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Offering circulars relating to securities issued by companies

Anthony Coleby

Chapter IX of the Kuwaiti Capital Markets Law’s (CML’s) executive regulations prescribes that no person may offer for public or private subscription any type of securities issued by any company unless this is done by means of an offering circular duly approved by the Capital Markets Authority (CMA) as compliant with the requirements of the chapter.

It is noteworthy that the chapter contains no special treatment for offers by way of private placement to professional or sophisticated investors, whereby a reduced level of disclosure would be acceptable in any offer document.

Such a distinction appears in the preceding chapter (Chapter VIII: Articles 293-368) dealing with the formation and promotion of investment funds and thus, since units in an investment fund are included within the definition of “securities”, an unfortunate inconsistency emerges.

Another conflict between the two chapters lies in Chapter VIII’s setting (in Article 308) of an overarching level of required disclosure – “all necessary information to enable the investor to assess the fund, the fund’s management and the fund’s [financial prospects]”.

An equivalent benchmark is missing from Chapter IX and consequently the power of the CMA under Article 379 to reject an offering circular on grounds that it does not comply with CML or the regulations carries a degree of subjectivity that is undesirable and potentially weakens investor protection. We will return to Chapter VIII in a subsequent briefing.

Otherwise, Chapter IX’s requirements for inclusion in the offering circular as to: the allocation of responsibility for its contents, the securities, the issuer, its executive, business, financial standing and material contracts contain few surprises.

An attempt is made (in Article 375) to ensure disclosure of directors’ interests in the issuer’s shares and contracts along with the terms of directors’ remuneration and also their outside interests but this is done against a legislative background where a standard of corporate governance matching modern international best practice has yet to be adopted.

On a final point, an offering circular will be deemed to have been approved 30 days after it has been submitted to the CMA. It is therefore possible that it may be passed by inertia, notwithstanding that the period for express approval may be extended beyond the 30 days with the agreement of the issuer.

Anthony J Coleby

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