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Securities and Exchange

Board of India (Issue of


Capital
and Disclosure
Requirements) Regulations,
2009

Gangadass Amula

Applicability
a

public issue;
a rights issue;
a preferential issue;
an issue of bonus shares by a listed
issuer;
a qualified institutions placement by a
listed issuer;
an issue of Indian Depository Receipts.

COMMON CONDITIONS FOR PUBLIC


ISSUES AND RIGHTS ISSUES

No issuer shall make a public issue:

If any of the promoters are debarred from accessing capital


market by SEBI
Promoter of current company is a promoter of debarred company
Issuer of convertible debt instruments is in the list of wilful
defaulters published by RBI or they default in payment of
principal or interest on such debt instruments for a period of 6
months or more
Unless it has made an application to one of the recognised stock
exchanges.
Unless it has entered into an agreement with a depository for
demat of shares
Unless all partly paid up shares are fully paid up or fortefied

COMMON CONDITIONS FOR PUBLIC


ISSUES AND RIGHTS ISSUES
Appointment of merchant banker and other intermediaries
The issuer to appoint one or more merchant banker at least one of
whom would be a lead merchant banker.
Intermediaries who are registered with SEBI only to be appointed by
lead banker
If more than one merchant banker is appointed then the rights and
obligations or each merchant banker have to be disclosed in schedule I
The lead banker to assess the capability of the intermediaries and then
confirm their appointment
The issuer to enter into an agreement with the lead banker as specified
in schedule II and with other intermediaries as required by respective
regulations
Issuer to appoint bankers at all collection centers
Issuer to appoint a registrar who has connectivity with depositories

COMMON CONDITIONS FOR PUBLIC


ISSUES AND RIGHTS ISSUES
The

issuer to issue draft document if the public


issue or the right issue is more than Rs. 50 Lakhs
It has to file the draft to SEBI 30 days prior to the
issue
SEBI may specify changes to the draft
The issuer has to comply with the changes
suggested and incorporate the same in the
prospectus
The issuer can file the prospectus with the
Registrar of Companies and stock exchanges

COMMON CONDITIONS FOR PUBLIC


ISSUES AND RIGHTS ISSUES
The

issuer has to take in-principal approval from the


stock exchanges where it wants its shares to be listed
Documents to be submitted by lead banker

Agreement copy between issuer and banker


Inter-per se responsibilities of all bankers
A due diligence certificate
All changes suggested by SEBI have been incorporated
CA certificate stating promoter capital has been received
PAN and passport numbers of promoters

The

offer document has to be made public at least 21


days before the issue

Fast Track issue


The

issuer has listed its shares at least 3 years prior


Avg market cap is more than 5000 crores
Annualised trading turnover is 2% of weighted avg
number of shares listed in during last 6 months
The issuer redressed 95% of investor complaints
Issuer complied with equity listing agreement for past 3
years
Auditors qualifications does not exceed 5% of net profit or
loss
No show cause notices issued for prosecution
Entire shareholding of the promoter group is in demat
form

Opening of an issue
The

issuer has to issue securities within a


period of twelve months from SEBI approval
Issuer has to appoint underwriters for the
public issue except for book building process
The minimum subscription to an issue would
not be less than 90% of the issue
Non receipt of minimum subscription including
underwriter subscription then the issuer has to
refund all the application money within
seventy days

Opening of an issue
In

case of over subscription the issuer can issue


only to the extent the shares offered to pubic
If the issue is more than 500 crores then the
issuer may appoint a public financial institution
as monitoring agency
The monitoring agency will issue report to the
issuer every six months on usage of money
The issuer has to refund the application money
received within 15 days of close of issue in case
of non allocation of shares

Addl requirements for


convertible debt instruments
The issuer has to obtain credit rating from one or more
credit rating agencies
Appointed one or more debenture trustees
It has created debenture redemption reserve
If the issuer creates a charge on any asset or security while
issuing debt instruments:

Such assets should be sufficient to discharge the principal


amount of debt
Such assets are free from any encumbrance
Consent of financial institution to be obtained if a security is
already created on assets with them

The issuer has to redeem the convertible debt instruments


as per terms mentioned in offer doc

Roll over of non convertible portion


of partly convertible instruments

The non convertible portion if exceeding 50 lakhs


may be rolled over without change in interest rate:

75% of holders approve the rollover by postal ballot


The issuer has sent to all holders, certificate on cash
flow and comments on liquidity position of the issuer
The issuer undertaken to redeem the non convertible
portion for holders who have not agreed for the roll
over
Credit rating obtained from the credit rating agency
and intimated to all the holders

