IPO:IPO means InitialPublic Offering that refers to private companies who sell their shares to thegeneral public. Now the question is why they go public? It is because sometimes they want to expand theirbusiness, to raise their capital, reward their employees so that they work hardand to make a position in the market because small companies are not well-knownso they attract new investors through it. Mostly small companies go for it, butlarge firms also do it for trade purposes. IPO’s are issued by the approval ofSECP that also include securities regarding shares.
IPOprocess in Pakistan:First thing you need todetermine is the need for IPO, whether it’s the right time for IPO or not. You needto check your financial statements and then make a business plan. When acompany wants to go for public, first thing it needs to do is hire aninvestment bank and signs a contract that he will be liable for any loss ordamage. Basically investment banks act as an underwriters between the publicand the company through which both interacts.
The investment bank andthe company discuss the issues that what they want from new investors. Issues forexample is related to raising money, they will write all the security types andother issues in an underwritten agreement. You need to carefully select the underwriterbecause he is responsible for the buying and selling securities to the publicso he must have successful offerings.
Once the deal getsfinalized, investment banks prepare a registration statement that includes thecompany’s information, background, financial statements, legal issues and alsoother company’s information etc. that will be submitted to security andExchange commission (SEC).Then the Securities andExchange Commission takes time to make sure that all the documents that aresubmitted to them are regarding the deal or not and all the information iswritten in it or not. After the approval of SEC, they announce date on whichstocks of the company will be given to the public. Meanwhile, the underwriter andcompany meets to decide the price of the stocks because that was not written inthe documents earlier and they set the price according to the current marketconditions.
In the last, stocks aresold in the market and investors raise the money.Regulatoryframework for IPO:Recently Securities andExchange Commission of Pakistan has given two regulatory framework for initialpublic offering after the amendments in the previous seven rules, one is PublicOffering Regulations and the second one is Public offering (Regulated SecuritiesActivities Licensing) wants to provide an ease in the businesses and also wantto make efficient designs for debt and equity securities that they can workmore effectively in initial public offering process.At the same time CentralDepository Company introduced the concept of Centralized IPO with the help ofbanking system to allow investors that make an appeal for subscription of theirstocks so that they can exchange it with common stocks electronically throughinternet, mobile phones, or ATM etc. without going to banks or standing in longques.
This process is simplified to reduce the time consumption and cost.In the new PublicOffering Regulations, if the company or its directors, sponsors or shareholdershave any defaults in their credits and if that are proved by the Pakistan StockExchange then they are not eligible to make public offers as they are they defaulters.Regulations:These are manyregulations in Pakistan but I mentioned some of it here: ü “Act”means the Securities Act, 2015ü Anapplication for the subscription of shares in case of biddingü “Bankerto an Issue” means a scheduled bank licensed by the Commission as a Banker toan Issue.ü “Bid”means an intention to buy a specified number of securities at a specified price.ü “BidPrice” the price in a Bid for a specified number of sharesü CompaniesAct 2017ü “Bidder”is an investor who makes a bid for subscription of shares in the Book Buildingprocessü “Consultantsto the Issue” means any person who have license by the Commission to act as aConsultant to the Issueü “FinancialInstitution”ü “GreenShoe Option” means a pre-determined number of securities to be issued by theIssuer in case of over-subscription of the issueü “Issuingand Paying Agent” means a Financial Institution appointed by an Issuer ofCommercial Paper under these Regulations as an Issuing and Paying Agent.
ü “LimitPrice” means a prospective Bidder have maximum price.ü LimitBid” means a bidder have the bid at a Limit Price under the Book Buildingmethodü “Offeror”means a person directly or indirectly offer securities to the public.ü “PriceBand” means the floor price with upper limit of 40%.
ü “PublicOffer” means offer of securities by an Issuer including an offer to the generalpublic or a section of the public but does not include Private Offer or PrivatePlacementü Regulations”means the Public Offering Regulations, 2017ü “Securities”means shares and debt securities ü “Schedule”means a schedule to these Regulationsü “SecondaryPublic Offering” means offer of securities to the general public subsequent toIPOü “ShelfRegistration” means the authorized amount of securities to be issued over aperiod of time as specified in the Prospectus.ü “Sponsor”means a person who has contributed initial capital in the issuing company orhas the right to appoint majority of the directors on the board of the issuingcompany directly or indirectly. Regulatorybodies:There are 18 regulatorybodies in our country but two are related to our financial sector1. State bank of Pakistan (SBP)2. Securities and Exchange Commission of Pakistan(SECP)Statebank of Pakistan (SBP):It is basicallyresponsible to make sure that financial sector of Pakistan is working efficientlyand meeting the needs of public and other institutions. To ensure this, SBP setsome goals to achieve, like working hard to support the development of bankingsystem and to have a proper regulatory framework. Support of SBP to the bankingsectors was very important because it brings innovation and diversification indifferent activities regarding Banking Policy and Regulations Departments.Securitiesand Exchange Commission of Pakistan (SECP):It is the financialregulatory body in Pakistan that was developed to make an efficient corporatesector and a capital market with proper risk management to protect investorsfrom risk so that they can invest in Pakistan and our economic growth growsfaster.
They made SECP Act in 1997 for certain policies, functions of SECP,power and constitution structures. SECP is also proving external serviceproviders to the corporate sectors and financial departments including charted accountants,brokers, surveyors and corporate secretaries that can be trusted for futureinvestments. The main challenge for the SECP has to develop a fair, efficient andbiased free framework based on the international legal terms and beneficial forboth investors and corporate sectors to increase the capital of Pakistan.