FAQ On Prospectus Guidelines - Regulatory FAQs | Securities Commission Malaysia

FAQ On Prospectus Guidelines

What is the role of the Securities Commission (SC) in relation to prospectuses?
The SC is the sole regulatory authority for approving and registering prospectuses other than for the offer for subscription or purchase of shares or debentures by an unlisted recreational club.
What is the role of the Companies Commission of Malaysia (CCM) and the existing provisions on the content of the prospectus under the Companies Act, 1965 (CA)?
Prior to the amendments of the Securities Commission Act,1993 (SCA), Part IV of the CA prescribed the extent of information that was required to be disclosed by companies that wished to offer shares and debentures to the public. Part IV now only applies to offers of shares and debentures to the public by unlisted recreational clubs. Nevertheless, the lodgment of prospectuses (except for prospectuses for unit-trust schemes and prescribed investment schemes) would continue to remain with the CCM.
What are the instances where a public offering prospectus, abridged prospectus and supplementary prospectus is required to be registered by the SC?
A public offering prospectus is required to be submitted to the SC for registration where there is an issue, offer for subscription, or an invitation to subscribe for or purchase any securities. An abridged prospectus is required when there is an issue, offer for subscription or purchase, or an invitation to subscribe for or purchase securities by means of a rights issue which is renounceable in favour of persons other than existing members of that corporation and in respect of which an application has been or will be made for permission to deal with or quote such securities on a stock market of a stock exchange. A supplementary prospectus is required where, between registration of a prospectus and issue of securities, the issuer becomes aware that :-
a matter has arisen and information in respect of that new matter would have been required to be disclosed in the prospectus if the matter had arisen at the time the prospectus was prepared;
there has been a significant change affecting a matter disclosed in the prospectus;
the prospectus contains a material statement or information that is false or misleading; or
the prospectus contains a statement or information from which there is a material omission.

Changes requiring a supplementary prospectus can consist of :-
changes to the body of the original prospectus; and/or
changes to experts’ reports included in the original prospectus; and/or
changes to information in supplementary prospectus (including new reports) previously registered in relation to a particular prospectus.

A supplementary prospectus can be issued in relation or as a consequent to a public offering prospectus, abridged prospectus or a supplementary prospectus.
What are the differences in respect of disclosure requirements of a public offering prospectus and an abridged prospectus?
A public offering prospectus contains full details about the company including history, the industry in which the company is engaged in, management, assets and liabilities, profit track record, financial position, rights attaching to the securities and prospects of the company while the abridged prospectus emphasises on the effect of the rights issue on the assets, liabilities and profit and loss of the company (if applicable), the prospects and the rights attaching to the securities if differs from the existing securities. The disclosure requirements for an abridged prospectus is less compared to a public offering prospectus.
Would the issuance of an information memorandum be deemed to be a prospectus? Is it required to comply with the Prospectus Guidelines, be lodged and registered with the SC?
An information memorandum issued by a person or his agent purporting to describe the business and affairs of the person in respect of any excluded offer or excluded invitation specified in Schedule 2 or an excluded issue specified in Schedule 3 of the SCA shall be deemed to be a prospectus in so far as it relates to the liability of the person or his agent for any statement or information that is false or misleading or from which there is a material omission. However, an information memorandum need not comply with the content of prospectus requirements as spelled out in the Prospectus Guidelines issued by SC. Notwithstanding the above, the information memorandum is required to be lodged with the SC within 7 days after it is first issued.
What criteria will SC look at when considering granting a waiver/ relief with respect to the form and content of a prospectus?
Under S.44(5) SCA, SC may consider granting a waiver if it is satisfied that:-
compliance with the requirements of the SCA is unnecessary for the protection of persons who may normally be expected to deal in those securities, being persons who would reasonably be expected to understand the risks involved; or
compliance with the requirements of the SCA would impose an unreasonable burden on the issuer.
What are the circumstances for refusal of registration of a prospectus?
Under S.42 of the SCA, SC can refuse to register the prospectus if :-
the Commission is of the opinion that the prospectus does not comply with any requirement or provision of the SCA;
the issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase, securities to which the prospectus relates does not comply with any other requirement or provision of the SCA;
the Commission is of the opinion that the prospectus contains any statement or information that is false or misleading or that the prospectus contains any statement or information from which there is a material omission;
the issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase, securities to which the prospectus relates-
requires the approval of the Commission under S.32 SCA and such approval has not been given; or
does not comply with any term or condition imposed under S.32(5) SCA; or;
the Commission is of the opinion that the issuer has contravened any provision of the securities laws or the CA and that such contravention would cast a doubt as to whether the issuer is a fit and proper person to make an issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase, any securities.
What is the rationale behind the revision of the Prospectus Guidelines, (which would come into effect on 1 May 2003)?
The revision is primarily aimed at:
enhancing the disclosure requirements which will bring about greater transparency;
consolidating the disclosure requirements for equities, debentures and derivative products into a single document; and
improving the efficiency for fund-raising exercises through faster registration process.

