The Guyana Securities Coun-cil (GSC) has released its prospectus guidelines for public offerings and it seems companies' books will be laid bare should they want to raise funds on the stock exchange.
These guidelines cover various rules with which inves-tors will have to comply when issuing shares or bonds on the local market.
They describe even how to design the cover page of the prospectus and detail risk factors which should be included.
Forecasts have to be qualified by an accountant and the application form for shares must also contain words which encourage the investors to read the prospectus before filling it in.
The following is a summary of the prospectus guidelines released by the GSC:
Brian James - Chairman of GSC
A prospectus must contain the financial position; assets and liabilities; profits and losses and the prospects of the issuer of the securities.
The information to be included in the prospectus must be reasonably obtained by directors, promoters and principal advisers as well as by the stockbroker, the underwriters, the auditors, bankers and other professional advisers/experts.
Risk factors
The prospectus must contain information about risks associated with investing in the corporation/group and where applicable, any risks associated with the assets to be acquired by means of the public offering.
Any risk being disclosed must be accompanied by a statement of the effect (quantified if possible), together with a detailed discussion of the ability of the risks, to affect the business operating results and the financial condition of the corporation/ group as well as all steps taken by the corporation to mitigate or manage the risk factors.
Some examples of the risks are as follows:
a. Risks associated with the nature of the business/corporation and any investment activities and borrowings - either domestic or foreign.
b. Risks associated with investing in a new or relatively new venture, if the corporation has no operating history or its history is limited.
c. Risks associated with its products/services if the corporation is developing corresponding markets.
d. Risks resulting from lengthy or seasonal sales.
e. Risks of dependency on particular suppliers/customers, indirect distribution channels for products, maintaining license agreements and failure of on-going relationships.
f. Risks associated with any foreign operations which may include currency fluctuations, trade restrictions, sovereignty, political and economic risks.
g. Risks associated with dependence on key personnel, on protection of intellectual property and with security and system disruptions.
h. Risks associated with assets not covered or adequately covered by insurance.
i. Risks of rapid or over expansion of a corporation's business or rapid development of technological change.
j. Risks of competition from new entrants and those associated with the control of the corporation by one or more shareholders.
k. Risks associated with dependency on particular products, markets or geographical locations and with economic conditions and systems that are significant or peculiar to the business.
l. Risks relating to any form of government control or regulation, including government funding, grants or subsidies, tariff protection and environmental regulations, that, when changed, have financial consequences for the corporation.
m. Risks associated with the technology used or to be used by the corporation.
n. Risks relating to financial performance which may include:
(i) covenants under borrowing facility agreements which limit the corporations/groups operating and financial flexibilities;
(ii) foreseeable capital commitments and indebtedness
Corporate
Information
The prospectus must include the history of the business or enterprise and the changes since the date of the incorporation.
It must also include a business overview which will state:
a. The group structure and a list of the subsidiary associated with the corporation and the percentage of the interest held.
b. The types of products manufactured or services provided by the corporation and the technology used or to be used.
c. Principal markets for products and the percentage and names of countries exported to; as well as, types, sources and availability of raw materials/input.
d. The total number of employees, the unions they belong to, as well as the training and development programmes being undertaken or that are ongoing.
e. The corporation's production, operating and output capacities.
Plans and
prospects
The prospectus must contain the following:
a. A description of the business development plans (if any) and the future plans of the corporation/group as well as steps taken (including the timeframe) to realise those plans.
b. Strategies to be adopted to ensure growth; and the prospects of the corporation/ group in light of the prospects/outlook/conditions, future plans/strategies and competition.
Background on
shareholders,
directors and
management
The prospectus must disclose:
1. the name, designation, background, nationality or country of incorporation of its major shareholders and promoters.
2. The knowledge and experience of the promoters in the business being promoted.
3. It must provide a description of the significant changes of the major shareholders/promoters with regards to their direct or indirect shareholdings for the past three years.
The following information must also be provided on the directors and chief executive officer: name, occupation and qualification, profile (including business and management experience), designation/ functions, representation of corporate shareholder (where applicable); shareholding(both direct and indirect) in the corporation and their directorships and major shareholdings in all other public corporations for the past five years.
The total remuneration and benefits of the directors and chief executive officer for the last financial year must also be disclosed.
The names, designation and directorship must be provided for the Audit Commit-tee and for the corporations' key management and technical personnel, include a profile which must contain their management or technical experience; designation/functions; and shareholding (both direct and indirect) in the corporation.
The prospectus ask for extracts relating to: transfer of securities; remuneration of directors; voting and borrowing powers of directors, including voting powers in relation to proposals, arrangements or contracts in which, they are interested; and changes in capital and variation of class rights.
details of any relationships or associations between the major shareholders, promoters, directors, key management or key technical personnel should also be disclosed. This should include information on directors' and substantial shareholders' direct and indirect shareholdings in the corporation before and after the public offering.
Salient details of any relationships or associations between the major shareholders, promoters, directors, key management or key technical personnel.
Related party
transactions
The prospectus must disclose existing and potential related-party transactions and conflicts of interest, in relation to the corporation and its related-parties, together with steps taken to resolve such conflicts of interest.
The corporation must disclose the nature and extent of the related-party transactions and conflict-of-interest situations in the prospectus. Any approvals received from non-interested shareholders must be stated.
Financial
Information
The prospectus should contain an Income Statement of the issuer for the past five financial years or such other period as the Council may determine.
A Statement of Surplus for each financial year and Balance Sheet are also required.
Accountant's report
Any forecast must be reviewed and reported on by an accountant who is qualified to conduct such a review and who is a member of the institute of Chartered Accountants of Guyana.
If the proceeds, or any part of the proceeds, of the issue of the securities are to be used directly or indirectly for the purchase of any business, the report must deal with the income statement and balance sheet of that business.
Valuation
Certificate
All valuations must be carried out by independent and registered valuators who are required to comply with the relevant and applicable valuation standards.
The following additional information must be disclosed, where relevant:
(i) Opinions on legal issues affecting the valuation
(ii) Material contravention of statutory requirements which may include breaches of land use conditions, violation of building by-laws for buildings and/or extensions built etc.
Directors' report
The prospectus must contain a report by the directors giving their view about the overall performance of the corporation.