Conversion of optionally
convertible debt instruments
The issuer shall not convert the optionally
convertible debt instruments unless agreed upon by
the holders
Where the convertible portion exceeds 50 lakhs and
the issuer has not determined the conversion price
at the time of issue, then option to be given to
holder of not converting the debt instruments
If the holder do not exercise to convert the non
convertible portion, then the issuer has to repay not
less than the face value of those debt instruments to
the holder within one month of option exercise date

Conversion of optionally
convertible debt instruments
The issuer shall not convert the optionally convertible
debt instruments unless agreed upon by the holders
Where the convertible portion exceeds 50 lakhs and the
issuer has not determined the conversion price at the
time of issue, then option to be given to holder of not
converting the debt instruments
If the holder do not exercise to convert the non
convertible portion, then the issuer has to repay not
less than the face value of those debt instruments to
the holder within one month of option exercise date
No issuer shall alter the terms of specified securities
unless agreed upon by at least 75% of holders

Conversion of optionally
convertible debt instruments
The issuer shall not convert the optionally convertible
debt instruments unless agreed upon by the holders
Where the convertible portion exceeds 50 lakhs and the
issuer has not determined the conversion price at the
time of issue, then option to be given to holder of not
converting the debt instruments
If the holder do not exercise to convert the non
convertible portion, then the issuer has to repay not
less than the face value of those debt instruments to
the holder within one month of option exercise date
No issuer shall alter the terms of specified securities
unless agreed upon by at least 75% of holders

Eligibility requirements for a


public issue

Issue of IPO:

Net tangible assets > 3 crores for 3 preceding


yrs of which not more than 50% are held in
monetary assets.
Profits for at least 3 yrs in last 5 preceding yrs
Net worth of 5 crores in last 3 yrs
The present issue does not exceed five times
its pre-issue net worth
If it has changed its name, then at least 50%
revenue is earned under new name

Eligibility requirements for a


public issue

Issuer to issue IPO in case of non satisfaction of earlier


conditions mentioned:

The issue is made through book building process and the


issuer undertakes to allot at least 50% to qualified
institutional buyers
At least 15% of the project cost is contributed by
scheduled banks or financial institutions of which at least
10% shall come from appraisers and the issuer undertakes
to allot the same and another 10% to institutional buyers
The minimum post issue capital is 10 crores
The minimum number of prospective allottees should be
more than 1,000

Eligibility requirements for a


public issue
The

issuer shall not issue an IPO, if there


are any outstanding convertible
securities
No issuer shall issue an IPO unless it
obtains credit rating from one or more
credit rating agencies

Pricing in public issue


The issuer shall determine the price in
consultation with the lead merchant banker or
through the book building process
The issuer may determine the coupon rate or the
conversion price of convertible debt instruments
accordingly
The issuer may offer specified securities at
differential pricing to retail investors /
shareholders provided the difference is not more
than 10% of the issue price provided to other
categories of applicants

Pricing in public issue


The issuer may mention a price or price band in the issue
document and determine a price at a later date before
registering it with Registrar of Companies
If the floor price or price band is not mentioned in red herring
prospectus, then the issuer shall intimate the same two / one
working day before the issue in all the newspapers where the
advertisement was earlier released.
The issuer should draw investors attention to basis of issue
price section, providing the lower and higher end of the price
band arrived based on certain financial ratios disclosed.
The cap on higher price band would be equal to or less than
120% of floor price
The floor price cannot be less than the face value of specified
securities

Pricing in public issue


If the issue price per equity share is Rs.500 or
more than the issuer has an option to
determine face value of less than Rs.10 per
share but not less than Re.1
If the issue price per equity share is below Rs.
500 than the face value per share would be
Rs.10 per share
The disclosure about the issue price is X times
the face value has to be made by the issuer in
all the advertisements, offer documents etc.

Promoters contribution

Promoters contribution :

IPO not less than 25% of post issue capital


Other than IPO either not less than 20% of present
issue or to the extent of 20% of post issue capital
Composite issue - either not less than 20% of present
issue or to the extent of 20% of post issue capital

In case of promoters contributing more than the


minimum contribution then the allotment with
respect to the excess contribution to be made at a
price determined as per regulation 76 or the issue
price which ever is higher

Promoters contribution
The

promoters shall satisfy the


requirement by depositing the amount in
escrow account one day before the listing
Promoters contribution shall be computed
on the basis of post issuance of capital:

Assuming full proposed conversion of


convertible securities
Assuming exercise of all vested options

Securities ineligible for minimum


promoters contribution
Specified

securities acquired in last 3 years:

Acquired for consideration other than cash


Resulting from bonus shares by utilization of
reserves

Specified

securities acquired during preceding


one year at a price lower than the issue price
of shares issued to public
Specified securities pledged with creditors
If securities acquired as per provisions of
Section 391 to 394 of Companies Act on M&A

Minimum promoters
contribution not applicable
An

issuer which does not have any


identifiable promoter
Rights issue

Restriction on transferability of
promoters contribution
The promoters securities would be locked in for
minimum period of 3 years
The excess of minimum contribution is to be locked
in for minimum period of 1 yr.
The same is to be intimated to the depository as
well.
In case of IPO, persons other than promoters holding
pre-issue capital need to held the shares for 1 yr
Promoters can pledge the locked in securities as
collateral for loan granted by banks or financial
institutions

Minimum offer to public


In

case of public issue, the minimum


offer to public shall be 10% of issue or
25% of post issue capital
The above minimum public issue
requirements are not applicable for Govt
co or an infrastructure co.

