EIRC-ICAI SEMINAR ON RECENT CHANGES IN SEBI … - EIRCICAI.pdf · RECENT PAPERS RELEASED BY SEBI...

EIRC-ICAI SEMINAR

ON RECENT CHANGES

IN SEBI LAWS

APRIL 28, 2015

RECENT PAPERS RELEASED BY SEBI Discussion Paper on Issuance of Partly Paid Shares and Warrants by Indian

Companies

Discussion Paper on Consolidation and Re-issuance in the Corporate Bond

Market

Discussion Paper on “Re-classification of Promoters as Public”

Discussion Paper on Proposed Amendments to Regulations for Imposing

Restriction on Wilful Defaulter

Discussion Paper on “Revisiting the Capital Raising Process”

Discussion Paper on Alternate Capital Raising Platform and Review of Other

Regulatory Requirements

Discussion Paper on Issues Pertaining to Offer for Sale of Shares through Stock

Exchange Mechanism

DISCUSSION PAPER ON

ISSUANCE OF PARTLY PAID

SHARES AND WARRANTS BY

INDIAN COMPANIES –

RELEASED ON DEC 2, 2014

ISSUANCE OF PARTLY PAID SHARES AND

WARRANTS BY INDIAN COMPANIES

Background

MOF decided to permit issuance of partly paid shares and warrants to foreign investors.

RBI Circular – Partly paid equity shares and Warrants have been made eligible instruments for the purpose of FDI and FPI.

Proposals

ISSUANCE OF PARTLY PAID SHARES AND

WARRANTS BY INDIAN COMPANIES

Issuance of Partly Paid Shares - Requirement of upfront Payment in case of

Rights Issue:

• In case of part payment option being provided by the issuer in rights issue,

the part payment on application shall not be less than 25% (Presently no

specification)

(Amendments have been notified by SEBI on 24th March, 2015)

Issuance of warrants - Requirement of Upfront payment & period of conversion

in case of warrants issued along with public and Rights Issue

• Pricing of the warrants and price/conversion formula shall be determined

upfront and 25% of the consideration amount shall be received upfront. In

warrants are not exercised, amount shall be forfeited by the issuer. (Presently

no specification)

Maximum tenure of Warrants shall not exceed 18 Months (Presently 12

Months)


DISCUSSION PAPER ON

CONSOLIDATION AND RE-

ISSUANCE IN THE

CORPORATE BOND

MARKET– RELEASED ON

DEC 4, 2014

CONSOLIDATION AND RE-ISSUANCE IN

THE CORPORATE BOND MARKET Background

The report of High Level Expert Committee on Corporate Bonds and Securitization recommended for consolidation of privately placed bonds so as to avoid fragmentation of debt market with multiple issues and for re-issuances which help in creation of large floating stocks which is needed to enhance market liquidity.

CONSOLIDATION AND RE-ISSUANCE IN

THE CORPORATE BOND MARKET

There is such an enabling provision in its articles under which it has been incorporated;

The issue is through private placement;

The Issuer has obtained credit rating from at least one credit rating agency registered with the Board and is disclosed;

Such ratings should be revalidated on a periodic basis and the change if any, shall be disclosed;

Appropriate disclosures are made with regards to consolidation and re-issuance, in the Term Sheet;

Proposals


SEBI has also incorporated Put and Call option in Public Issue of Debt Securities

DISCUSSION PAPER ON “RE-

CLASSIFICATION OF

PROMOTERS AS PUBLIC”–

RELEASED ON DEC 30, 2014

“RE-CLASSIFICATION OF PROMOTERS AS

PUBLIC”

Background

Some companies attempt to comply with the minimum public shareholding norm by reclassifying a part of the promoter group entities as public;

The present regulatory framework does not prescribe criteria for re-classification.

Reclassification under the following three scenarios:

Pursuant to an open offer under the SAST Regulations or on account of an exemption granted by SEBI under the said Regulations;

In case of a separation agreement;

The promoter along with the entire promoter group to which the promoter belongs, taken together, holds less than 5% shares in the company;

Proposals


PUBLIC”

Conditions for Reclassification

• Outgoing entities shall have only such rights as any other public shareholder;

• Outgoing entities shall not hold any Key Management Personnel (“KMP”) position in the company and the other group or associate companies;

• Outgoing entities and/or company should not have been debarred from accessing the capital market;

• Outgoing entities shall not exercise, directly or indirectly, any control over the affairs of the company or any of the group / associate companies;


PUBLIC”

