An Initial Public Offering (IPO) is the process through which a company offers its shares to the public for the first time, thereby becoming a publicly traded company. Going public through an IPO can provide a company with access to a new source of capital from public investors, which can be used for expansion, research and development, debt reduction, and for other ends. An IPO can increase a company’s visibility, reputation, and credibility in the market, thus attracting both local and international investors.
What is considered a public offering?
Pursuant to Article 3 of the RA Law “On the Securities Market” (hereinafter referred to as the “Law”), a public offer of securities is considered an offer of securities addressed to more than 100 persons who are not qualified investors or to an indefinite number of persons.
The Law defines who are considered qualified investors, and that list includes, inter alia, the Republic of Armenia, municipalities of the Republic of Armenia, the Central Bank, foreign countries, local self-government bodies of foreign countries, central banks of foreign countries, investment companies, branches of foreign investment companies, banks, credit organizations, insurance companies, investment, pension funds and investment fund managers, international financial organizations, as well as the person who will be considered a qualified investor by law or by the normative legal acts of the Central Bank, based on the knowledge and the experience of the given person in the financial field, the ability to hire professionals with such knowledge and experience, the size of his/her net assets or the size of the assets under his/her management and other such criteria.
The securities market in the Republic of Armenia consists of a regulated securities market and an unregulated sector, and companies may make a public offering in each of these. Considering that the public offer of securities in the regulated market is subject to stricter requirements, which to some extent include the requirements for making a public offer in the unregulated market, therefore, within the framework of this article, we will take a look only at public offers in the regulated market.
What are the bodies/persons involved in the initial public offering process in Armenia?
The main body regulating the financial sector in Armenia is the Central Bank of Armenia, which is responsible for the control of the securities markets.
There is one securities market in the Republic of Armenia, the operator of which is “Armenia Stock Exchange” OJSC. As a regulated market, the stock exchange allows trading in the market only those securities whose issuers meet the requirements set by the law, the normative legal acts of the Central Bank and the rules of the stock exchange, and which are allowed to trade (listed on the exchange) in accordance with the latter’s rules.
The issuer can carry out the public offering of securities independently or through an underwriter. The underwriter is the person who has the right to provide that type of investment service defined by law.
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Conducting an IPO is a complex and resource-intensive process, involving legal, financial, regulatory, and market considerations. We will be happy to assist you in this process by drafting necessary documentation, communication with relevant state authorities and specialized entities, ensuring the process runs smoothly.
What are the requirements for listed securities?
Securities that are the subject of a transaction on the stock exchange shall meet the following minimum standards:
- Non-paper securities, subject to free circulation,
- Accounting of rights to them should be carried out by the Central Depository or the Central Bank,
- A prospectus has been published regarding them or there is a legal condition/ground for not publishing a prospectus,
- In the case of bonds, there is a requirement on the minimum nominal value: particularly, the total nominal value of bonds of the same class must be at least AMD 100,000,000.
What are the requirements for issuers of listed securities?
Among other requirements, the issuer of securities listed on the stock exchange must meet the following requirements:
- The economic and legal status of the issuer should not endanger the interests of the investors. In particular, the listing of the issuer’s securities on the stock exchange may be rejected if the given issuer is in the process of liquidation or bankruptcy, does not have sufficient funds to fulfil its obligations or there are other circumstances that threaten the realization of the rights reserved by the given securities.
- The issuer must have an official website and is obliged to, at least in Armenian, disclose the information related to itself and the securities issued by it, at least as provided by the Law, the Central Bank’s decisions and the rules of the stock exchange operator.
- The issuer must have a board of directors or supervisory board consisting of at least three members and must adopt and apply the code of corporate governance approved by the RA Government or equivalent or stricter corporate governance norms.
What are the requirements for the prospectus?
Without publication of a prospectus meeting the requirements of the Law, it is prohibited to make a public offer of securities. Depending on to whom the public offering is being made, the unit or total value of the securities, and other circumstances, the requirement to publish a prospectus may not apply to a particular case of a public offering of securities.
The prospectus shall contain complete information about the issuer and the offered securities, which shall be sufficient for the investor to make a reasonable assessment of the issuer’s assets and liabilities, financial condition, income and expenses, business prospects, risks associated with it, as well as the rights deriving from these securities.
The prospectus, its additions, which are registered by the Central Bank, as well as other information related to the public offer and the issuer, are published the Republic of Armenia in Armenian. The prospectus cannot be published if it has not been registered at the Central Bank in accordance with the Law and the normative legal acts of the Central Bank.
The Central Bank is not responsible for the accuracy or authenticity of the information included in the prospectus. The prospectus must include a statement that its registration by the Central Bank does not certify the security of the investment, the accuracy or authenticity of the information provided. That provision, in the wording approved by the Central Bank, must be inserted at the beginning of the prospectus in a visible place.
The period of application of the prospectus is the period following the publication of the prospectus, during which the public offer is considered valid, and it is defined as 12 months. After the expiration of the period of application of the prospectus, it is prohibited to make a public offer of securities based on that prospectus.
It’s important to note that conducting an IPO is a complex and resource-intensive process, involving legal, financial, regulatory, and market considerations. Before deciding to pursue an IPO in Armenia or any other jurisdiction, it’s advisable to thoroughly assess the potential benefits and challenges, consult with financial and legal experts, and conduct a detailed analysis of the company’s readiness for going public. We will be happy to assist you in this process by drafting necessary documentation, communication with relevant state authorities and specialized entities, ensuring the process runs smoothly.
