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Guidelines on Offer of Shares by Unlisted Public Companies to Sophisticated Investors

On 15 July 2021, the Securities Commission Malaysia (“SC”) issued the Guidelines on Offer of Shares by Unlisted Public Companies to Sophisticated Investors (SC-GL/1-2021) (“Guidelines”) which shall take effect on 1 August 2021.

Unlisted public companies (“UPCs”) are not required to obtain SC’s approval under Section 212 of the Capital Markets and Services Act 2007 (“CMSA”) when they intend to offer their shares. As such, there are more and more companies utilising this loophole to raise funds through UPCs by offering shares to the public. The purpose of the Guidelines is to create some form of regulatory control on UPCs when they offer their shares to the public.

The Guidelines apply to UPCs that offer shares to sophisticated investors. “Sophisticated investors” means any person who (i) falls under any of the categories of investors set out in Part I, Schedules 6 and 7 of the CMSA, or (ii) acquires shares pursuant to a private placement where the consideration for the acquisition is not less than RM250,000 or its equivalent in foreign currencies for each transaction whether such amount is paid for in cash or otherwise.

The obligations imposed on UPCs by the Guidelines are as follows:-

1.      Any information memorandum issued by a UPC in respect of an offer of its shares must comply with the requirements set out in the CMSA, the Guidelines and any other guidelines issued by the SC. Furthermore, the cover page of the information memorandum must contain the prescribed caution statements.

2.      If a UPC intends to appoint an agent to promote and market its shares, the UPC must ensure that the agent holds a Capital Markets Services Licence for dealing in securities.

3.      Both UPC and persons acting on behalf of the UPC must take reasonable steps to verify that any prospective investor that they are approaching is a sophisticated investor.

4.      The Guidelines impose reporting obligation on UPCs that offer it shares whether or not an information memorandum is issued. Such obligations are:

(a)    Submission of post-issuance notification in a prescribed form to the SC no later than 7 days after the commencement of the offering; and

(b)   Submission of post-issuance update report in a prescribed form to the SC no later than 7 days after the end of each quarter of financial year, as long as the offering is ongoing.

While the Guidelines only apply when a UPC is offering shares to sophisticated investors, a UPC is required to issue a prospectus if its shares are offered to non-sophisticated investors and the prospectus is required to be registered with the SC pursuant to Section 232 of the CMSA. Failing to comply with Section 232 of the CMSA is an offence and upon conviction, the punishment will be a fine not exceeding RM10 million or imprisonment not exceeding 10 years, or both.

The issuance of the Guidelines which regulate UPCs when offering shares to sophisticated investors is welcomed as the Guidelines impose more obligations on UPCs so that UPCs are more cautious when offering their shares to sophisticated investors.

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