Info on cornerstone investors now required
The Securities and Exchange Commission (SEC) has laid down rules governing cornerstone investors in initial public offerings, requiring issuers to disclose the necessary information on their prospective investors.
In a draft circular, the SEC said issuers must make sure that cornerstone investors are not provided with any material information beyond what is contained in the company’s final prospectus.
Cornerstone investors refer to investors who agree in advance to subscribe in a forthcoming IPO. They are usually brought into the process ahead of the formal book-building period.
The SEC defines a cornerstone investor as an investor in the IPO of a registrant’s shares to whom offer shares are preferentially placed with a guaranteed allocation at the final offer price, provided that the final offer price is within the purchase price range preferred by the cornerstone investor and agreed with the issuer.
Furthermore, the SEC is requiring issuers to disclose information on cornerstone investors and the type of securities proposed to be issued to them, as well as the price applied to cornerstone investors.
In the draft circular, the SEC required the following: cornerstone investors shall be identified in the final prospectus; a cornerstone investor’s placing must be at IPO price; the IPO shares placed is subject to a lock-up for a period of 30 days starting from listing date; and each cornerstone investor may have representation in the board of the registered issuer provided it owns the minimum required shares for election.
The SEC is also requiring issuers and cornerstone investors to enter into investment agreements.
The allocation to a cornerstone investor shall be guaranteed in a cornerstone agreement which must be signed at the latest prior to the submission of the issuer ’s preliminary prospectus to the Commission, the SEC said in the draft circular that has been released to the public for comments.
The cornerstone investor shall firmly commit to purchase the shares, provided that the final price falls within the preferred range.
“These cornerstone investment agreements shall form part of the material contracts in the issuer’s registration statement required to be submitted to the SEC,” the SEC said.
The SEC issued the circular as it recognized that cornerstone investors have been shown to stimulate investor demand in an IPO. In some maiden listings, cornerstone investors also lend credibility to the company.
“In the same light, having cornerstone investors in an IPO are seen to boost confidence and deliver a positive signal to the market. Their participation not only promotes the success of the IPO, but also upholds a degree of confidence in the stability of the company’s share price,” the SEC said.