DISCUSSION PAPER ON

PROPOSED AMENDMENTS

TO REGULATIONS FOR

IMPOSING RESTRICTION ON

WILFUL DEFAULTER -

RELEASED ON JAN 5, 2015

PROPOSED AMENDMENTS TO

REGULATIONS FOR IMPOSING

RESTRICTION ON WILFUL DEFAULTER

Background

RBI has laid down sufficient safeguards to contain the financial activities of wilful defaulter

Under the existing regulatory framework prescribed by SEBI, wilful defaulter may raise money from capital markets by way of public issue or rights issue (except by way of issuance of convertible debt instrument) and effectively bypass the restriction of access to bank finance as envisaged in the Master Circular released by RBI;

Proposals

PROPOSED AMENDMENTS TO

REGULATIONS FOR IMPOSING

RESTRICTION ON WILFUL DEFAULTER

Following recommendations are made to impose restrictions on wilful defaulters

from accessing the capital market:

• No issuer shall make a public issue of equity securities/ debt securities/

non-convertible redeemable preference share, if the issuer, its promoter,

group company or director of the Issuer of such securities, is in the list of

the Wilful defaulters, published by the Reserve Bank of India;

• Existing listed companies / its promoter / group company / director of the

Issuer categorized as 'wilful defaulter': May make a rights issue / private placement to qualified institutional buyers,

with full disclosures in the offer document;

Should not be allowed to take control over other listed entity in accordance

with SEBI (SAST) Regulations, 2011;

Should be allowed to make counter offer in case of a hostile bid.

DISCUSSION PAPER ON

“REVISITING THE CAPITAL

RAISING PROCESS”-

RELEASED ON JAN 8, 2015

“REVISITING THE CAPITAL RAISING

PROCESS”

1. Proposal on use of Secondary Market infrastructure for making applications in Public

Issue (“e-IPO”)


PROCESS” Background

Finance Minister while presenting Union Budget 2012-13 made it mandatory for companies to issue IPOs of Rs.10 crore and above in electronic form through nationwide broker network of stock exchanges;

Due to several mechanisms to submit an application for a public issue, it is difficult to reduce the post issue timelines from the current 12 days from issue closure to listing and trading;

Proposals


PROCESS”

• Investor will be able to submit his application to / place order with any SEBI

registered Stock Broker, Depository Participant (DP) or Registrar and Transfer

Agent (RTA) and Self Certified Syndicate Bank (SCSB)

• Investors can also fill the application form online and submit it on the web

portal of trading member, DP/ RTA or SCSB (in case of ASBA), if provided

by the intermediary. This will help eliminate printing application form and

thereby reduce the overall cost of public issuance.

• On receipt of application, the Stock Broker / DP / RTA/ SCSB will have to

lodge the application on the bidding platform

• Investors will not be able to withdraw bids upon closure of the issue.

2. Proposal on Fast Track Issuances (FPO and Rights Issue)


PROCESS”

Background

SEBI has received suggestions on re-considering the criterion related to market capitalisation of public shareholding as only a few companies are eligible based on the said criterion;

Should the requirement of average market capitalisation of public shareholding of Rs. 3000 crore be relaxed so as to enable more companies access the market directly without filing the draft offer document with the Board?

Alternately, if the company does not meet the public float criteria, should there be other additional conditions.


PROCESS”

Proposals


PROCESS”

• Fast track route may be extended to companies having an

average market capitalisation of public shareholding between Rs.

250 crores to Rs. 3,000 crores, subject to fulfilment of existing

conditions and the following: Promoters should mandatorily subscribe to their rights entitlement and

should not renounce their rights, except to the extent of renunciations

within the promoter group, or for the purposes of complying with

minimum public shareholding norms.

Shares of the company should not have been suspended (except for

corporate actions) from trading in past 3 years.

Annualised delivery based trading turnover requirement of 10% of the

total paid up capital.

No direct or indirect conflict of interest should be there between the lead

manager, its group or associate company with the issuer or its group or

associate company.

Issuer, promoter group and directors of the issuer should not have settled

any alleged violation of securities laws through the consent mechanism

with the Board in last 3 years.

Proposals


PROCESS”

• Fast track issue route shall be available to CPSEs without the

requirement of a minimum average market capitalisation of

public shareholding subject to CPSEs complying with all the

other existing conditions for Fast Track route. Also, in case

where CPSE is not able to comply with any of these conditions,

SEBI may, based on the merits of the case, consider granting

exemption.

