IPOs d Regulatory F IPO and R l t Framework k

Amir M. Khan Afridi

Director (Capital Issues) (Market Surveillance and Capital Issues Department), SMD, SECP January 22, 2013

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Initial Public Offering I i i l P bli Off i (IPO)

What is IPO: The first time sale of securities by a company to the public. One of the modes of fund raising by the corporates to meet their financial needs.

Why IPO: Wh IPO The most common reason for a company to initiate an IPO is to raise more capital. Other reasons may include monetization of the investments of early private investors, and to make the company publicly traded enterprises enterprises.

Funds can be raised through IPOs through issuance of various types of securities like Ordinary Shares, Preference Shares, TFCs, PTCs, Sukuk etc. Securities issued to the public are listed on the Stock Exchanges to provide the holders exit route.

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Benefits f Li i B fi of Listings

For Issuer:

Cost effective additional avenues for fund raising through the capital market. market Improvement in the income generating capacity. Improvement in the companys credentials. Broadening of the shareholders base. Attainment of listed status by Issuer. i f li d b

For Economy:
Increase in revenue in the form of tax paid by the market intermediaries. I i i th f ft id b th k ti t di i Decrease in dependence on banking sector. Increase in employment opportunities. Poverty reduction and rural development. y p Increase in corporatization culture. Global recognition of the Company and the capital market of the country. Increased contribution of the Company in GDP.

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Benefits f Listings..Contd B fi of Listings..Contd Li i C d

For Shareholders:
Value creation and liquidity for shareholders

For Investors:
Investment opportunities for investors Ease of entry & exit

For the Capital Market:

Boosting volumes at main Boards

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Procedure for Listing

Application to the concerned Stock Exchange for listing under Section 9 of the Securities and Exchange Ordinance, 1969 along-with all necessary documents as required under the Li i R l i d i d d h Listing Regulations. After clearance f Aft l from th St k E h the Stock Exchange, th the company shall seek approval of the SECP under Section 57 or Section 62 of the Companies Ordinance, 1984 (the Ordinance).

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Issue of Shares by a Company through IPO

For raising funds from the general public against issue of securities, a document named Prospectus inviting general public for subscription of securities is required to be issued. Prospectus is issued, circulated and published only after approval of the SECP under section 57 of the Ordinance. Foreign company having place of business in Pakistan, can issue prospectus under section 461 read with section 57 of the Ordinance.

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Offer for Sale f Shares by Existing S Off f S of S i i Shareholder

Person who holds more than ten percent shares in a company or a b d corporate may offer f sale such body ff for l h shares in totality or a part thereof to the general public. Offer for sale document i.e. prospectus is published, issued and circulated after approval of the SECP under section 62 read with section 57 of the Ordinance Ordinance. For sale of shares of a foreign company having place of g p y gp business in Pakistan, prospectus can be issued under section 62 read with section 57 and 461 of the Ordinance.

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Eligibility f Listing Eli ibili for Li i

Any public limited company or body corporate may apply for listing on any Stock Exchange in Pakistan. Minimum paid up capital of two hundred million rupees (Rs.200 million). A foreign company having place of business in Pakistan can also apply f P ki t l l for li ti listing on a St k Stock Exchange in Pakistan.

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Allocation of C i l in Equity Issues All i f Capital i E i I

Post issue paid-up capital of the issuing company is up to Rs.500 million, e s % o suc c p s o e ed o e ge e pub c. at least 50% of such capital shall be offered to the general public. Capital of the issuing company is beyond Rs.500 million, public offer shall be at least Rs.250 million or 25% of the post issue paid-up capital, whichever is higher higher. Offer for sale of shares by an existing shareholder, the offer size shall be at p p p p y least Rs. 100 million or 25% of the paid up capital of the company whichever is lower. Upto 5% of the issue size can be allocated to employees of the issuing company. company Upto 20% of the issue size can be allocated to overseas Pakistanis.

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Allocation of C i l in TFCs Issues All i f Capital i TFC I

The total issue size is up to Rs. 500 million, at least 40% of the issue size shall be offered to the public. The total issue size is beyond Rs. 500 million, the public offer shall be at least Rs. 200 million or 25% of th t t l i f the total issue size, whichever i hi h i hi h is higher.

