The Securities and Exchange Commission (SEC) has issued guidelines for cornerstone investors in initial public offerings (IPOs), in line with efforts to boost investor participation in the capital market.
The Commission on April 11 issued SEC Memorandum Circular No. 8, Series of 2024, providing for the Guidelines for Cornerstone Investors in Initial Public Offerings.
A cornerstone investor is one with whom a registrant’s offer shares are preferentially placed, with a guaranteed allocation at the final offer price, provided that the final offer price is within the offer price range preferred by the cornerstone investor and agreed with the issuer.
Such investors have been shown to stimulate investor demand in an IPO, and have been seen to boost confidence and deliver a positive signal to the market.
Under the guidelines, cornerstone investment agreements shall form part of the material contracts in an issuer’s registration statement required to be submitted to the SEC.
The agreement shall include the allocation guaranteed to a cornerstone investor, which must be signed on or prior to the pricing event of the IPO. The cornerstone investor shall firmly commit to purchase the shares, provided that the final offer price falls within the preferred range as agreed upon.
The issuer must likewise disclose in its final prospectus certain details about its cornerstone investors, including the number of participating cornerstone investors and their respective profile descriptions; the number and type of securities proposed to be issued or offered to such investors; and other information relevant to the investment.
A cornerstone investor may also have representation in the board of the registered issuer, provided that it owns only the minimum required number of shares for election.
Information provided to such investors will be the same as what is made available to the public or those contained in the final prospectus.