Reservation on competitive
basis
The

issuer can make a reservation on competitive basis excluding


promoters and net offer made to public for:

Employees
Shareholders other than promoters (listed promoting cos, listed group
cos)
Depositors, bondholders etc.
Retail shareholders

Reservation

for employees should be < 5% of post issue


Reservation for shareholders should be < 10% of issue size
For depositors < 5% of issue size
Any unsubscribed portion in the reserved category may be added
to any other reserved category and then to unreserved category
In case of under subscription, the spill over from reserved category
is permitted to make good for the under subscription.

Allocation in net offer to public


No person shall apply for shares more than the net offer
made to public
For securities issued under book building process allocation
of shares to be:

Minimum 35% to retail individual investors


Minimum 15% to institutional investors
Minimum 50% to Qualified institutional investors, 5% to mutual
funds.

For securities issued other than book building process


allocation of shares to be:

Minimum 50% to retail individual investors


Remaining to individual investors and other investors other than
retail individual investors

Price stabilization through


green shoe option

An issuer may provide green shoe option for stabilizing


the post listing price of its specified securities subject to:

The issuer is authorized to issue specified securities in


general meeting
Issuer has appointed one of the merchant banker as
stabilizing agent
An agreement has been entered into between the issuer
and the merchant banker
The draft and final offer documents contain all material
disclosures about the green shoe option
The promoters and pre-issue shareholders holding more
than 5% of the shares, may lend specified securities to the
extent of proposed over allotment.

Price stabilization through


green shoe option
The

stabilizing agent to decide on timing of


buying, number of such securities and the
price at which they have to be bought from the
market
The stabilization process shall be available for
30 days from the date of trading permitted
If the stabilizing agent fails to make good of
the securities lent by the promoter group, then
the issuer may issue shares to that extent and
return those number of shares to them.

Other matters
The public issue would be kept open for at least 3
working days but not more than 10 days
Pre-issue advertisement for public issue in Hindi,
English and local regional newspaper where the
registered office is situated
Minimum application value shall invite applications
in multiples of minimum application value
The allotment of securities is done on proportionate
basis
The SEBI shall ensure that the basis of allocation
was done in fair and proper manner.

Rights issue
The issuer shall announce the record date for the rights
issue.
Once announced the issuer cannot withdraw
If the issuer withdraws the right issue, then it cannot
issue any securities for the period of next 12 months.
No issuer shall make a right issue if there outstanding
fully or partly convertible debt instruments unless it has
made a reservation of equity shares of the same class
The equity shares reserved shall be issued at the time
of conversion of debt instruments on the same terms as
rights issue made

Rights issue
The

letter of offer along with application


form shall be issued to all the
stakeholders
The issue price needs to be decided
before the issue and in consultation with
the designated stock exchange
The rights issue shall be open for
subscription for at least 15 days to 30
days time period

Rights issue
Pre-issue

advertisement disclosing:

Date of completion of offer letter


Centres where the stakeholders can obtain the duplicate
application forms
A statement that the stakeholders who have not received the
application forms can submit an application in writing with a
format provided for the same
file the application form and submit the application money
with designated official

The

advt shall be made in regional, hindi and english


newspaper.
The issuer can make a reservation for its employees in the
right issue not exceeding Rs. 1 lakh

Manner of disclosure in offer


document
The

offer document shall disclose all


material information which are true and
adequate for the investor to take decision
Every application form shall include a copy
of abridged prospectus or letter of offer
The abridged prospectus shall contain all
disclosures specified in Schedule II of
Companies Act and part A,B,C and E of
Schedule VIII thereof.

General obligations of issuer


and intermediaries
Prohibition on payment of incentives
Public communications, publicity materials, advertisements
and research reports:

Shall be factual, shall not contain projections, estimates.


