The general methods by which a Company’s securities can be offered to the public in Nigeria are through; Direct offer to the public, Offer for sale, Placing, Right issue, and Private placement. We shall briefly examine the procedure for private placement in Nigeria.
A private placement is a method of offering shares by a public company that is not quoted on the stock exchange or by a private company. As the name implies, a private placement is a special kind of offer whereby the securities of a company are sold to a specific or pre-arranged buyer(s).
The company involved here could be private or public while the security may be debt or equity. It is worthy of note, however, that private placements by private companies are not under the regulatory purview of the Securities and Exchange Commission, which is the principal regulatory body tasked with the administration and regulation of company securities in Nigeria.
Rule 339 of the Securities and Exchange Rules, defines Private placement to mean the issue of securities by a public company to select persons. Rule 340 subsequently provides for the conditions a public company must fulfill for the approval of the offer by the SEC. it states that;
- No public company shall offer securities by way of private placement without the prior approval of the Commission.
- Private placement by public companies shall be subject to the following conditions:-
- The company shall show evidence of the dire need for fresh funds or technical expertise and shall satisfy the Commission that private placement remains the only viable option to achieving its objective.
- The securities shall not be offered to more than 50 subscribers.
- The resolution of the company authorizing the placement shall be Special as defined in the Companies and Allied Matters Act and shall state the number of shares to be offered and the price.
- The notice of the general meeting authorizing the placement shall be published in two national daily newspapers and evidence of the publications shall be filed with the Commission.
- The aggregate number of shares to be offered through private placement by a public quoted company shall be 30% of its existing issued and paid-up capital prior to the offer: Provided that where the company is ailing, it may offer a higher number of shares, subject to the approval of the Commission.
- The price of the securities of the company, if quoted, shall be on technical suspension during the period of placement.
- The offer shall be for a period as proposed by the issuer and approved by the Commission but not exceeding ten (10) working days: Provided that the Commission may extend the period under special circumstances.
- All subsequent capital raising shall be approved only upon satisfactory account of utilization of previous issue proceeds.
- Private Placements shall not be advertised, mentioned and/or discussed in the print and electronic media. Approval of a private placement may be suspended or withdrawn for violation of this rule. Any Capital Market Operator engaged in an advisory role on the private placement may also be sanctioned.
The Securities and Exchange Commission’s involvement in Private Placement by Private Companies is limited except where the Private Company issues any form of application to be completed on deposit of money, then it will be deemed to be an invitation to the public to acquire shares or deposit money by Section 69 (3) the Investment and Securities Act. With regards to a private placement by private companies, SEC needs not to be informed unless the shares would eventually get into the hands of the public.
For a public company, the procedure for private placement is as follows:
- The Board of Directors of the company passes a resolution to hold a general meeting to authorize the placement and publish a notice of the general meeting in two national daily newspapers.
- Publication of notice of the general meeting authorizing the placement in two national daily newspapers
- The special resolution of the company authorizing the placement and stating the number of shares to be offered and the price is passed by members at the general meeting.
- Ensure compliance with the requirements of Rule 340 SEC Rules.
- Application to SEC for approval to carry out private placement with the following documents attached:
- Evidence of dire need of fresh funds or technical expertise and shall satisfy the Commission that private placement remains the only viable option to achieving its objective.
- Evidence of the notice of the general meeting authorizing the placement published in two national daily newspapers.
- Special resolution of the company authorizing the placement and stating the number of shares to be offered and the price.
- Any other required document by the regulators.
- The offer is made for the prospective subscribers not exceeding fifty (50) persons and for a period not exceeding ten(10) working days or a period approved by the SEC.