INITIAL PUBLIC OFFERINGS -
UNDERSTANDING THE
PROCESSES OF THE SEC
Presentation Outline
What is an IPO?
Parties involved in an IPO
Why do companies go public?
How does a company get in onto an IPO?
Disclosures in prospectus
Offer Documents Submission Requirements
Supplementary prospectus
The Do’s and Don’t’s of the SEC
What is expected of the media
Conclusion
What is an IPO?
IPO is an acronym for Initial Public Offer.
This is the first sale of shares by a company to the
public.
A company can raise money by issuing either debt
(bonds) or equity.
If the company has never issued equity to the
public, it's known as an IPO.
Companies fall into two broad categories: private
and public.
What is an IPO? Cont.
A privately held company has fewer shareholders
and its owners don't have to disclose much
information about the company.
Shares of private companies are usually traded on
the Over The Counter Market (OTC).
Public companies, on the other hand, have sold at
least a portion of themselves to the public and trade
on a stock exchange.
This is why doing an IPO is also referred to as
"going public."
SECURITIES AND EXCHANGE COMMISSION
What is an IPO? Cont.
Public companies may have thousands of
shareholders and are subject to strict rules and
regulations.
They must have a board of directors and they must
report financial information periodically.
Currently the SEC regulates all public companies
listed on the stock exchange (Ghana Stock
Exchange).
What is an IPO? Cont.
From an investor's standpoint, the most exciting
thing about a public company is that the stock is
traded in the open market, like any other
commodity.
If you have the money, you can invest.
The CEO could hate your guts, but there's nothing
he or she could do to stop you from buying shares
of the company.
Parties involved in the IPO
Issuer
Lead Manager
Lawyer / Solicitor
Auditors
Reporting Accountants
GSE
Regulators-SEC
LEGAL FRAMEWORK
The legal framework Of this review process
emanates the following:
– SEC Regulations, 2003, L.I.1728
– Companies Code, 1963, Act 179
Why do companies go public
Going public to raise cash, and usually a lot of it.
Being publicly traded also opens many financial
doors:
– Because of the increased scrutiny, public companies
can usually get better rates when they issue debt.
– As long as there is demand, a public company can
always issue more shares.
– Trading in the open markets means liquidity. This
makes it possible to implement things like employee
stock ownership plans, which help to attract top talent.
How does a company get in
on an IPO
STEP 1: The underwriting process
When a company wants to go public, the first
thing it does is hire a broker dealer to act as the
lead broker for the offer.
A company could theoretically sell its shares on its
own, but rules and regulations governing the
operations of stock markets require the services of
a licensed stock broker.
How does a company get in
on an IPO Cont.
Underwriters can be said to be middlemen
between companies and the investing
public.
The company and the lead broker will first
meet to negotiate the deal.
– Items usually discussed include the amount of
money a company will raise, the type of
securities to be issued, and all the details in the
underwriting agreement.
How does a company get in
on an IPO Cont.
STEP 2 – PREPARATION OF THE
OFFER DOCUMENT (Prospectus)
The lead broker and the issuer initiate the
process of preparing the offer document.
etc
DISCLOSURES IN PROSPECTUS
According to Schedule 5 of L.I. 1728, the offer
documents should provide information regarding
the following:
– The issuer
– Its capital structure
– Organization
– Nature of business
– Board membership
DISCLOSURES IN PROSPECTUS
Cont.
PART 1
– A – General Information
– B – Capital structure of the issuer
– C – History and development of the issuer
– D – Business overview
– E – Organization structure
– F – Property, Plants and Equipment
– G – Directors and senior management
– H – Remuneration and compensation
DISCLOSURES IN PROSPECTUS
Cont.
– I – Corporate Governance and Board practices
– J – Employees
– K – Share ownership
– L – Major shareholders
– M – Related party transactions
DISCLOSURES IN PROSPECTUS
Cont.
PART II – Information regarding the issue
– A – The reasons for the offer
– B – Details of the securities on offer
– C – Offer statistics and timetable
– D – Plan of distribution
– E – Pricing and trading of the securities on offer
– F – Markets
– G – Selling shareholders
– H – Dilution
– I – Expenses of the issue
DISCLOSURES IN PROSPECTUS
Cont.
PART III – Financial Information
Regarding the Issuer
– A – Financial Data
– B – Capitalization and indebtedness
– C – Financial statements
– D – Interim financial statement
– E – Reports
– F – Significant changes
DISCLOSURES IN PROSPECTUS
Cont.
PART IV – Information regarding future
prospects
– A – Recent developments and prospects of the
issuer
– B – Risk factors
– C – Significant trends
– D – Ancillary information
DISCLOSURES IN PROSPECTUS
Cont.
