The Securities and Exchange Commission of Pakistan (SECP) has issued a consultation paper to gather public feedback on the existing requirements under the Companies (Further Issue of Shares) Regulations, 2020.Â
These regulations currently mandate that a listed company must have no overdue liabilities or defaults in its Credit Information Bureau (CIB) report before announcing a right issue.
Under the Companies Act, 2017, companies are allowed to increase their share capital by issuing rights, giving existing shareholders the option to purchase additional shares in proportion to their current holdings.Â
However, the SECP regulations stipulate that the issuing company, along with its sponsors, promoters, substantial shareholders, and directors, must have a clean CIB report, meaning no overdue liabilities or defaults.
This requirement can prevent companies from raising capital through right issues if they have even a minor overdue liability, potentially limiting their ability to secure necessary funding. In cases of financial distress, shareholders might be willing to provide the required capital, but the clean CIB report condition could prevent this crucial support, impeding the company’s recovery or restructuring efforts.
The SECP’s consultation paper examines the implications of removing the clean CIB requirement for companies issuing shares. It includes a comparative analysis of similar regulations in other jurisdictions, offering stakeholders a framework to provide informed feedback.
The consultation process is expected to help determine whether relaxing this rule could facilitate the revival of distressed companies while balancing associated risks.
