Private companies face N15bn limit on capital raise under new SEC rules

Onome Amuge

The Securities and Exchange Commission (SEC Nigeria) has unleashed a transformative set of regulations governing the issuance and allotment of securities by private companies, imposing a ceiling of N15 billion per annum. SEC highlighted the importance of adhering to these regulations by outlining stringent penalties for any person or entity that issues or allots securities without prior approval. Violators will face a penalty of not less than N10 million for the initial offence, along with an additional N100,000 for each day the violation persists. The commission also laid down the groundwork for private companies to participate in the securities exchange space, setting forth strict eligibility criteria. To qualify, companies must be duly incorporated under the Companies and Allied Matters Act (CAMA) or other relevant laws, ensuring legal compliance and legitimacy. Additionally, the SEC stipulates that eligible companies must possess a proven track record of operation, with a minimum of three years' experience under their belt. Under conditions for securities issuance, SEC ruled that a private company may issue its securities under these Rules provided that:

a) Only plain vanilla bonds/debentures and other debt instruments including sukuk and as may be determined by the Commission from time to time, shall be issued.

b) For sukuk issuances, the issuer shall comply with the provisions on sukuk (as applicable) and set out in Rules 569 – 588 of the Commission’s Rules, as amended from time to time.

c) The securities shall be offered to only qualified investors.

d) A private company may undertake a maximum of three debt securities issuances within a one-year period, whether through a shelf programme or one-off offering, the total amount to be raised not exceeding N15 billion, provided that where a private company intends to undertake any further debt securities issuance, it shall be required to re-register as a public company.

The commission which set out stringent punishment for those who violate the regulation, stated: “Any person who issues or allots securities without the prior approval of the Commission, or violates any provisions of these rules shall be liable to any one or more of the following sanctions: i. A penalty of not less than N10 million in the first instance and a further sum of N100,000 for every day the violation continues; ii. Suspension, or withdrawal of the registration of the capital market operator(s) involved; iii. Disgorgement of proceeds/income from the transaction; and iv. The Commission may ratify or rescind a transaction if it is in the interest of the public to do so; v. Any other sanction the Commission deems fit in the circumstance”. To ensure compliance with the SEC’s new regulations, private companies with existing debt securities held by qualified investors are required to take prompt action. According to the SEC, these companies must file an application for the registration of their securities within three months of the rules' issuance. In addition, the application must be submitted through the securities exchanges, and failure to comply will result in a penalty of at least two million naira, with an additional N100,000 imposed for each day the violation persists. The Securities and Exchange Commission also outlined several key provisions governing private companies' securities offerings, outlining the need for adherence to regulatory requirements and the protection of investor interests. According to the commission: -Private companies are strictly prohibited from offering their equity securities (shares) to the public under any circumstances. - Debt securities issued under these rules can only be sold to qualified investors, ensuring that sophisticated and knowledgeable parties are involved in such transactions. -Only registered capital market operators may participate in debt securities issuances under the SEC's rules, further safeguarding the integrity of the process. -No private company or its representatives may offer, sell, or allot securities to the public without first obtaining clearance from the securities exchange and registering the securities with the Commission. -Securities purchased through public offers in accordance with these rules may only be traded on registered securities exchanges, ensuring that transactions take place within a regulated and supervised environment. SEC also held that issuers are restricted from utilising the proceeds of their issues for purposes not explicitly mentioned in the offer document, unless prior approval is obtained. To further enhance accountability, it stated that issuers must submit a comprehensive report to the commission within 90 days of an issue's conclusion. The report, to be filed using the relevant SEC form, is expected to provide detailed information on the utilisation of proceeds, with supporting evidence included as an appendix. The commission added that the quarterly reporting requirement will continue until the proceeds are entirely utilised. The Business Facilitation (Miscellaneous Provisions) Act 2022, which amended the Investments and Securities Act, served as the catalyst for the Securities and Exchange Commission's new found ability to regulate private companies' securities issuance and allotment. This crucial piece of legislation, signed into law on February 14, 2023, underpins the SEC's recent efforts to foster a more transparent and secure investment landscape in Nigeria.

Onome Amuge

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