The Prospectus Guidelines (“Guidelines”) are issued by the Securities Commission Malaysia (“SC”) under section 377 of the Capital Markets and Services Act 2007 to set out the additional disclosure requirements in respect of a prospectus and the information to be disclosed in an abridged prospectus. The SC revised the Guidelines for the third time on 30 November 2017. The revisions has come into effect on 1 March 2018.

The key revisions to the Guidelines in relation to equity offering include:

 General

• guidance is provided to set out SC’s expectations in complying with the disclosure requirements; and
• a person who is involved in the preparation of the prospectus must immediately inform the SC if he is aware of any significant change that will affect the contents of the prospectus.

 Introduction

• no securities will be allotted and issued based on the prospectus after six months from the date of the prospectus (as opposed to 12 months under the current Guidelines);
• removal of the existing requirement for directors to disclose a statement whether the directors reserved the right to extend the closing date of the offering;
• the salient terms of engagement and scope of work of any person who has been appointed to provide financial advice in relation to a corporate proposal must be disclosed; and
• removal of the existing requirement to disclose the list of authorised depository institutions.

Prospectus Summary

• a new Chapter 2 is inserted to the revised Guidelines to prescribe the contents of prospectus summary which must not exceed 10 pages.

Information on Promoters, Substantial Shareholders, Directors, Key Senior Management and Key Technical Personnel

• enhanced requirement on the disclosure of a director’s actual remuneration and material benefits in-kind on a named basis and key senior management’s remuneration and material benefits in-kind in the bands of RM50,000, for the last and current financial year.

Information on the Corporation

• enhanced requirement on the disclosure of the corporation’s material subsidiaries, joint ventures and associates companies;
• enhanced requirement on the disclosure of the corporation’s top five major customers and top five major suppliers for each financial year for the period covered by the historical financial information as disclosed in the prospectus (as opposed to the existing requirements for the disclosure of all major customers and major suppliers); and
• removal of the existing requirement to disclose the discussion of the industry in which the corporation operates. However, where a statement in the prospectus relates to the corporation’s competitive position in industry, a discussion on the industry may be provided and guidance is provided to set out the SC’s expectations on contents of the industry overview, including that it should be concise and generally be no more than 10 pages.

Financial Information

• requirement on the disclosure of any dividend restrictions; and
• requirement on the disclosure of information regarding taxes, including withholding provisions that may be applicable to shareholders.

Directors’ Report

• removal of the requirement to disclose the Directors’ Report

Application for Shares

• removal of the requirements on prescribing the contents of share application form.

Risk Factors

• any disclaimer statement should not be so wide so as to prevent risk factors from providing meaningful cautionary statement to investors. Hence, the following statement should be avoided:

“The risks and investment considerations set out below are not an exhaustive or exclusive list of the challenges that we currently faced or that may develop in future. Additional risks, whether known or unknown, may in the future have a material adverse effect on us or our shares”

• risk factors should be specific and tailored to the corporation’s risks or uncertainties. For examples,

(a) when disclosing the corporation’s business overview, it would not be appropriate to provide a general statement that “the corporation is dependent on a major customer”. An adequate risk disclosure should include the revenue contribution by the major customer, its name, and its relationship with the corporation, level of sales and how the loss of such major customer would have a material adverse effect on the corporation;

(b) if the corporation is dependent on a major supplier, it would not be appropriate to provide a general statement that “the corporation is dependent on a major supplier” without details of the name of the major supplier, level of purchases, length of relationship with the corporation and how the loss of such major supplier would have a material adverse effect on the corporation; and

(c) where the corporation is dependent on licences or permits, it would not be appropriate to have a risk factor on possible non-renewal of such licences or permits unless there is a genuine and specific reason for such a risk.

Related Party Transactions

The revised Guidelines provide guidance on the “nature” and “extent” of disclosure of a related party transaction:

• A disclosure on the “nature” of a related party transaction includes:

(a) relationship between the corporation and the related party;

(b) type of transaction such as supply of goods and services, rental and sales;

(c) where the transaction is for an agreed period of time, the expiry date of such arrangement; and

(d) where the expiry date of such arrangement occurs after the listing date, the salient terms of the arrangement including pricing, terms of renewal, termination or withdrawal rights and penalty clauses.

• A disclosure on the “extent” of a related party transaction includes:

(a) the amount of the transaction; and

(b) the percentage to which the transaction forms part of revenue, cost of sales, net assets or liabilities or profit after tax of the corporation, where relevant.

Conflict of Interest

The following situation would generally not be considered to be a conflict of interest in respect of a substantial shareholder:

• the substantial shareholder’s policy or objective is only for investment purpose and its role and action is limited to formulating corporate or business strategies for its portfolio of investee companies which do not create a conflict with the corporation’s business or operations. In addition, the substantial shareholder does not participate in the day-to-day management or operations of its investee companies; or
• where the substantial shareholder’s business may potentially compete with the corporation, there is a clear delineation of business, such as differences in target customer segments, geographical presence, products or services sold or separate management teams.

The information in this article is intended only to provide general information and does not constitute legal opinion or professional advice.