ON THE OVER-SUBSCRIPTION OF CAL BANK LIMITED PUBLIC SHARE OFFER
The SEC would like to clarify some recent misleading pronouncements that have been made on the over-subscription of CAL Bank Public Share Offer.
The standard requirement in the securities industry worldwide and which the Laws of the respective jurisdictions support, is that companies which want to raise money from the public, must disclose the terms of the offer. These terms include, the amount required, the intended use of the funds, what will happen in the case of over-subscription etc. In Ghana the requirements have been fully stated in SEC Regulations 2003, L.I. 1728.
In the case of CAL Bank Share Offer, the company wanted to raise ¢54billion. They however stipulated that they would increase the amount to ¢63billion if there was excess demand (or over-subscription). They further stated that if they could not obtain at least ¢27billion they would refund the entire amount to the subscribers.
On the issue of the over-subscription, the SEC regulation provides that where a company anticipates an over-subscription of its share offer, the company must state the maximum amount that it will absorb. CAL Bank complied with this requirement and stated in its prospectus that in the event of over-subscription, they will issue additional shares to bring the total share offer to ¢63 billion. They also stated in the offer document that, subscribers may not be offered the whole amount of their subscription and that in such a case refunds will be returned by registered mail within two weeks after the offer closes. The offer closed on 1st October 2004 and refunds should have been made by 15th October 2004. The managers of the offer did not comply.
On the use of the proceeds, CAL Bank disclosed that the amount raised was to enable it undertake retail banking operations through the opening of retail branches in Accra, Tema, Kumasi, and Takoradi with ATM facilities connected to the branches, as well as allow some existing shareholders to realize their investment by offloading some of their shares. Nowhere was there reference to the ¢70billion stated capital requirement by the Bank of Ghana for Universal Banks, one of the reasons given by CAL Bank for not wanting to refund the full amount of the over-subscription.
Despite the clear statements to the public on the amounts to be raised, the purpose of the offer, and additional amount to be absorbed in the case of over-subscription, CAL Bank sought to increase the amount on offer to ¢100 billion after the offer had closed.
The SEC could not approve such a fundamental change of the terms of the offer to the detriment of the subscribers.
The SEC believes that it would have failed in its regulatory role if it had allowed CAL Bank to keep more money than it had demonstrated a need for in its prospectus. By increasing the offer amount to ¢100billion, Cal Bank would have violated the terms of the offer on which applicants had based their decision to apply for shares.
Previous cases of over-subscription have included the public share offer of Clydestone Ghana Limited and Benso Oil Palm Plantation. Both issuers complied fully with the terms of their offers and returned excess funds to applicants.
The process of going public entails serious planning, preparation, and discussions between the issuer, manager, and the regulators. Issuers of securities must therefore demonstrate that the required level of thought goes into the decision to raise capital, the use of funds and the amount needed. Managers who claim to be better versed in the intricacies of the market should advise their clients accordingly.
While developing our markets, it is important that we do not set precedents that would allow issuers to vary terms of offers at will to the detriment of the investing public. The overwhelming number of applications should not be the main reason why an issuer should choose to keep excess funds and to expect the SEC to condone such market unfriendly conduct.
The primary objective of the SEC is to protect the interest of the investing public and SEC would continue to do this according to the Law and ensure that adequate disclosures are made to the public.
DR. CHARLES ASEMBRI DIRECTOR-GENERAL
ISSUED BY THE SECURITIES AND EXCHANGE COMMISSION 9TH NOVEMBER 2004