Initial Public Offering that refers to private companies who sell their shares
to the general public. Now the question is why they go public? It is because sometimes they want to expand their
business, to raise their capital, reward their employees so that they work hard
and to make a position in the market because small companies are not well-known
so they attract new investors through it. Mostly small companies go for it, but
large firms also do it for trade purposes. IPO’s are issued by the approval of
SECP that also include securities regarding shares.
IPO process in Pakistan:
you need to determine is the need for IPO, whether it’s the right time for IPO
or not. You need to check your financial statements and then make a business plan.
When a company wants to go for public, first thing it needs to do is hire an
investment bank and signs a contract that he will be liable for any loss or
damage. Basically investment banks act as an underwriters between the public
and the company through which both interacts.
bank and the company discuss the issues that what they want from new investors.
Issues for example is related to raising money, they will write all the
security types and other issues in an underwritten agreement. You need to
carefully select the underwriter because he is responsible for the buying and
selling securities to the public so he must have successful offerings.
deal gets finalized, investment banks prepare a registration statement that
includes the company’s information, background, financial statements, legal
issues and also other company’s information etc. that will be submitted to security
and Exchange commission (SEC).
Then the Securities
and Exchange Commission takes time to make sure that all the documents that are
submitted to them are regarding the deal or not and all the information is
written in it or not. After the approval of SEC, they announce date on which
stocks of the company will be given to the public. Meanwhile, the underwriter and
company meets to decide the price of the stocks because that was not written in
the documents earlier and they set the price according to the current market
In the last,
stocks are sold in the market and investors raise the money.
Regulatory framework for IPO:
and Exchange Commission of Pakistan has given two regulatory framework for
initial public offering after the amendments in the previous seven rules, one
is Public Offering Regulations and the second one is Public offering (Regulated
Securities Activities Licensing) wants to provide an ease in the businesses and
also want to make efficient designs for debt and equity securities that they
can work more effectively in initial public offering process.
At the same
time Central Depository Company introduced the concept of Centralized IPO with
the help of banking system to allow investors that make an appeal for subscription
of their stocks so that they can exchange it with common stocks electronically
through internet, mobile phones, or ATM etc. without going to banks or standing
in long ques. This process is simplified to reduce the time consumption and
In the new
Public Offering Regulations, if the company or its directors, sponsors or
shareholders have any defaults in their credits and if that are proved by the Pakistan
Stock Exchange then they are not eligible to make public offers as they are
These are many
regulations in Pakistan but I mentioned some of it here:
ü “Act” means the Securities Act, 2015
ü An application for the subscription
of shares in case of bidding
ü “Banker to an Issue” means a
scheduled bank licensed by the Commission as a Banker to an Issue.
ü “Bid” means an intention to buy a
specified number of securities at a specified price.
ü “Bid Price” the price in a Bid for a
specified number of shares
ü Companies Act 2017
ü “Bidder” is an investor who makes a
bid for subscription of shares in the Book Building process
ü “Consultants to the Issue” means any
person who have license by the Commission to act as a Consultant to the Issue
ü “Financial Institution”
ü “Green Shoe Option” means a
pre-determined number of securities to be issued by the Issuer in case of
over-subscription of the issue
ü “Issuing and Paying Agent” means a
Financial Institution appointed by an Issuer of Commercial Paper under these
Regulations as an Issuing and Paying Agent.
ü “Limit Price” means a prospective
Bidder have maximum price.
ü Limit Bid” means a bidder have the
bid at a Limit Price under the Book Building method
ü “Offeror” means a person directly or
indirectly offer securities to the public.
ü “Price Band” means the floor price
with upper limit of 40%.
ü “Public Offer” means offer of
securities by an Issuer including an offer to the general public or a section
of the public but does not include Private Offer or Private Placement
ü Regulations” means the Public
Offering Regulations, 2017
ü “Securities” means shares and debt
ü “Schedule” means a schedule to these
ü “Secondary Public Offering” means
offer of securities to the general public subsequent to IPO
Registration” means the authorized amount of securities to be issued over a
period of time as specified in the Prospectus.
means a person who has contributed initial capital in the issuing company or
has the right to appoint majority of the directors on the board of the issuing
company directly or indirectly.
There are 18
regulatory bodies in our country but two are related to our financial sector
1. State bank of Pakistan (SBP)
2. Securities and Exchange Commission of
State bank of Pakistan (SBP):
basically responsible to make sure that financial sector of Pakistan is working
efficiently and meeting the needs of public and other institutions. To ensure
this, SBP set some goals to achieve, like working hard to support the
development of banking system and to have a proper regulatory framework. Support
of SBP to the banking sectors was very important because it brings innovation
and diversification in different activities regarding Banking Policy and Regulations
Securities and Exchange Commission of
It is the
financial regulatory body in Pakistan that was developed to make an efficient
corporate sector and a capital market with proper risk management to protect
investors from risk so that they can invest in Pakistan and our economic growth
grows faster. They made SECP Act in 1997 for certain policies, functions of
SECP, power and constitution structures. SECP is also proving external service
providers to the corporate sectors and financial departments including charted accountants,
brokers, surveyors and corporate secretaries that can be trusted for future
investments. The main challenge for the SECP has to develop a fair, efficient and
biased free framework based on the international legal terms and beneficial for
both investors and corporate sectors to increase the capital of Pakistan.