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Publication f Prospectus P bli i of P

Prospectus to be circulated to the Stock Exchange at which the company is listed or proposed to be listed and all the bankers to the issue in addition to make it available at the registered office of the issuer. Prospectus to be published at least in one Urdu and one English daily Newspaper. Law allows publication of the prospectus in abridged form. Prospectus should contain at least such material information and statements as required under Section 53 read with 2nd Schedule of the Ordinance.

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Major Disclosures in the Prospectus

All material risk factors associated with investment in shares. Financial information including latest balance sheet and five years income statement. Purpose of the issue and utilization of the proceeds. Dividend Policy of the company. Overview and history information about the management including history, sponsor/ promoters. Future business prospects of the Issuer. Complete procedure regarding Book Building where the issue is through Book Building.

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Major Disclosures in the Prospectus

Complete procedure for making application both manually and electronically (e-IPO), minimum amount of application, basis for allotment of shares, refund of subscription money to unsuccessful applicants and minimum subscription for allotment. Issue and dispatch of share certificates. p Justification for premium being charged. Underwriting commissions, brokerage and other expenses. W Warning for investors regarding prohibition of Submission of g o ves o s eg d g p o b o o Sub ss o o multiple and fictitious applications Memorandum and Articles of Association.

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Additional Disclosures in case of TFCs Prospectus

Details about the security backing the instrument in case of secured issue issue. Redemption and profit payment Schedule. p p p y Credit rating of the instrument and the entity. Details about the Debt Security Trustee. Details about call and put option, if any.

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Main Laws applicable to IPOs and Listing IPO s

Relevant laws applicable to listing of a company/security on a stock exchange and issue of prospectus are as under:

1. Part 1 P V of the O di f h Ordinance namely, P l Prospectus, All Allotment, I Issue and T d Transfer of shares f f h and debentures, Deposits etc. mainly section 53, 57 and 62 and second Schedule and Section 461 of part XIV of the Ordinance: http://www.secp.gov.pk/corporatelaws/pdf/CompaniesOrdinance984-17-03 2011.pdf 2. Section f Securities & Exchange Ordinance, 1969: 2 S i 9 of S ii E h O di 1969 http://www.secp.gov.pk/corporatelaws/pdf/secord1969_sep08.pdf 3. The Companies (Issue of Capital) Rules, 1996: http://www.secp.gov.pk/corporatelaws/pdf/Feb_02_1996.pdf 4. Guidelines for the preparation of Prospectus: http://www.secp.gov.pk/otherlinks/GuidelinesChecklist/Guidelines.pdf 5. Guidelines for the issue of Term Finance Certificates (TFCs) to General Public. http://www.secp.gov.pk/SECGuideSeries/PDF/Guidelines_TFC.pdf http://www secp gov pk/SECGuideSeries/PDF/Guidelines TFC pdf
6. Listing Regulations of the Stock Exchanges: http://www.kse.net.pk

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Methods of Offering of Shares through IPO

Fixed Price Method

Book Building Method

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Fixed Price Method

Offer price is set by the issuer or the Offerer. Price P i may b at par or at premium, set on th b i of be t t i t the basis f issuer/offerer own valuation based on the companies financials and/or the prevalent market demand and/or the due diligence conducted by the underwriters or Pre-IPO investors. Issue is underwritten through independent institutions which provide comfort to the prospective investors as for as the offer price is concerned. Basis of issue price is disclosed in the prospectus where the issuer gives detail about the qualitative and quantitative factors justifying the issue price. Investors subscribe for the shares at the price already decided by the issuer.

Book Building Method

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Mechanism of price determination based on Dutch auction method. Floor Price is decided in consultation with the Book Runner and is disclosed in the preliminary Prospectus. Indication of interest for investment in the shares offered is collected from Institutional Investors (IIs) and High Net Worth Individual Investors (HNWIS) through making of bids during the bidding period. Book is built and displayed online in descending order on the basis of bids received from IIs and HNWIs which gives a picture of demand for the shares at different price levels. p Strike Price is determined at the end of the bidding period on the basis of bids received. Shares allocated to HNWIs and IIs at Strike Price Price. The Offer of shares to retail investor can be made at or below the strike price.

