Editor’s note: This is general educational information about how South African law frames the pricing of a new listing, not investment advice, and it does not describe any particular transaction. It is based on the official documents listed at the end.

A bookbuild is a private conversation with a public consequence. Institutions tell the bank what they will pay and how much they will take, the bank builds a demand curve, and a price comes out of it. South African law does not regulate that conversation directly. It regulates who may be in it, what may be said while it is happening, and what the resulting price has to be justified against in writing.

Who may be shown the book

The gate is section 96 of the Companies Act 71 of 2008, which lists the circumstances in which an offer is not an offer to the public and therefore does not drag the prospectus regime with it. The first category is defined by the identity of the addressee. An offer made only to persons whose ordinary business, or part of whose ordinary business, is to deal in securities, whether as principals or agents, is outside the public offer definition.

The list is specific. An offer made only to the Public Investment Corporation as defined in the Public Investment Corporation Act, 2004 is also outside it, as is one made only to a person or entity regulated by the Reserve Bank, to an authorised financial services provider under the Financial Advisory and Intermediary Services Act, 2002, to a financial institution as defined in the Financial Services Board Act, 1990, or to a wholly-owned subsidiary of one of those acting as an authorised portfolio manager for a pension fund registered under the Pension Funds Act, 1956, or as manager for a collective investment scheme registered under the Collective Investment Schemes Control Act, 2002.

The second category is defined by size. An offer is not an offer to the public if the total contemplated acquisition cost of the securities, for any single addressee acting as principal, is at or above a prescribed amount, and the Minister may prescribe a value of not less than R100 000 for that purpose. A ticket large enough removes the offer from the retail regime regardless of who is taking it.

A third route exists for small private placements and it is drawn very tightly. A series of written subscription offers falls outside the public offer definition only if no offer in the series is accompanied by or made by means of an advertisement, no selling expenses are incurred, the issue under any one offer is finalised within six months of the date the offer was first made, the series in aggregate is accepted by a maximum of fifty persons acting as principals, the aggregate subscription price does not exceed the prescribed amount, and no similar offer has been made by the company within a prescribed period, which must not be less than six months.

None of this survives an initial public offering. Section 99(2) is unqualified: a person must not make an initial public offering unless the offer is accompanied by a registered prospectus. The private phase can price the deal; it cannot replace the document.

What the price has to be justified against

The prospectus then forces the pricing into the open in a specific way. Under the Companies Regulations, 2011, gazetted on 26 April 2011, regulation 72 requires the prospectus to set out the class of securities, the number offered, the issue price, particulars of any security given and the other conditions of the offer. Where the company issued any securities during the 3 years immediately preceding the date of the prospectus, it must state the dates of issue, the price at which they were issued, and the reasons for any differentiation between those prices and the issue price now being offered. Where any of those earlier issues carried a premium, the prospectus must state the dates, the reasons for the premium, the reasons for any differentiation between premiums, and how each premium was dealt with.

Regulation 70 attaches the price to a use. Every prospectus must state the purpose of the offer, giving reasons why it is considered necessary for the company to raise the amount sought, and where that amount exceeds the minimum subscription, the reasons for the difference. Regulation 74 requires the directors to state whether, in their opinion, the issued capital of the company, including the minimum amount to be raised, is adequate for the business of the company and any subsidiary for at least 12 months after the date of the prospectus, and if not, to set out the extent of the inadequacy and how the shortfall is to be financed.

What may be said while the book is open

Communications during the marketing period are governed rather than free. Section 98 allows an offer to the public to be drawn to attention by advertisement, but the advertisement must clearly state that it is not a prospectus and indicate where and how a copy of the full registered prospectus may be obtained. It must contain no untrue statement and must not, by express statement, omission or reasonable implication, mislead a reader into believing it is a prospectus or as to any material particular addressed in the prospectus. It is subject to sections 102 to 111 read with contextual changes. An advertisement that omits the required statements is regarded as having been intended to be a prospectus issued by whoever published it, despite any statement in it to the contrary.

The definition of an untrue statement reaches silence. An omission from a prospectus or written statement of any matter that, in the context, is calculated to mislead by omission is itself the making of an untrue statement, whether or not the Act required the matter to be included. Contracting out is barred: a provision of an agreement is void to the extent that it requires an applicant to waive compliance with the chapter, or purports to fix an applicant with notice of any agreement, document or matter not specifically referred to in the prospectus.

Section 104 puts the liability on named people. Where securities are offered to the public under a prospectus, every person who becomes a director between the issue of the prospectus and the first shareholders meeting at which directors are elected, every person who consented to be named as a director or as having agreed to become one, every promoter, and every person who authorised the issue of the prospectus or made the offer, is liable to compensate anyone who acquired securities on the faith of the prospectus for loss caused by an untrue statement in it or in any report or memorandum on its face, issued with it, or incorporated by reference. The defences are narrow and mostly turn on having had reasonable grounds to believe the statement was true up to the time of allotment.

Section 103 then freezes the deal. Within one year after the date of filing a prospectus, a company must not vary, or agree to vary, any material term of an agreement referred to in the prospectus other than in the ordinary course of business, unless the variation was contemplated and set out in the prospectus or is authorised or ratified by ordinary resolution at a general shareholders meeting.

Analysis: the book sets the price, the document sets the accountability

The two halves do different work, and confusing them is the common error. The bookbuild produces a number from a closed set of professional buyers whom the Act excludes from the public offer definition because their ordinary business is dealing in securities or because they are writing a cheque above the prescribed threshold. Nothing requires that process to be disclosed, and nothing requires the price to be any particular relationship to demand.

The prospectus is where the number becomes accountable. Regulation 72’s three year price history does work that is easy to overlook, because it requires the company to state in writing the reasons for any difference between the earlier issue prices and the price now being asked. Read alongside regulation 70’s statement of purpose and the reasons for any gap between the amount sought and the minimum subscription, it produces a reconstruction of the issuer’s own reasoning that the bookbuild itself never reveals.

The oversight sits one level up rather than on the transaction. Under section 11 of the Financial Markets Act, 2012, an exchange must make listing requirements prescribing the standards of conduct and the standards of disclosure that issuers, their directors, officers and agents must meet, backed by penalties including a fine not exceeding R7.5 million and suspension or termination of a listing. The Financial Sector Conduct Authority in turn regulates and supervises market conduct, with a mandate under section 57 of the Financial Sector Regulation Act, No. 9 of 2017, to support the efficiency and integrity of the financial system and protect financial customers.

What the framework establishes is a written record against which the price can be tested and named people who answer for it. What it does not establish is a fair price, or any right to know how the book was built. A reader trying to understand a listing price should start with the earlier issue prices and the stated reasons for any difference, then the purpose of the offer, then the directors’ capital adequacy statement, and treat the absence of any explanation for a change in price as the disclosure that it is.