The move to revise the Prospectus Guidelines is part of the transition to the final phase of a disclosure-based regulatory (DBR) framework.
How will the industry and investors benefit from the revised Guidelines?
The industry will benefit from speedier registration procedures and more business-friendly rules while investors will benefit from higher investor protection, higher standards of due diligence and corporate governance (as well as promotion of accountability and self-regulation) brought about by enhanced disclosure requirements. The higher quality of information disclosure by issuers will empower investors to make informed investment decisions.
What is a post-vetting regime for prospectuses and how does it differ from the pre-vetting regime?
Prior to the revision of the Guidelines, there was only pre-vetting for all prospectuses. The new approach for vetting of prospectuses comprised pre-vetting of full prospectuses (issue/ offer of securities to new investors) and post-vetting of abridged prospectuses (seasonal offerings and issue/ offer of securities to existing shareholders).A post-vetting regime for prospectuses has now been adopted for the registration of abridged prospectuses to expedite the response time and the time-to-market for issuance of securities. The pre-vetting regime remains intact for public offering prospectuses and supplementary prospectuses.The employment of a post-vetting regime, however, does not diminish or reduce the current scope of responsibility currently undertaken by the SC in pre-vetting. In post-vetting, the SC will vet the abridged prospectus after registration but before the allotment of securities. To facilitate the registration process, the applicant/ issuer must submit to the SC the registrable copy of the abridged prospectus (which has complied fully with the disclosure requirements under the Guidelines) at least 5 clear market days before Book Closing Date (BCD), as opposed to a draft prospectus in the case of a public offering. SC will endeavour to register the abridged prospectus within 7 clear market days after submission of the registrable copy of the prospectus.
With the advent of the post-vetting regime (for registration of abridged prospectuses), is there any avenue for the issuer to seek waiver/relief from the Guidelines?
Under S.44(3) of the SCA, the SC may either on the written application of the issuer or of its own accord, make an order relieving the issuer from or approving any variation of the requirements of the SCA relating to the form and content of the prospectus. Under the post-vetting regime, it is imperative that the issuer address all matters regarding the application for waiver/ relief of the abridged prospectus guidelines prior to registration of the abridged prospectus and such application must be submitted at least 14 clear market days prior to the intended date of submission of the registrable copy of the abridged prospectus.
Under the post-vetting regime, there is a higher probability of stop-orders being issued against defective/ errant prospectuses after registration. Will stop-orders interrupt the market (as pricing will be affected) or likewise cause uncertainty for the i
Where a registered prospectus is deficient in a material way and where it is necessary for the protection of the investors, a stop-order will be issued but only before the issue of any securities. However, the SC may provide the issuer an option to execute issue of supplementary prospectus in lieu of stop-orders.
What enhancement of prospectus disclosure requirements, are noteworthy?
Enhanced disclosures under the revised Guidelines include the following:
Responsibility Statements The range of responsibility statements has been extended to include a statement whereby the directors accept full responsibility for future financials.Further, it is now a requirement for the adviser/ lead arranger to identify itself (i.e. must disclose its name) when declaring that the prospectus constitutes a full and true disclosure of all material facts.
The Statements of Disclaimer by the SC, KLSE and MESDAQ The disclaimers have been enhanced to ensure that investors are made aware of the risks involved when assessing the merit of the investment and where there is doubt to consult their securities expert or professional adviser before embarking in the investment.There is now an inclusion of the statement pertaining to the characteristics of the MESDAQ Market of the Kuala Lumpur Stock Exchange in relation to companies seeking listing on the MESDAQ Market. The statement effectively cautions the investor that MESDAQ is distinct from the Main and Second Boards and as with all investments, prospective investors should be aware of the potential risks.
Risks Factors/ Risks Management Plans Adding to the list, disclosure of risks and plans to address risks associated with fire, energy crisis and other emergency risks which could jeopardise the corporation’s operations as well as risks associated with the environment.Where debentures are concerned, if the rating for debentures offered is below investment grade, the extent of the credit risks must be disclosed.
Information about the Corporation and Group
approvals, major licences and permits obtained and status of compliance;
information regarding extent to which the corporation is dependent on patents or licences, industrial, commercial or financial contracts or new manufacturing processes, where such factors are material to the corporation’s business or profitability;
amount spent on research and development during the last three (3) financial years and comparison as a % of turnover on corporation sponsored research and development;
number of contractual/ temporary employees; and
descriptions, based on the latest audited financial year of the top 10 customers and the top 10 suppliers.
Working Capital, Borrowings and Contingent Liabilities It is now a requirement to disclose in addition, any material commitments, the purpose and source of such commitments, including foreign commitments (which now must be separately identified with corresponding currencies).
Excess Applications The prospectus has to contain a statement that allocation of excess applications will be made on a fair and equitable manner.