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Equity Issues During the last 21 years (1991-2012) (1991-

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Equity Issues During the last 21 years (1991-2012) (199160 55.654 100 90 50 86 73 40 Rs.inbillion 61 30 38 20 15.283 5.595 5 595 10 5.297 4 0 3 4 3.005 2.27 1 0 2.035 0.221 0 25.641 25 641 17.895 41 30 12.041 6.318 4 4 9 1.858 14 3.961 3 11 8.556 9 3 6 7.403 10 4 6 0 22.635 14.563 16.011 32.538 80 70 No.ofComp panies 60 50 40 30 20

14.322

Year
PaidupCapitalofCompaniesListedDuringtheYear(Rs.inbillion) CompaniesListedDuringtheyear Companies Listed During the year

Listed TFCs Issues During the last 18 years (1995(1995-2012)

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Listed TFCs Issues During the last 18 years (1995(1995-2012)

30 17 25 17 15 14 Rs.inbillion 20 16.6 16 6 15 6 10 4 5 2 0.7 0 2 1.3 0 0.0 2 0.6 1.9 1.2 12.0 9.6 6.4 64 6.2 62 3 1 6 8 11.1 10.2 6 8 8.0 25.9

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18 16 Numb berofTFCs 14 12 10 8 6 4.3 2 3.0 4 2 0

4.0 2

Year
Amount(Rs.inbillion) No.ofTFCs'sFloated

Some IPOs during 2005-2012 2005S.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Name of Company Attock Petroleum Limited Kot Addu Power Company Limited United Bank Limited EYE Television Network Limited (Hum Network) Allied Rental Modaraba Oil & Gas Development Co. Ltd. Sitara Peroxide Limited Invest & Finance Securities Limited Thatta Cement Limited Nishat Power Limited Nishat Chunian Power Limited Ghani Gases Limited Fatima Fertilizer Co. Limited Engro Foods Limited Subscription Date

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Price Formal Offer Price (as on Jan 18, 2012) Listing Date (Rs.) (Rs.) 57.75 57 75 30 50 10 10 110 10 10 22.5 10 10 14 13.5 25 500.10 500 10 50.02 85.08 23.55 23 55 31.50 185.56 12.19 12 19 11.49 25.00 19.45 20.77 17.35 25.53 98.93 98 93

28 29 28-29 Jan 2005 7-Mar-05 7 Mar 05 21-24 Feb 2005 18-Apr-05 03-08 Jun 2005 25-Jul-05 27 28 27-28 Jun 2005 8-Aug-05 8 Aug 05 28-Nov-06 11-13 Jan 2007 13 14 13-14 Jun 2007 11-12 Feb 2008 26-27 Feb 2008 28-31 Aug 2009 10-12 Sept 2009 02-03 Dec 2009 29-30 Jan 2010 05-07 Jul 2011 8-Jan-07 already listed 23 Jul 07 23-Jul-07 20-Mar-08 07-Apr-08 07-Oct-09 22-Oct-09 05-Jan-10 08-Mar-10 10-Aug-11

Recent Reforms in Primary Market e-IPO

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Submission of application for shares by IPO investors electronically by using internet banking facility i e 24 hrs access i.e access. Investors are not required to physically go to the Bank and wait in long queues for making application for subscription of shares. gq g pp p e-IPO is efficient, cost effective and will lead to increase the turnover. First ever e-IPO facility provided in the Offer for Sale of Shares of Aisha Steel Mills (03-04 July 2012) through UBLs e-IPO system. y A Committee has been constituted by SECP To further broaden this concept.

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Recent Reforms in Primary Market

Introduction and implementation of the concept of the book building and e-IPO; g ; Formulation of guidelines for preparation of prospectus; Filing and examination of e-prospectus; Publication of the Listing Guide Book; Revision of the checklist of documents filed with application for approval of prospectus and omission of the unnecessary documents from the list to facilitate the issuers; Provision of the option for dividend mandate in the IPO shares subscription form. Upon opting for this option, shareholders may b i i f i f hi i h h ld get their cash dividend through direct credit of cash in their bank q y f ) accounts. (1st time used in Equity issue of International Steels Limited)

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Recent Reforms in Primary Market

Provision of the option for Profit Payment/Redemption mandate for TFCs subscription form. Upon opting for this p p p g option, applicants may get their profit payments/redemptions through direct credit of Profit Payment/Redemption in their bank accounts. accounts (1st time used in TFC issue of Engro Corporation Limited.) Formation of a Technical Committee for the purpose to look as to how the listing process can be made simple and efficient and how listing of SMEs can be facilitated facilitated. Drafting of Issuance of Sukuk Regulations.

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Thank You You