How to do an IPO

Regulations are still being put into place, but the requirements of listing on the Beirut Stock Exchange are clear

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An initial public offering, or IPO, is a company’s first offering of its equity to public investors; its main objective is for the company to raise capital. It is generally an intensive process that requires a number of regulatory authorizations and processes that may be quite burdensome, as well as the necessity of obtaining professional advice and support in many areas, including legal, technical, financial and marketing.

Lebanon has one securities market, the Beirut Stock Exchange (BSE), currently the only stock exchange in the country. There are relatively few Lebanese and foreign companies currently listed on the BSE compared to other stock exchanges in the region. This situation is due to a number of reasons, ranging from political instability, the economy and a lack of incentive for companies to seek new sources of financing through IPOs.

The Lebanese Capital Markets Authority (CMA) was formed by virtue of Law 161 of August 17, 2011. Its board of directors was appointed in July 2012, but the CMA officially became active in the beginning of 2014. The CMA alone is authorized to regulate the listing and trading of securities and financial instruments on the BSE and on any other stock exchange that may eventually operate in Lebanon.

The laws and regulations applicable to public offerings are still under development by the CMA. The general requirements, however, are unlikely to change.

The basic rundown

A subscription is considered public when a company issues, sells, offers to issue or offers to sell financial instruments, including shares, to the public in Lebanon and abroad, whether directly or indirectly, within a specific time limit. The time limit, the value of the financial instruments and the definition of public are to be determined in special regulations that have not yet been issued.

To offer its shares up to public subscription, a company must obtain the prior approval of the CMA through an application process. No invitation may be addressed to potential investors for a public subscription without the CMA’s approval. The CMA has four weeks from the date of the application’s submission to give its decision. If it does not reply back as to whether the authorization is granted or not by the end of the four week window, the authorization is considered granted.

Before offering its shares up to public subscription, the issuing company must put a free prospectus at the public’s disposal. The prospectus should explicitly include the offer’s start date and its duration, the detailed contact information of the company and all information required by specialized investors and consultants so that they can undertake a serious assessment of the assets and liabilities of the company, its financial status, its profits and losses, the rights pertaining to the financial instruments offered for subscription and any other important information. A copy of the prospectus must be sent to the CMA at least 15 days before the proposed offer start date, and the CMA must approve the prospectus prior to its publication.

[pullquote]The fees associated with an IPO vary, but can become quite significant depending on the number of actors intervening in the process[/pullquote]

The issuing company, its chair and board members, may be held liable in case of missing or misleading information in the prospectus that could cause losses to any person. In addition to the prospectus, the issuing company must also submit a feasibility study of its project, endorsed by economic and financial consultants, that is preapproved by the board of the CMA.

Every company that opens its share capital for public subscription has continuing obligations of disclosure before the CMA, its shareholders and its partners, regarding information about itself and its subsidiaries, its financial status and any other facts that might affect its status. 

Furthermore, many investors take into consideration whether the company wishing to go public has good corporate governance practices, particularly regarding the composition and functioning of its board of directors, and its policies regarding disclosure of information and transparency. While this is important to consider in any company, it is even more so in the case of a company wishing to go public.

The fees associated with an IPO vary, but can become quite significant depending on the number of actors intervening in the process. Such costs include the cost of the BSE listing for the subscription application, the broker, the legal consultants, the accountants and auditors, the investment banks and so forth.

The CMA may elect to issue special implementation regulations. It will be interesting to witness the evolution of the Lebanese capital market and its regulations in the upcoming years, and the ways in which these will compare to capital markets in the region.

Chadia El Meouchi is the managing partner of Badri and Salim El Meouchi Law Firm

Carine Farran is an associate at Badri and Salim El Meouchi Law Firm