On 4th May 2022, the Capital Markets Authority (‘CMA’) published a notice requesting public and stakeholder comments on the draft Capital Markets (Public Offers and Listing of Securities) Regulations 2022 (‘Draft Regulations’). CMA noted the need to incorporate emerging areas and streamline eligibility and listing requirements necessitating the Draft Regulations which seek to overhaul of the Capital Markets (Securities) (Public Offers, Listings and Disclosures) Regulations, 2002 (‘2002 Regulations’). The 2002 Regulations provide for the approval process for public offers of securities, requirements of information memoranda and eligibility requirements for public offers and listing of securities in each market segment of the securities exchange. They also prescribe continuing reporting obligations for listed companies and fees for listing of securities.
It is also clear from a review of the Draft Regulations that certain changes to the existing regulatory framework are being introduced to address challenges that have arisen in the capital markets over the years.
Below is an overview of some notable changes to the existing legal regime, proposed by the Draft Regulations.
Electronic public offers: The Draft Regulations provide that the CMA may allow an issuer to provide to subscription of its securities via electronic means. This includes issuance of an electronic information memorandum, the ability for investors to apply for securities electronically and the electronic processing and completion of successful applications and allotments.
SPACs: The Draft Regulations introduce Special Purpose Acquisition Companies (‘SPACs’) defined as publicly traded companies with a two-year life span incorporated solely for the purpose of merging with a privately held business to enable it go public. SPACs have no commercial operations and are set up by investors with the sole intention of raising money through an Initial Public Offer (‘IPO’) and thereafter merge or amalgamate with a private company with commercial operations. SPACs are subjected to lower listing charges compared to normal IPO listing expenses. The route to public offerings through SPACs may be briefer due to the SPACs’ short life span compared to six to twelve months that traditional IPOs may take. The owners of a target company may also be in a better position to negotiate a premium price when selling to SPACs due to the limited time window to complete a merger or acquisition.
Watchlist: Issuers with depleted shareholder funds resulting in a net liability position in three recent consecutive financial years may be placed on a watchlist by the CMA. The Draft Regulations give an issuer in this position the right to be heard by the CMA prior to being placed on the watchlist. Once placed on the watchlist, an issuer must take steps to meet the net assets and solvency requirements and other conditions imposed by the CMA in order for it to apply for removal from a watchlist. Once watchlisted, an issuer is required to:
- immediately announce that fact through its website and in a daily newspaper of national circulation;
- within the prescribed time, provide a restructuring plan approved by its members and to the CMA and the securities exchange it is listed on;
- implement the restructuring plan within prescribed time following submission to the Authority and the securities exchange;
- while it remains shortlisted, provide the market (including the CMA and the securities exchange) with a quarterly update on the progress made in meeting criteria to exit the watchlist including its financial situation, future direction, material developments that may significantly impact its financial position. Any material developments occurring between quarterly updates must be announced immediately.
Failure to comply with the requirements imposed by the CMA within thirty-six months of being watchlisted may lead to delisting of the issuer or suspension of trading an issuer’s listed securities with the view to delist the issuer.
Recovery board: The Draft Regulations allow the CMA to permit a securities exchange to establish a recovery board in place of watchlisting an issuer. A recovery board is an alternative trading board established by a securities exchange where securities of an issuer that qualifies for watchlisting are traded for a specific period of time while the issuer regularizes its compliance, solvency and capital requirements. The Draft Regulations require a securities exchange to prepare and submit the rules for administration of its recovery board for approval by the CMA.
Public offer compliance officers: The Draft Regulations introduce the role of a public offer compliance officer to be appointed by an issuer after the issuance or listing of its securities to the public. A public offer compliance officer’s role is to support an issuer in its compliance with the Capital Markets Act and the Draft Regulations. The Draft Regulations require the public offer compliance officer to:
- prior to publication, review all periodic financial information announcements and any other documentation to ensure that they accurately disclose all material information;
- submit all such documents required to be submitted to the securities exchange and ensure that such documents are in compliance with continuing disclosure obligations;
- brief all members of the board of directors of the issuer on the nature of their responsibilities under continuing disclosure obligations, other applicable regulations and the general nature of their obligations in relation to securities holders;
- ensure that all new appointments to the board of directors of the issuer complete the directors training programme, approved by a securities exchange in consultation with the CMA, within six months of appointment;
- attend all board audit committee meetings of the issuer in an advisory capacity to ensure that the issuer conducts its meetings in compliance with continuing listing obligations; and
- carry out any activities relating to the issuer as may be requested by the securities exchange, from time to time.
Private offers: The definition of private offers, which are exempted from compliance with the listing regime, has been tightened by introducing time limits on the making of offers which are limited to not more than 100 persons, as well as restrictions on the period within which such offers can be repeated.
Exit offers: Where an issuer intends to delist its securities, the Draft Regulations compel an issuer to make an exit offer to its minority shareholders and holders of classes of shares to be delisted. This is intended to protect investors who bought and held such securities on the basis of their listing. Such exit offer must be fair and reasonable and include a cash alternative as the default option. An issuer is also required to appoint an independent adviser who should observe that the exit offer is fair and reasonable.
Directors’ liability: Under the Draft Regulations, the CMA makes it clear that the suspension or delisting of an issuer does not absolve the issuer’s directors or officers from any liability that led to the suspension or delisting. Further, any proceedings brought against an issuer, its directors and officers shall not terminate by reason of an issuer’s delisting or suspension.