Keith Kalyegira CEO of CMA
EC Village Verification

The role of the Capital Markets Authority (CMA) in approving prospectuses for the offer of securities to the public is enshrined in Section 5 (A) of the Capital Markets Authority Act. All locally listed companies on Uganda Securities Exchange (USE) should be approved by CMA.

“It is an offense to offer securities to the public or any section of the public in Uganda without approval from the CMA. The purpose of this approval is to ensure prospectuses disclose all the key information that investors or their advisors need to rely on in making an investment decision,” CMA says in a statement.

The approval does not assess the merits of the investment, and should therefore not be interpreted as an endorsement, by the Authority, in undertaking this investment. An approval is in fact a fulfilment of CMA’s key mandate of protecting investors as enshrined in the CMA Act. Investors must make their own informed decision before undertaking any investment in the capital markets.

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A prospectus ought to be prepared by an advisor authorized by CMA because of the experience and skill they have in this task. The law specifically makes this obligatory for someone ‘carrying on the business of organizing the promotion and floatation of securities to the public on behalf of the issuer’ to have been authorized by the Authority.

Considering that their professional obligation and reputation is at stake, and for the practical reason that an issuer may not have the ability and time to undertake this task properly, such advisor must take this responsibility seriously.

CMA says the information to be contained in a prospectus and the fees to be paid upon lodgment of a prospectus are detailed in the Capital Markets Authority (Prospectus Requirements) Regulations, which are also to ensure clarity and consistency in the review of prospectuses.

The payment of fees to the regulator and the exchange on which the securities will be listed, is a normal practice the world over, and is enshrined in law.

Companies issue prospectuses to raise money to refinance debt, payout majority shareholders, or to finance growth. The review by the Authority does not include a discussion on the merits of the offer. The prospectus regulations do not in any way prescribe the manner in which the proceeds are applied, other than as stated in the prospectus issued to the public. The key point is that there should be a full disclosure of use of proceeds, against which an issuer can be held to account if the need arises.

When making investment decisions, investors (individual or institutional) should invariably consider the following factors: the long term growth prospects of the company, its ability to service debt as well as pay dividends, the return on investment and interest in the case of debt offers.

These variables should be compared with other competing investment opportunities like the return on investment from residential or commercial real estate, strategically located undeveloped land, government securities, trade, agriculture, and other available securities listed on a securities exchange.

It is therefore important that a medium to long term financial analysis is carried out, with the guidance of a finance professional (preferably one licensed or approved by CMA) knowledgeable on the different investment analysis models.

“We would once again encourage the public to take a medium to long term view when investing their savings in financial assets, to desist from investing with or through anyone who is not licensed or approved by the CMA or any securities market regulator, and to inform the CMA in case one becomes aware of an unlicensed person offering securities without requisite approval,” CMA said.