0.67 (-5.24%)
WTL 1.64 Decreased By ▼ -0.06 (-3.53%)
YOUW 3.87 Decreased By ▼ -0.08 (-2.03%)
BR100 12,000 Increased By 69.2 (0.58%)
BR30 35,548 Decreased By -112 (-0.31%)
KSE100 114,256 Increased By 1049.3 (0.93%)
KSE30 35,870 Increased By 304.3 (0.86%)

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) on Friday issued a regulatory framework for allowing listed companies to raise funds from existing members in the form of convertible debt.

In this regard, the SECP has notified a draft regulatory framework for “issuance of Convertible Debt Securities (CDS) by way of right offer”, for public consultation.

As per SECP, a convertible debt security is a conventional/Islamic debt instrument that yields interest/profit payments and can be converted into a predetermined number of equity shares at a future point in time.

The product is not known and familiar in our local market. However, through this product, Companies can raise debt capital from shareholders without any regulatory impediment. Raising capital without any regulatory impediment would increase the issuance of debt securities over the long run and promote liquidity.

Currently, convertible debt is being issued either by public offerings or by private placements. Under the proposed framework, listed companies would be able to raise convertible debt from existing shareholders.

In India, primary law i.e. Companies Act, 2013 allows a public limited company or a private limited company to issue securities including CDS through Right issue or bonus issue. CDS through right offer are issued as per the normal right issuance regime being followed for equity securities.

The proposed product would enable companies to finance projects in timely and cost-effective manner through existing members and may reduce reliance on other financial institutions and investors. For shareholders, it would provide an additional investment avenue and allow them to earn, while retaining the option to convert debt instrument/sukuk into share capital.

The board of directors would be able to issue CDS among existing members in proportion to the number of shares held at a specific cutoff date, through a term sheet/letter of offer. For this, SECP’s approval would not be required.

In line with the disclosure-based regime, the letter of offer would be placed on Pakistan Stock Exchange (PSX) website for seeking comments from the public and the regulators, if any. Members not interested to subscribe can trade letter of offer at PSX. If 80 per cent of the issue size is not subscribed and the issuer does not have any alternate financing arrangement, the right offer would be cancelled.

Convertible debt securities through right offer is prevalent in multiple jurisdictions and is considered an effective instrument in terms of time and cost compared to other financing modes.

The SECP stated that the regulatory framework does not prohibit the issuance of CDS through right offer. Issuance of CDS through right is a unified mode of raising funds that involves the issuance of CDS, as a right to existing shareholders. Under the subject concept, a company that intends to raise funds in the form of debt specifically convertible debt can offer debt instrument to existing shareholders for subscription.

Copyright Business Recorder, 2022

Comments

Comments are closed.