All public communications shall state that the issuer is proposing
to make a public issue
Draft prospectus need to be available at website of SEBI,
merchant banker
The issuer has disclose all material development within the
company or the Group from the time of announcement to the
issue date
The issuer shall obtain approval from lead banker for all the advt
materials to be published and make available copies of it with
them

General obligations of issuer


and intermediaries
It

should be in clear, concise and understandable


language
No slogans / brand names for the issue
Financial data of past 3 years
No extensive use of legal / technical terminologies
No promise on future profits
No display of models or celebrities
No advt in form of crawlers
Advice viewers to refer prospectus
No advt of the issue being fully subscribed or over
subscribed during the issue period being open

General obligations of issuer


and intermediaries
The announcement of closure of issue period can be
made only when the lead banker is satisfied that the
issue is subscribed at least 90%
Copies of offer document to made available to public
Redressal of investor grievances
Appointment of compliance officer
Due diligence by lead banker about the veracity and
adequacy of disclosures
The responsibility of lead banker will continue till the
time the investors receive the securities in demat
account, refund of application money and trading
permission is granted by stock exchange.

Post issue reports and advt


The lead banker shall issue reports post issue within
3 days of closure of public issue and final report
within 15 days of finalisation of allotment to SEBI
Lead banker to submit due diligence certificate with
SEBI along with final report
The lead banker shall ensure that the issuer issues
advt with regard to over subscription and basis of
allotment in regional, Hindi and English newspapers.
Lead banker to co-ordinate with intermediaries
regarding application processing, allotments and
refund of money to public

Preferential issue

The issuer can make a preferential issue:

Special resolution passed by shareholders


All shares are in demat form
The issuer is continuously compliant with
the listing agreement norms
PAN of proposed allottees is obtained
Shall not issue preferential securities to
person who sold securities in last 6 months

Preferential issue

Disclosures in explanatory statement to


notice of GM for passing special resolution

Objective of preferential issue


Proposal of promoters, directors or KMP to
subscribe the offer
Shareholding pattern before and after the issue
Time within the preferential issue to be
completed
Identity of proposed allottees and % of shares
held by them post preferential shares issue

Preferential issue
A

certificate stating all regulations complied for the


issue
Independent qualified valuer certificate to be
submitted to stock exchanges for preferential issue
is for consideration other than cash
The special resolution shall specify the relevant
date and the basis of issue price
Allotment to be done with 15 days of special
resolution
Tenure of convertible securities of the issuer shall
not exceed 18 months from date of

Preferential issue
The

pricing can be higher of :

Avg of weekly high and low for past 6 months


or
Avg of weekly high and low for past 2 wks

Full

consideration to be paid by the allottees


Lock in period of 3 yrs
Promoters can transfer the shares to another
promoter within the group with the lock in
period intact

Qualified institutional
placement
The issuer issues eligible securities to QIB on
private placement basis
A special resolution is required to be passed
by shareholders
Equity shares of same class are issued
It is in compliance with minimum public issue
QIB issue to be managed by lead banker
Issue to be made as per the placement
document containing all material information

Qualified institutional
placement
Pricing:

Not less than avg weekly high and low for past 2
weeks
For convertible securities, the issue price to be
disclosed while passing special resolution
Price to be adjusted if the issuer:
Makes an issue by capitalization of profits
Makes a right issue
Consolidates its outstanding shares in smaller
number of shares
Divides outstanding shares by way of stock split

Qualified institutional
placement

Restrictions:
Minimum

10% is offered to mutual funds


No allotment to be made to promoter

The QIB not the withdraw its bid after closure of the
issue
Minimum number of QIB allottees:

2 where the issue size is less than 250 crores


5 where the issue size is greater

Allotment to be done with 12 months of special


resolution
The tenure of convertible securities not to exceed 60
months from date of allotment

Bonus issue
Conditions:

It should be authorized by articles of


association
It should not default in payment of interest or
principal in respect of FD or debt securities
Not defaulted in any statutory dues
Any partly paid shares are fully paid up
Bonus shares only against free reserves
Once declared the issue cannot be withdrawn

Indian depository receipts


All provisions applicable except the
disclosure norms
Regulations with respect to advt apply
for IDR issue
Eligibility:

Issuing company is listed in home country


Not prohibited by any regulatory body
Track record of compliance with securities
market regulations in home country

Indian depository receipts

Conditions:

Issue size not less than 50 crores


Procedures to be followed is mentioned in prospectus
Minimum application amt is Rs 20K
At least 50% to be issued to QIB on proportionate
basis
Balance 50% to be issued to retail investors or non
institutional investors
One denomination of IDR of issuing co.
Minimum subscription of 90% otherwise refund the
application money

Indian depository receipts


Conditions:

The IDR shall not be automatically fungible


into underlying equity shares of issuing co.
Filing of draft prospectus, agreement with
bankers, due diligence certificates, payment of
fees and issue advt
Disclosures in prospectus
Post issue reports
Unsubscribed issue
Finalization of basis of allotment

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