LSE Capital chief on SECP’s reverse mergers regulations

The Securities and Exchange Commission of Pakistan (SECP) has proposed amendments to the Public Offering Regulations, 2017, and Public Offering (Regulated Securities Activities Licensing) Regulations, 2017.

These changes aim to improve the IPO process, making it faster, cheaper, and more efficient via:

• Streamlined IPO Process:
  • Reducing IPO processing time to 14 working days
  • Removing duplication in listing and prospectus applications
  • Introducing a more efficient price discovery mechanism
• Increased Retail Participation:
  • Democratizing the book building mechanism, allowing all eligible participants to place bids directly
  • Introducing a clawback provision to allocate up to 25% to retail segments in case of oversubscription
  • Increasing minimum bid amount from Rs. 1 million to Rs. 5 million
• Enhanced Role of Technology:
  • Complete transition to e-IPO applications starting July 1, 2025
  • Introduction of QR codes for accessing prospectus and financial accounts
  • Acceptance of electronic signatures
• Other Key Changes:
  • Allowing banks to act as CTI for public offerings of equity securities
  • Simplifying disclosure requirements for secondary offerings and debt securities
  • Introducing customized procedures for REIT units, GEM companies, and short-term debt securities

Goal
For the SECP, these amendments aim to facilitate faster and cheaper access to capital, increase outreach, and make the IPO journey smoother for issuers.

Expert reaction
According to Aftab Ahmad Chaudhry, the CEO of LSE Capital, the proposed regulations are unlawful as they impose a restriction on the choices of the shareholders of the listed companies, but they are also regressive in the context of the Pakistani market. He added that these regulations tend to eliminate the chances of the revival of more than 100 dead companies existing on PSX’s counter.

“Is this what should be the outcome of any proposed regulatory farmework,” the LSE Capital chief posited rhetorically, on LinkedIn. “Is it not that every regulatory proposal must first give a statement of purpose – why is it being developed? Then, what is the intended benefit? & then it’s impact on the market deepening & development?”

The LSE Capital chief said the proposed regulations:

• impose unnecessary restrictions on listed companies and their shareholders, contradicting global practices and the existing legal framework in Pakistan.
• could eliminate the chances of reviving over 100 “dead” companies listed on the PSX, which would be detrimental to the market.

He suggests that the SECP should:

• permit companies to restructure and update their rosters through reverse mergers and listings, subject to compliance with listing/admission norms.
• recognize that listings and IPOs are not the same thing and should be treated differently in regulations.
• engage in a more consultative and transparent process when finalizing regulatory changes, considering the impact on market development and the corporate sector.

The SECP did not immediately respond to a request for comment outside working hours on Saturday.