Firms wishing to advertise public share offerings are subject to increased scrutiny from the authorities as the government institutions in charge of regulating the media and the upcoming capital market introduce new rules.
A letter from the Ethiopian Media Authority (EMA) disseminated to media houses prohibits them from broadcasting or publishing any public offering advertisements without prior approval from the Ethiopian Capital Market Authority (ECMA).
Previously, businesses wishing to advertise share offerings were only required to present a valid business license to the advertiser.
Although a provision in the capital market proclamation approved mid-2021 obliges any issuer of securities to seek approval from ECMA before making a public offer or advertising for one, the rule has not been enforced as ECMA officials have yet to issue a directive or other legal frameworks that would enable its execution.
However, a letter signed by Yonas Fantaye, head of the advertisement desk at EMA, made its way to media houses earlier this week, prohibiting them from broadcasting or publishing any public offering advertisements before the business offering shares receives due approval from the ECMA.
The EMA notice comes in response to a letter addressed to it by Brook Taye (PhD), head of ECMA, on February 1, 2024.
“Of late, we are seeing new companies amassing huge amounts of money by advertising inaccurate information and confusing the public under the guise of selling shares,” reads Brook’s letter to EMA. “These companies are using the time gap before the new directive comes into effect as an opportunity.”
Brook told the Media Authority his office has issued warnings to firms advertising confusing information, including Flintstone Engineering Plc, which was cautioned to change its “misleading public offering advertisements.”
Heads of the Media Authority notified media houses mid-last week the Authority would take legal action against any breach of the laws under the capital market proclamation.
During a media briefing on Wednesday, Brook disclosed his office is finalizing the preparation of a directive to govern the process of public offerings.
The Authority has conducted the first round of public consultations and incorporated the comments provided, according to the Director-General. He expects a second round of consultations to take place in the near future.
A recent investigation by The Reporter revealed the delay in the approval of this directive has exposed the public to dubious share offerings from new and untested companies.
Among them is Ashewa Technologies S.C., whose advertisements for a 1400 percent return on investment had been making the rounds on national broadcast channels. The company has changed the content of its advertisements following the investigation by The Reporter.
“By any calculation, these companies can’t pay such high profit dividends. This is very unrealistic,” Brook told the media. “We don’t delve into the profitability of the business and advise investors on which businesses they should invest in. Our main task is to make sure an investor has enough information to make an investment decision. If a business wishes to advertise plans for making 100pc profit, we request that business to explain in detail how it is going to make the profit.”
Heads of the Capital Market Authority have also announced plans to begin issuing licenses to businesses looking to get involved in the capital market beginning next week.
No less than 15 kinds of permits, including for investment banking, will be available to applicants, with officials stating the licensing process will take a maximum of 30 days for each application.
Brook disclosed that at least three foreign firms and a number of domestic banks have shown strong desire to apply for investment banking permits.