PART V – Additional Information
– A – Regulations and constitution of issuer
– B – Material contracts
– C – Litigation and legal procedures
– D – Exchange controls
– E – Taxation
– F – Dividends and paying agents
– G – Declaration of interest by and statement of experts,
advisers
– H – Mandatory declarations and statements
– I - Inspections
Offer Documents Submission
Requirements
The SEC has issued Market Guidance Notes to
the market giving details of what the Commission
requires. It spells out the following:
Part I-Offer Documents Submission
Requirements
– Time frame
– Prospectus and Supporting Documents
SECURITIES AND EXCHANGE COMMISSION
Offer Documents Submission
Requirements Cont.
Part II-Review Process
– Acknowledgement of receipt (within 5 days)
– Minimum processing period (Six weeks)
– Scheduled Meetings with The Lead broker
Offer Documents Submission
Requirements Cont.
Part III-Responsibilities of the Lead broker
and Issuer during the Examination and
approval period
– Communication of new material information to
the SEC
– Application of Appropriate sanctions in the
event of such conduct
SECURITIES AND EXCHANGE COMMISSION
Offer Documents Submission
Requirements Cont.
Part IV-Launching and Opening of the offer
– Launching and Opening only after SEC approval
– Offer documents formally made available to
subscribers
– The SEC to be informed of mini prospectus
– Full prospectus should be made available for
inspection
– Mini prospectus to be read in conjunction with the
full prospectus
SECURITIES AND EXCHANGE COMMISSION
Offer Documents Submission
Requirements Cont.
Part V- Use of the Escrow account
– The SEC requires the use of an escrow account
for the lodgment of all
– This is meant to keep intact all monies received
during offer period until certain conditions have
been met
SECURITIES AND EXCHANGE COMMISSION
Offer Documents Submission
Requirements Cont.
Part VI- EXTENSION OF THE OFFER PERIOD
Reasons that may account for an extension
– Material Emerging issues to be brought to the
attention of the SEC
– Application for extension of an offer to be
considered on a case-by-case basis
– Application for extension of an offer one week
before the close of the offer
– Response from SEC within 2 days
Offer Documents Submission
Requirements Cont.
VII-Report on the outcome of the offer
– Regulation 33(5) of LI 1728 an issuer is to
submit a report on the offer to the Commission
– Within 14 days(two weeks)
– Report should provide information such as
• Total number of applications
• Total subscription amount
SECURITIES AND EXCHANGE COMMISSION
Offer Documents Submission
Requirements Cont.
• Basis of allotment
• Amounts raised after allotment
• List of top twenty after the floatation
• Distribution of the shares
• Statistics of the allotment
– Penalty of ¢1 million for each day the
default subsists
Offer Documents Submission
Requirements Cont.
VIII-Refund of Money
In the case of an Unsuccessful issue
– Unattained minimum subscription should
followed by refunds (Section 284 (4)
Companies Code )
– Publication in a newspaper and announcements
on local radio stations
Offer Documents Submission
Requirements Cont.
IX- Allotment
– Information should be provided on the
allotment policy
Offer Documents Submission
Requirements Cont.
X-Refund of Money- Oversubscribed
shares
– Excess fund to be returned within 10(ten) days
– Refunds to be made out of the Escrow account
Offer Documents Submission
Requirements Cont.
XI- Dispatch of Certificates and the
Commencement of Trading
– All share must be dispatched at least one week
before trading can commence
SUPPLEMENTARY PROSPECTUS
(Reg. 52 of LI 1728)
Any information coming up after the offer has
been approved such as
– Any significant change affecting any matter contained
in the prospectus the inclusion of which is required by
these Regulations
– Any inaccuracy in the prospectus
All the above issues may necessitate the
publication of supplementary prospectus
THE DO’S OF THE SEC
Reviews offer documents based on
DISCLOSURE - BASED REGULATIONS.
– SEC ensures what can be termed as the 3 Ds of the
capital market
Disclose Fully (all relevant information)
Deal fairly
Don’t lie
Disclosure - based Regulations allows investors
to have adequate and timely information to make
sound investment decisions.
The Don’ts of the SEC
The SEC does NOT not comment on
anything whatsoever about the possible
investment worth of a given offering.
It is up to the investor to separate the ‘junk from
the jewels’.
The SEC relies on the professional
judgement of all the parties involved in an
IPO process.
What is expected of the Media
Journalists therefore play a very important and significant
role not only in conveying vital information regarding
securities markets to the public but also in educating
investors through analysis and opinions.
However, the effectiveness of the process lies in the public
perception of the credibility of information, analysis and
opinions disseminated or issued.
This can be achieved through the independence and
freedom from bias of the person issuing, providing,
conveying or analyzing the information.
What is expected of the Media
Report accurately
Media should not sensationalize issues
Market is sensitive to the information be it negative or
positive
Media is expected to always revert to the Commission first
before going public on any issues identified (to and from)
but …….
Have the development of the capital market at the back of
their mind
Financial journalism is different from political/social
journalism
SECURITIES AND EXCHANGE COMMISSION
CONCLUSION
Investor confidence is key to the survival of
any capital market
Erroneous news that dents investor
confidence, destroys the market
End of presentation
THANK YOU
JUNE 2005
