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The draft directive on the ‘public offering and trading of securities’ prohibits the offering, selling, or transferring of securities of any public, listed or quoted entity without registration at the Ethiopian Capital Market Authority.

However, the bill provides exemptions to mandatory registration for securities issued or guaranteed by the federal government. But this exemption does not extend to securities issued by state-owned enterprises. Small offerings with a total amount to be raised by the issuer not exceeding five million birr are also exempt from mandatory registration.

Spanning 139 pages, the directive outlines the stringent requirements that entities must fulfill to be registered on the upcoming stock exchange.

Banks, existing share companies, multilateral agencies, share companies under formation that meet the stringent requirements, and other statutory bodies empowered to issue their own securities are eligible for public offerings on the upcoming stock exchange.

Debt securities must also be denominated in Ethiopian Birr and have a tenure of more than one year.

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In order for existing firms to be listed, they must provide audited financial statements for the preceding three years, as well as conduct a prospectus study, among other requirements. Issuers seeking to offer their securities to the public must also engage the services of an investment bank and underwriters.

An “Emerging Growth Company” is eligible for registration with the authority and listing on the stock market if its total number of assets, as per the last audited financial statement, does not exceed 100 million birr; or if its annual gross revenue is less than 500 million birr; and if its market capitalization does not exceed 500 million birr.

Furthermore, a company that has been listed on a securities exchange for at least three years is permitted to engage in “shelf registration.” However, the total value of the offer under shelf registration must not be less than five billion birr, as specified in the draft directive.

Private placements shall only be conducted through invitations addressed to a predetermined group of investors, not exceeding 50 individuals, according to the directive. The total amount raised in a private placement must not exceed 50 million birr.

Engaging in insider trading, advertising, or trading, selling, or transferring listed securities outside the stock market will also result in severe penalties, including cancellation from the listing process.

Any advertisement pertaining to public offerings or the publication of a prospectus without the approval of the Authority will incur penalties ranging from 500,000 birr to two million birr, among others.

The directive contains provisions on the procedure for offering securities to the public and the orderly conduct of such transactions, which is designed to provide proper protection to investors, create a credible market, and increase investment (participation) in the capital market, according to a statement released by Authority on October 13, 2023.

Its purpose is to provide adequate protection to investors, establish a reputable market, and encourage greater participation in the capital market.

The “Draft Public Offer Directive” mandates that transactions involving the offer or sale of securities be carried out based on comprehensive information. It requires issuers of securities to prepare and obtain the Authority’s approval for a prospectus that discloses essential information about the issuer, its business, its officers, the securities being offered, the use of proceeds from the sale of securities, the associated investment risks, potential benefits, and other pertinent information crucial for making informed investment decisions.

Also, the directive regulates advertisements related to the offer of securities and ongoing disclosure obligations on companies that have issued securities to the public.

Before the Directive is approved and implemented, the Authority intends to conduct a public consultation process to gather feedback and input.

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