Property Valuations Where property valuations, carried out with the proposed listing, do not require approval of the SC, the prospectus must disclose the following statement: “The above valuations do not require the approval of the Securities Commission.”
Opinion of Reporting Accountants The opinion by the Reporting Accountants in respect of profit and/ or cashflow estimates/forecasts and/or projections (where applicable), must be consistent with that submitted pursuant to application under S.32.
What are the new disclosure requirements that have been introduced/ incorporated into the new Guidelines in respect of related-party transactions?
In addition to the information required to be disclosed under the existing guidelines, the following fresh requirements must be disclosed:(i) Any transactions that are unusual in their nature or conditions, to which the corporation or any of its parent or subsidiaries was a party in respect of the past one (1) financial year and the subsequent financial period thereof, if any, immediately preceding the date of the prospectus; and(ii) The amount and details of outstanding loans made by the corporation or any of its parent or subsidiaries in respect of the past one (1) financial year and the subsequent financial period thereof, if any, immediately preceding the date of the prospectus.
How has the chapter on related party transactions been rationalised?
The chapter on related party transactions has been rationalised; incorporating related party disclosures from other chapters under the existing guidelines, such as the following:-
The details of directors’ and substantial shareholders’ direct and indirect interests in other businesses and corporations carrying on a similar trade as the corporation or any other corporation in the group; and
Full particulars of the nature and extent of any interest, whether direct or indirect, of any director and substantial shareholder in the promotion of, or in any material assets, within two (2) years preceding the date of the prospectus, acquired or disposed of by or leased to the corporation or any of its subsidiary corporations, or are proposed to be acquired or disposed of by or leased to the corporation or any of its subsidiary corporations.
What additional information is now required (under the new Guidelines) in the Directors’ Report?
In addition to the existing disclosure requirements, the Directors’ Report must also contain a statement as to whether or not there have been, since the last audited accounts of the corporation/ group, where applicable all corporations which forms part of the proposed group, any default or any known event that could give rise to a default situation, in respect of payments of either interest and/ or principal sums in relation to any borrowings in which they are aware of.
Under what circumstances are Valuation Certificates required for inclusion in prospectuses and are such certificates applicable to valuations involving land and buildings only?
Valuers are required to prepare valuation certificates for inclusion in prospectuses when the related corporate exercises contain valuation or revaluation of all property assets. Property assets are now clarified to include all property assets such as timber concessions, quarries/ extraction of minerals, development rights and plant, machinery and equipment (i.e. not confined to land and buildings only).
What are the major amendments made to the requirements of the Valuation Certificate?
The entire Valuation Certificate chapter has been amended to incorporate additional disclosures of Issues Guidelines and Asset Valuations Guidelines. The key changes include the following:-
the date of valuation must be within a reasonable time of the issue of the prospectus; and
where the valuer becomes aware of significant changes affecting the contents of his/her report, either, between the date of valuation and the issue of the prospectus, or after the issue of the prospectus and before the issue of the securities, the valuer has an ongoing obligation to update his/her valuation report/certificate and, where applicable, cause the corporation to issue a supplementary prospectus.
Under the new Guidelines what other information pertaining to utilisation of proceeds is required to be disclosed in the AP?
Where any corporation/ business acquired or proposed to be acquired by the corporation/ group, which is to be paid for wholly or partly out of the proceeds of the rights issue, an Accountants’ Report of the subject corporation/ business acquired or proposed to be acquired, must be prepared and must deal with the:
income statement of the five (5) financial years immediately preceding the last date to which the accounts were made up; and
the balance sheet of the last five (5) financial years immediately preceding the last date to which the accounts were made up.

In the case where the acquisition or proposed acquisition resulted or will result in a significant change in business direction, the date to which the accounts of the acquiree were made up must not in any case be more than six (6) months prior to the issue of prospectus.
The revised Guidelines have incorporated the requirements pertaining to contents of prospectus for debentures. Apart from the consolidation of the requirements into a single document, are there any additional features not found under the SC’s previous gui
A notable addition, is the disclosure requirement pertaining to offering of debentures involving Asset-Backed Debt Securities (ABS). It is now a requirement that any ABS offering must comply with the ABS Guidelines, for example, to disclose risk factors of investing in ABS and to disclose the description of the securitised assets.
What other notable disclosure requirements have been integrated into the single revised Prospectus Guidelines?
The revised Prospectus Guidelines have integrated the disclosure requirements for equities, debentures and derivative products and accordingly provided new specific chapters for Infrastructure Project Companies (IPCs), acquisition of foreign securities and assets and call warrants as well as a chapter on additional requirements for the offering of debentures.

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