The Securities and Exchange Commission of Pakistan (SECP) has approved Growth Enterprise Market Listing Regulations to enable small and medium enterprises (SMEs), Greenfield projects, not-for-profits and other companies to raise capital through capital markets conveniently.
SECP approved Growth Enterprise Market Listing Regulations to enable SMEs, Green field projects, NPOs to raise capital from PSX. New regulations sent for publication in Official Gazette to replace PSX’s existing regulations governing listing of equity securities of SMEs.
— SEC Pakistan (@SECPakistan) November 12, 2019
The commission has advised Pakistan Stock Exchange (PSX) to publish the new regulations in the Official Gazette of Pakistan to replace PSX’s existing regulations for listing and trading equity securities of SMEs.
SMEs constitute nearly 90% of all the enterprises in Pakistan; employ 80% of the non-agricultural labor force; and their share in the annual GDP is 40%, approximately. However, unlike large enterprises in the formal sector, a small and medium enterprise is constrained by financial and other resources. This inherent characteristic of an SME makes it imperative that there should be a mechanism through which it may get support in different functions of business including technical upgradation, marketing, financial and human resource training & development.
1/3 Spotlight speech at Pakistan Policy Symposium. Small and medium-sized enterprise consists of 90% of all enterprises in Pakistan, account for 70% of the jobs. Here is the link to the speech https://t.co/cVlJgTDa4O pic.twitter.com/uX3twFCHHN
— Andleeb Abbas (@AndleebAbbas) October 19, 2018
Securities and Exchange Commission of Pakistan (SECP) Chairman Farrukh H Sabzwari explained during an interview in April with Business Recorder, “There has to be a market place where small businesses can offer their business plans. If there is a business, which is not profitable and is in its nascent stages, perhaps only institutional investors should be allowed to participate. If a business is medium-sized, profitable and is not too risky then institutional investors as well as high net worth individuals may participate. The businesses which fall within the low risk category can be allowed investment by the general public too”
The Growth Enterprise Market Regulations are designed to facilitate small enterprises, startups and greenfield companies that are aspiring to raise funds through capital markets but cannot fulfill the cumbersome conditions for listing on the main board of PSX. Hence, in addition to the main board of PSX, the Growth Enterprise Market (GEM) will be a second board at PSX for listing and trading of equity securities. However, the trading screen for both boards will be the same.
The new board provides a more conducive regulatory environment as compared to the mainboard. For listing on the GEM board, any public limited company with audited accounts for the last two financial years and post-issue paid-up capital of at least Rs. 5 million is eligible. The minimal fee for listing on the GEM board is Rs. 50,000, which is significantly lower compared to the PSX main Board where the minimum listing fee is Rs. 200,000.
To facilitate the issuers, any person licensed with the SECP as a securities broker or consultant can act as an advisor. The issuer may offer, by way of information memorandum, only 10% of the post issue paid-up capital to the eligible investors.
The Growth Enterprise Market Regulations are designed to facilitate small enterprises, startups and greenfield companies that are aspiring to raise funds through capital markets
Through the new board, SEMs will be able to achieve higher valuations as greater disclosures result in increased capitalization. This move will enhance their capacity, growth and expansion needs, and opportunities for mergers and acquisitions.
It also allows the greenfield projects and non-profitable companies to raise funds. Moreover, the companies listed on the GEM board may graduate to the mainboard, subject to the fulfilment of prescribed criteria. However, the reverse is not allowed.
In order to create liquidity on the GEM board, the concept of eligible investors has been introduced and the minimum lot size has been linked with the main board of the PSX, which is currently 500 shares. Eligible investors include all institutional investors and eligible individual investors registered with NCCPL that have financial strength or expertise.
The post-listing requirements of the GEM board are also relaxed as compared to the mainboard, such as the non-applicability of code of corporate governance, submission of a half-yearly progress report as compared to a quarterly progress report.