DISCUSSION PAPER ON

ALTERNATE CAPITAL

RAISING PLATFORM AND

REVIEW OF OTHER

REGULATORY

REQUIREMENTS - RELEASED

ON MAR 30, 2015

ALTERNATE CAPITAL RAISING PLATFORM AND

REVIEW OF OTHER REGULATORY REQUIREMENTS

Background

Provide entrepreneurs with a new avenue which will give them access to capital

Provide exit opportunity to Angel Investors, Venture Capital Funds, etc

Proposal on Alternate Capital Raising Platform

1. Eligibility:

Companies in the area of –

software product development

e-commerce

new-age company having an innovative business model



2. Modified Institutional Trading Platform:

• Who can invest?

Qualified Institutional Buyers (QIBs)- 75% of the offering

Non-Institutional Investors (NIIs)- 25% of the offering

• Quantum?

Minimum application size- Rs 10 Lacs

Minimum no of allottees- 500

No QIB can hold more than 5% of the issue size



3. Objects of the Issue:

• Disclosure restricted to only broad objects which is in line with the

international jurisdictions

4. Lock in period of shares:

• Pre-issue share capital to remain locked in for a period of 6 months uniformly

for all shareholders

5. Basis of Issue Price:

• Based on projections and any other material chosen by the start up



Review of Other Regulatory Requirements:

1. Definition of QIB-

• To include systematically important NBFCs as per RBI guidelines and family

offices/ trusts, subject to such family offices/trust registering itself as

Alternate Investment Funds

• Any other entity registered with SEBI having a minimum net-worth of Rs 500

crore to be considered as QIB

2. Disclosure with respect to Group Companies-

• Disclosure relating to group companies covered under Accounting Standard

18

• Policy of materiality should be disclosed



3. Disclosure of Litigation

• All criminal cases and regulatory actions

• Litigation with respect to taxation disputes, separate disclosures regarding

claims related to direct and indirect taxes

• Other material litigation

4. Disclosure on creditors

• Disclosure in offer document to be based upon materiality thresholds as

disclosed in offer document and link of webpage of company where full

details are disclosed to be included in offer document

• Only consolidated information on dues to SMEs and other creditors shall be

disclosed in offer document.

5. Disclaimer Clause

• Product advertisements of the issuer to be exempted from the requirement of

‘disclaimer’



DISSCUSION PAPER ON

ISSUES PERTAINING TO

OFFER FOR SALE OF

SHARES THROUGH STOCK

EXCHANGE MECHANISM-

RELEASED ON APR 6, 2015

BACKGROUND:

Key features of Sale of shares through OFS Mechanism are:-

• Promoter and non-promoter shareholder (holding at least 10% of share

capital) are eligible to offer shares through OFS mechanism

• OFS mechanism available to top 200 companies by market capitalization

• Minimum 10 % of the offer size is reserved for retails investors.

• Seller may offer discount to retail investors

• Seller may give an option to retail investors to place their bid at cut-off price

in addition to placing price bids

• Minimum 25% of the shares offered are reserved for mutual funds and

insurance companies subject to allocation methodology

• No single bidder other than mutual funds and insurance companies is

allocated more than 25% of the size of offer for sale

ISSUES PERTAINING TO OFFER FOR SALE

OF SHARES THROUGH STOCK EXCHANGE

MECHANISM

PROPOSALS

NOTICE PERIOD

• Reduce OFS notice from T-2 days to T-1 day

• Increase the notice period to arrange for funds which may result in better

retail participation

PRICE BAND

• Price band may be placed on such stocks the day prior to OFS

OFS TO BE HELD ON SATURDAY

• This would obviate need for having trading halt or suspension of trading in

the OFS stocks as trading does not take place on Saturday



MECHANISM

TRADING HALT

• Due to volatility in the prices on the OFS day, investor participation in the

OFS may be affected and secondary market price may trade below OFS floor

price which may impact the sale of shares through OFS

• Studies suggest that volume and volatility in the subsequent trading day after

a trading halt are higher. Consequently, trading halts have the potential to

increase the market volatility, rather than reducing it

OPTION TO BID AT CUT-OFF PRICE BY RETAIL INVESTORS

• Make it mandatory for sellers to provide option to retail investors to place

price bid or place bid at cut off price for better retail participation



MECHANISM

THANK YOU

EIRC-ICAI SEMINAR ON RECENT CHANGES IN SEBI … - EIRCICAI.pdf · RECENT PAPERS RELEASED BY SEBI...

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