Are there specific rules for the private placing of securities? What procedures must be implemented to effect a valid private placing?
The Companies Act provides for the various instances in which the private placement of securities can occur. In a nutshell, a private placement under South African law is any offer for securities that does not constitute an offer to the public in accordance with the Companies Act. Initial public offerings (IPOs) are often done on a private placement basis. The Companies Act only requires public offerings to be accompanied by a prospectus and has no rules or procedures for private placements.
If securities (including debt securities) are intended to be listed on the Johannesburg Stock Exchange (JSE) following a private placement, the Listings Requirements (and in the case of debt securities, the Debt Listings Requirements) set out the specific requirements and documents to be submitted to the JSE by the issuer for the listing of the securities to take place. Typically, if an IPO is done by way of a private placement, a pre-listing statement will be required. The Listings Requirements also include rules that regulate vendor private placings (ie, private placings of shares issued to a vendor of assets to the company, to settle a vendor cash consideration). Privately placed debt securities (whether listed or unlisted) may also need to comply with the CP Regulations and, in the case of a securitisation, the Securitisation Regulations. If an existing issuer issues securities that are more than 50 per cent of its existing securities, revised listings particulars (effectively a new pre-listing statement) are required.Investor information
What information must be made available to potential investors in connection with a private placing of securities?
The disclosure requirements are contractual for private placings. If the private placing coincides with an initial listing of securities, then a pre-listing statement containing the prescribed information will need to be prepared. In a private placing of already listed securities for cash, there are no specific disclosure requirements, other than the obligations to make the necessary announcements on the Stock Exchange News Service.Transfer of placed securities
Do restrictions apply to the transferability of securities acquired in a private placing? And are any mechanisms used to enhance the liquidity of securities sold in a private placing?Restrictions
There are no special rules restricting the transferability of shares acquired in a private placement. This is usually governed by contract.Mechanisms to enhance liquidity
This can be achieved by:
- placing appropriate provisions in the private treaties between the relevant parties;
- utilising the overallotment or ‘greenshoe’ options in the case of price stabilisation of listed securities (permissible in terms of the Listings Requirements or the disclosure requirements); and
- market-making in the case of debt securities (subject to the conditions set out in the CP Regulations) or a secondary listing.