The Securities and Exchange Commission (SEC) in Nigeria has recently introduced strict regulations to govern the issuance and allotment of securities by private companies. The Commission said the rules were made pursuant to “Section 43 (1) (b) of the Business Facilitation (Miscellaneous Provisions) Act 2022 which amends Section 67 (1) of the Investments and Securities Act and empowers the Commission to prescribe regulation for the issuance and allotment of private companies’ securities.
These rules apply to debt securities issued by private companies, registered exchanges which admit debt securities issued by private companies and registered capital market operators who are parties to the issuance and allotment of debt securities of private companies. Securities issued under this section are plain vanilla bonds/debentures and other debt instruments that may include Sukuk.
Private entities seeking to issue securities under these rules must be companies registered under the CAMA and have been in operation for a minimum of three (3) years. They shall be accredited by a rating agency and must show proof of indebtedness to securities previously offered.
Securities can be issued either through a shelf program or book building process and the regulations fixed the maximum amount of money that can be raised by such entity at ₦15billion. Strict rules were also made concerning the allotment process and post-allotment documentation.
Applications are to be made by the company to the SEC for registration of securities and relevant documentation is provided. Registration fees as prescribed by the Commission are to be made before the issuance of such securities and proceeds from the fees made are shared in a 70:30 ratio between the Commission and appropriate security exchange.
The SEC also stated that Private companies with existing debt securities held by qualified investors are required to apply for registration within three months of the rules’ issuance as failure to comply with this requirement would result to a fine of ₦2,000,000 (Two Million Naira) and a further sum of ₦100,000 for every day the violation continues. It also listed penalties in the case of unapproved allotment of securities or any other violation of the rules as may be seen.
It states:
“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:
- A penalty of not less than ₦10,000,000 (Ten Million Naira) in the first instance and a further sum of ₦100,000 (One Hundred Thousand Naira) for every day the violation continues.
- Suspension, or withdrawal of the registration of the capital market operator(s) involved.
- Disgorgement of proceeds/income from the transaction
- The Commission may ratify or rescind a transaction if it is in the interest of the public to do so.
- Any other sanction the Commission deems fit in the circumstance”.
These new rules underscore the SEC’s commitment to maintaining a robust and well-regulated capital market. Private companies seeking to raise capital through debt securities must diligently adhere to these guidelines to ensure investor confidence and market stability.