The Securities and Exchange Commission of Pakistan (SECP) has made it mandatory for the companies making investments in associated companies/undertakings for disclosure of investment details to the general meetings for taking investment decisions through a special resolution.
The SECP has issued SRO 1240(I)/2017 Tuesday to notify the Companies (Investment in Associated Companies or Associated Undertakings) Regulations, 2017. According to the SECP, the regulations shall apply to all companies except to the extent those specifically exempted by the Commission through notification.
The directors of the investing company while presenting the special resolution for making investment in an associated company or associated undertaking shall certify to the members of the investing company that they have carried out necessary due diligence for the proposed investment before recommending it for members' approval.
The company shall disclose relevant information in the statement annexed to the notice, pursuant to sub-section (3) of section 134 of the Act, of a general meeting called for considering investment decision under section 199 of the Act. Disclosures for all types of investments regarding associated company or associated undertaking: included name of associated company or associated undertaking; basis of relationship; earnings per share for the last three years; break-up value per share, based on latest audited financial statements; financial position, including main items of statement of financial position and profit and loss account on the basis of its latest financial statements; and in case of investment in relation to a project of associated company or associated undertaking that has not commenced operations, further information is required, namely:-
General disclosures by the company included maximum amount of investment to be made; purpose, benefits likely to accrue to the investing company and its members from such investment and period of investment; sources of funds to be utilized for investment and where the investment is intended to be made using borrowed funds justification for investment through borrowings; detail of collateral, guarantees provided and assets pledged for obtaining such funds and cost benefit analysis.
General disclosures by the company also included salient features of the agreement(s), if any, with associated company or associated undertaking with regards to the proposed investment; direct or indirect interest of directors, sponsors, majority shareholders and their relatives, if any, in the associated company or associated undertaking or the transaction under consideration; in case any investment in associated company or associated undertaking has already been made, the performance review of such investment including complete information/justification for any impairment or write offs and any other important details necessary for the members to understand the transaction.
In case of equity investment, following disclosures in addition to those provided shall be made: Maximum price at which securities will be acquired; in case the purchase price is higher than market value in case of listed securities and fair value in case of unlisted securities, justification thereof; maximum number of securities to be acquired; number of securities and percentage thereof held before and after the proposed investment; current and preceding twelve weeks' weighted average market price where investment is proposed to be made in listed securities; and fair value determined in terms of sub-regulation (1) of regulation 5 for investments in unlisted securities.
In case of investments in the form of loans, advances and guarantees, disclosures included category-wise amount of investment; average borrowing cost of the investing company, the Karachi Inter Bank Offered Rate (KIBOR) for the relevant period, rate of return for Shariah compliant products and rate of return for unfunded facilities, as the case may be, for the relevant period; rate of interest, markup, profit, fees or commission, etc, to be charged by investing company; particulars of collateral or security to be obtained in relation to the proposed investment; if the investment carries conversion feature ie it is convertible into securities, this fact along with terms and conditions including conversion formula, circumstances in which the conversion may take place and the time when the conversion may be exercisable and repayment schedule and terms and conditions of loans or advances to be given to the associated company or associated undertaking.
A listed company shall simultaneously dispatch a copy of aforesaid notice and the statement of material facts to the head office of the Securities and Exchange Commission of Pakistan, through fax or email and courier service on the same day it is dispatched to the members.
The duly signed recommendations of the due diligence report shall be made available to the members for inspection in the general meeting called for approval of the special resolution for investment pursuant to section 199 of the Act.
Other information to be disclosed to the members: If the associated company or associated undertaking or any of its sponsors or directors is also a member of the investing company, the information about interest of the associated company or associated undertaking and its sponsors and directors in the investing company shall be disclosed in the notice of general meeting called for seeking members' approval pursuant to section 199 of the Act.
In case any decision to make investment under the authority of a resolution passed pursuant to provisions of section 199 of the Act is not fully implemented in line with the approval of members till holding of subsequent general meeting, the status of the decision shall be explained to the members through a statement having the details including total investment approved; amount of investment made to date; reasons for deviations from the approved timeline of investment, where investment decision was to be implemented in specified time and material change in financial statements of associated company or associated undertaking since date of the resolution passed for approval of investment.
Latest annual audited financial statements of the associated company or associated undertaking along with the latest interim financial statements, if any, shall be made available for inspection of the members in the general meeting called for considering investment decisions in such associated company or associated undertaking pursuant to section 199 of the Companies Act, the SECP added.
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