CAPITAL RAISING THROUGH EQUITY BEYOND THE STOCK EXCHANGE

In the dynamic world of business, access to capital is the lifeblood of growth and innovation. While traditional bank loans have long been the go-to avenue for financing (both short term and long term), the realm of public offers provides a wealth of opportunities for businesses seeking to raise long term capital, expand their reach and tap into a broader pool of investors.

As the Capital Markets Authority of Uganda (CMA Uganda), we are committed to fostering a vibrant and inclusive capital market that empowers businesses to fuel their ambitions. Understanding the nuances of public offers is crucial for businesses to make informed decisions that align with their strategic goals and risk appetite.

Public Offer of Equities without Listing (POWL)

Companies can raise capital through a public offer of equities without a stock exchange listing. This method, often employed by businesses seeking relatively small amounts of capital (UGX 2 billion to UGX 10 billion), involves offering shares or other equities to the public without listing. Companies can take 2-3 years before listing to address the issue of liquidity as they take time to meet listing requirements dependent on shareholder needs and requirements.

Advantages of a Public Offer Without Listing (POWL)

Lower costs: POWLs typically have lower costs than IPOs because there is no need to pay listing fees associated with listing on a stock exchange.

Greater flexibility: POWLs offer more flexibility than IPOs because there are fewer regulatory requirements. This means that companies can tailor the POWL to meet their specific needs.

No lock-up period: POWLs do not have a lock-up period, which means that existing shareholders are not restricted from selling their shares immediately after the offering.

Disadvantages of a POWL:

Limited liquidity: POWLs typically have limited liquidity because the shares are not traded on a stock exchange. This can make it difficult for shareholders to sell their shares.

Reduced visibility: POWLs receive less visibility than listings because they are not listed on a stock exchange. This can make it more difficult for companies to attract investors.

• Public Offer of Equities Followed by Listing

Companies can opt to combine the advantages of a public offering with the long-term benefits of a listing. A public offer of equities followed by listing is a method of raising capital by selling shares to the public and then listing the shares on a stock exchange. This method is often favored by companies that want to raise a significant amount of capital and have a long-term growth strategy. This strategy allows companies to tap into a broader investor base while gradually transitioning to the rigors of a listed entity.

Advantages of a public offer followed by listing:

Access to a broader investor base: Listing on a stock exchange gives companies access to a much broader investor base than a POWL. This can help companies raise more capital.

Increased visibility: Listing on a stock exchange increases a company's visibility, which can make it easier to attract new investors and customers.

Enhanced credibility: Listing on a stock exchange gives companies a stamp of approval, which can enhance their credibility and make them more attractive to investors and partners.

Disadvantages of a public offer followed by listing:

Higher costs: Public offerings followed by listing typically have higher costs than POWLs because of listing fees.

Increased regulatory requirements: Publicly traded companies are subject to more stringent regulatory requirements than privately held companies. This can add to the costs of compliance and make it more difficult for companies to make quick decisions.

Lock-up period: Publicly traded companies typically have a lock-up period, which means that original shareholders are restricted from selling their shares for a certain period of time after the offering.

Which method is right for you?

The best method for raising capital through a public offer of equities will depend on the specific needs of the company. POWLs are a good option for companies that want to raise a small amount of capital quickly and cheaply. Public offerings followed by listing are a good option for companies that want to raise a significant amount of capital and have a long-term growth strategy.

Here is a table that summarizes the key differences between POWLs and public offerings followed by listing:

Feature	POWL	Public offering followed by listing
Costs (Fundraising)	Lower	Higher
Liquidity	Limited	Greater
Visibility	Reduced	Increased
Flexibility in Regulatory requirements	Fewer	More
Lock-up period	No	Yes

Key Success Factors to consider while raising capital through equity beyond the stock exchange

To effectively navigate the world of public fundraising and secure the necessary capital to propel their ventures forward, businesses must carefully consider the following key success factors:

1. Assure Investors of Sustained Profitability and Consistent ROI

Potential investors seek assurance that the business they are considering investing in has a proven track record of profitability and is well-positioned to generate consistent returns on their investment. Businesses should demonstrate a clear understanding of their financial position, historical performance, and future growth projections, emphasizing their ability to consistently deliver returns exceeding 20%.

2. Establish Certainty of Revenue Sources

Investors are drawn to businesses with clear and reliable revenue streams. Businesses should provide evidence of existing or prospective supply orders, contracts, or customer bases that provide a solid foundation for their financial projections. This instills confidence in investors that the business has a predictable path to generating revenue and achieving its financial goals.

3. Implement Trusted Financial Reporting Systems

Transparency and accountability are essential for building investor trust. Businesses must maintain robust and transparent financial reporting systems that adhere to internationally recognized accounting standards. This ensures that financial information is accurate, reliable, and readily available to investors, enabling them to make informed decisions based on sound financial data.

4. Demonstrate the Quality of Management

The strength of a business's leadership team is a critical factor in determining its investment potential. Investors seek businesses led by experienced, knowledgeable, and passionate individuals with a proven track record of success. Businesses should highlight the expertise, skills, and accomplishments of their management team, demonstrating their ability to effectively guide the company towards achieving its strategic objectives.

5. Assure Compliance with Regulatory Frameworks

Businesses must operate within the confines of applicable laws and regulations to maintain investor confidence and protect their interests. Businesses should emphasize their commitment to compliance with the Capital Markets regulatory framework, Penal Code, and Companies Act, demonstrating their responsible conduct and adherence to ethical business practices.

CMA Uganda's Role in Empowering Businesses

CMA Uganda plays a pivotal role in fostering a transparent and well-regulated capital market that empowers businesses to explore public capital raising options with confidence. Through issuer education, regulatory oversight, and market development initiatives, we strive to create an environment conducive to informed decision-making and sustainable growth for Ugandan businesses.

As businesses embark on their journey to raise capital from the public, it is essential to carefully evaluate their options, considering factors such as financial objectives, risk tolerance, and regulatory requirements. CMA Uganda stands ready to provide guidance and support throughout this process, ensuring that businesses make informed choices that align with their long-term success. It is important that businesses seeking to raise capital follow the correct regulatory procedures as provided by the CMA.

By carefully considering the key success factors stated above, businesses can effectively navigate the public fundraising landscape and secure the capital necessary to fuel their growth and innovation. The CMA Uganda stands committed to supporting businesses throughout this process, providing guidance, and fostering a conducive environment for businesses to raise capital and achieve their full potential.

For any more inquiries on capital raising, please reach out to [email protected] , [email protected] or call +256-414-342788/91 , +256-312-264950/1/5

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