El-Kuwaiz clears up misconceptions about market regulator’s role in offering process
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Mohammed El-Kuwaiz, the board chairman of the Capital Market Authority (CMA), said there are several misconceptions about the role of the market regulator in the offering and listing process.
The first one is related to the fact that the share sale process starts and ends with the CMA.
“In fact, the market regulator’s role could come last or almost before last in a long process that starts with the company’s preparation of listing requirements. Then, the process starts with the CMA, taking less than 12 weeks on the main market and less than 8 weeks on Nomu. However, the process of offering and listing is much longer,” El-Kuwaiz added in a webinar hosted by Asharqia Chamber.
The market regulator’s role is part of this system. The more the company is well prepared in the initial stages, the more the later stages of the offering process are shorter and easier.
A second misconception is about the market regulator’s role in corporate valuation, El-Kuwaiz explained, adding that the valuation of an issuer is the same like that of a listed company. In both cases, the valuation is determined by investors, who are looking to invest in that company.
In the book-building process, the company and its financial advisor coordinate to offer its shares to a number of institutional investors, who set the price. Accordingly, the offer price depends on supply and demand.
Another myth says that an issuer is required to be profitable ahead of the share sale, El-Kuwaiz added. The truth is that the issuer must have audited financial statements of at least three fiscal years rather than one year. It’s not related to the company’s profitability at all, he pointed out.
The profitability of a company is part of the commercial valuation made finally by investors. The offering, however, provides investors with information to take the right decision.
Clearing up the fourth misconception, El-Kuwaiz said, “some believe the public offer decision cannot be revoked. However, the market regulator allows companies to delist their shares for many reasons. Today, the voluntary delisting mechanism is available for all companies, though it has not yet come into effect.”
Moreover, some companies or sectors might not be ripe for offering or listing. The market regulator’s regulations do not differentiate between companies or sectors in terms of size, as all sizes of companies and sectors are allowed to go public, El-Kuwaiz said.
The only difference is related to how companies are attractive and how investors are willing to put their money, because it is a commercial issue. The regulations do not place restrictions on a certain sector or a certain size of any company to list their shares in the capital market, he concluded.