Rights issues and secondary offerings allow ISX-listed companies to raise additional capital after their initial listing. The transactions follow a framework similar to the IPO process but with elements adjusted for the existing listed position. The Iraq Securities Commission (ISC) administers the offering approvals, with the Iraq Stock Exchange (ISX) handling the listing implications. For listed companies, the ability to access additional capital is one of the principal advantages of listing, and effective execution of secondary capital raises is part of how listed companies realise that value.
Forms of Secondary Capital Raise
Listed companies can raise additional equity capital through several mechanisms, including rights issues offering new shares to existing shareholders proportionate to their holdings, typically at a discount to market price, public offerings open to all investors, with existing shareholders participating on the same terms as new investors, accelerated bookbuild offerings completed within compressed timeframes, typically with institutional investors, specific placements to identified investors with regulatory approval, combinations of these mechanisms supporting specific commercial objectives, and Where applicable, share placements supporting acquisitions paid in shares. Each mechanism has different implications for existing shareholders, timing, market disruption, and execution risk.
Pre-emption Rights
Existing shareholders typically have pre-emption rights, the right to subscribe to new shares proportionate to their existing holdings before shares are offered to outside parties. Pre-emption protects existing shareholders against dilution. The Companies Law framework provides default pre-emption arrangements, with waiver possible in defined circumstances supporting issuance to specific parties outside the pre-emption framework. Pre-emption waiver typically requires qualified majority approval and proper justification.
Rights Issue Procedure
Rights issues follow a defined procedure:
- Board recommendation of the rights issue including terms.
- Where applicable, shareholder approval through the general assembly.
- Preparation of the offering documentation including prospectus or equivalent.
- Iraq Securities Commission approval of the offering documents.
- Setting of the record date determining which shareholders receive rights.
- Distribution of rights to existing shareholders.
- Trading period during which rights may be exercised or traded.
- Subscription by rights holders to new shares.
- Allocation of unsubscribed shares through prescribed procedures.
- Issuance of new shares and registration of the capital increase.
- Admission of new shares to trading on the Iraq Stock Exchange.
Each stage has its own timing and procedural requirements.
Pricing
Rights issue pricing involves substantial commercial judgment. Considerations include the discount to market price supporting participation, the dilutive effect on existing shareholders who do not participate, the company’s capital requirement and financing alternatives, market conditions affecting investor appetite, and signaling effects of the chosen discount. The pricing decision is typically supported by financial adviser input and significantly affects the success of the issue and post-issue market position.
ISC Approval
Secondary offerings engage Iraq Securities Commission approval similar to IPO approval. The approval process focuses on the offering documents, the disclosure regarding the issuer and the use of proceeds, the procedural framework supporting fair treatment of investors, and compliance with applicable regulations. The process is typically less elaborate than for an IPO because the issuer is already known to the market, but it remains substantive and requires proper preparation.
Market Considerations
Secondary offerings affect the market for the issuer’s shares. Common considerations include:
- Pre-announcement share price behavior and the risk of information leakage.
- Trading dynamics during the offering period including potential pressure from rights trading.
- Allocation considerations affecting how shares are distributed.
- Post-issuance dilution and its market consequences.
- Communication with the market supporting orderly response to the offering.
- Coordination with broader corporate communications affecting the same period.
Market handling is part of effective execution alongside the procedural compliance.
Underwriting
Substantial secondary offerings often involve underwriting arrangements with financial institutions supporting the success of the offering. Underwriters may guarantee subscription of unsubscribed shares, support marketing of the offering, provide commitments at defined fee structures, and contribute their distribution capability to support broad placement. Underwriting arrangements should be structured deliberately, balancing the certainty they provide against their cost and the potential conflicts they introduce.
How We Can Help
Etihad Law Firm advises listed companies on secondary capital raise matters, strategic structuring, documentation preparation, engagement with the Iraq Securities Commission and the Iraq Stock Exchange, pre-emption arrangements, underwriting documentation, market communications, and the integration of capital raises with broader corporate and financial strategy. We work alongside financial advisers and underwriters on substantial offerings.