Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009

Securities and Exchange Board of India (Issue of Capitaland Disclosure Requirements) Regulations, 2009Gangadass AmulaApplicabilitya 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 ISSUESNo issuer shall make a public issue:If any of the promoters are debarred from accessing capital market by SEBIPromoter of current company is a promoter of debarred companyIssuer 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 moreUnless 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 sharesUnless all partly paid up shares are fully paid up or fortefied

COMMON CONDITIONS FOR PUBLIC ISSUES AND RIGHTS ISSUESAppointment of merchant banker and other intermediariesThe 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 bankerIf more than one merchant banker is appointed then the rights and obligations or each merchant banker have to be disclosed in schedule IThe lead banker to assess the capability of the intermediaries and then confirm their appointmentThe issuer to enter into an agreement with the lead banker as specified in schedule II and with other intermediaries as required by respective regulationsIssuer to appoint bankers at all collection centersIssuer to appoint a registrar who has connectivity with depositories

COMMON CONDITIONS FOR PUBLIC ISSUES AND RIGHTS ISSUESThe issuer to issue draft document if the public issue or the right issue is more than Rs. 50 LakhsIt has to file the draft to SEBI 30 days prior to the issueSEBI may specify changes to the draftThe issuer has to comply with the changes suggested and incorporate the same in the prospectusThe issuer can file the prospectus with the Registrar of Companies and stock exchanges

COMMON CONDITIONS FOR PUBLIC ISSUES AND RIGHTS ISSUESThe issuer has to take in-principal approval from the stock exchanges where it wants its shares to be listedDocuments to be submitted by lead bankerAgreement copy between issuer and bankerInter-per se responsibilities of all bankersA due diligence certificateAll changes suggested by SEBI have been incorporatedCA certificate stating promoter capital has been receivedPAN and passport numbers of promotersThe offer document has to be made public at least 21 days before the issue

Fast Track issueThe issuer has listed its shares at least 3 years priorAvg market cap is more than 5000 croresAnnualised trading turnover is 2% of weighted avg number of shares listed in during last 6 monthsThe issuer redressed 95% of investor complaintsIssuer complied with equity listing agreement for past 3 yearsAuditors qualifications does not exceed 5% of net profit or lossNo show cause notices issued for prosecutionEntire shareholding of the promoter group is in demat form

Opening of an issueThe issuer has to issue securities within a period of twelve months from SEBI approvalIssuer has to appoint underwriters for the public issue except for book building processThe minimum subscription to an issue would not be less than 90% of the issueNon receipt of minimum subscription including underwriter subscription then the issuer has to refund all the application money within seventy days

Opening of an issueIn case of over subscription the issuer can issue only to the extent the shares offered to pubicIf the issue is more than 500 crores then the issuer may appoint a public financial institution as monitoring agencyThe monitoring agency will issue report to the issuer every six months on usage of moneyThe 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 instrumentsThe issuer has to obtain credit rating from one or more credit rating agenciesAppointed one or more debenture trusteesIt has created debenture redemption reserveIf 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 debtSuch assets are free from any encumbranceConsent 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 instrumentsThe non convertible portion if exceeding 50 lakhs may be rolled over without change in interest rate:75% of holders approve the rollover by postal ballotThe issuer has sent to all holders, certificate on cash flow and comments on liquidity position of the issuerThe issuer undertaken to redeem the non convertible portion for holders who have not agreed for the roll overCredit rating obtained from the credit rating agency and intimated to all the holders

Conversion of optionally convertible debt instrumentsThe issuer shall not convert the optionally convertible debt instruments unless agreed upon by the holdersWhere 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 instrumentsIf 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 instrumentsThe issuer shall not convert the optionally convertible debt instruments unless agreed upon by the holdersWhere 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 instrumentsIf 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 dateNo issuer shall alter the terms of specified securities unless agreed upon by at least 75% of holders

Conversion of optionally convertible debt instrumentsThe issuer shall not convert the optionally convertible debt instruments unless agreed upon by the holdersWhere 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 instrumentsIf 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 dateNo issuer shall alter the terms of specified securities unless agreed upon by at least 75% of holders

Eligibility requirements for a public issueIssue 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 yrsNet worth of 5 crores in last 3 yrsThe present issue does not exceed five times its pre-issue net worthIf it has changed its name, then at least 50% revenue is earned under new name

Eligibility requirements for a public issueIssuer 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 buyersAt 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 buyersThe minimum post issue capital is 10 croresThe minimum number of prospective allottees should be more than 1,000

Eligibility requirements for a public issueThe issuer shall not issue an IPO, if there are any outstanding convertible securitiesNo issuer shall issue an IPO unless it obtains credit rating from one or more credit rating agencies

Pricing in public issueThe issuer shall determine the price in consultation with the lead merchant banker or through the book building processThe issuer may determine the coupon rate or the conversion price of convertible debt instruments accordinglyThe 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 issueThe 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 CompaniesIf 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 priceThe floor price cannot be less than the face value of specified securities

Pricing in public issueIf 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.1If the issue price per equity share is below Rs. 500 than the face value per share would be Rs.10 per shareThe 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 contributionPromoters contribution :IPO not less than 25% of post issue capitalOther than IPO either not less than 20% of present issue or to the extent of 20% of post issue capitalComposite 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 contributionThe promoters shall satisfy the requirement by depositing the amount in escrow account one day before the listingPromoters contribution shall be computed on the basis of post issuance of capital:Assuming full proposed conversion of convertible securitiesAssuming exercise of all vested options

Securities ineligible for minimum promoters contributionSpecified securities acquired in last 3 years:Acquired for consideration other than cashResulting from bonus shares by utilization of reservesSpecified securities acquired during preceding one year at a price lower than the issue price of shares issued to publicSpecified securities pledged with creditorsIf securities acquired as per provisions of Section 391 to 394 of Companies Act on M&A

Minimum promoters contribution not applicableAn issuer which does not have any identifiable promoterRights issue

Restriction on transferability of promoters contributionThe promoters securities would be locked in for minimum period of 3 yearsThe 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 yrPromoters can pledge the locked in securities as collateral for loan granted by banks or financial institutions

Minimum offer to publicIn case of public issue, the minimum offer to public shall be 10% of issue or 25% of post issue capitalThe above minimum public issue requirements are not applicable for Govt co or an infrastructure co.

Reservation on competitive basisThe issuer can make a reservation on competitive basis excluding promoters and net offer made to public for:EmployeesShareholders other than promoters (listed promoting cos, listed group cos)Depositors, bondholders etc.Retail shareholdersReservation for employees should be < 5% of post issueReservation for shareholders should be < 10% of issue sizeFor depositors < 5% of issue sizeAny unsubscribed portion in the reserved category may be added to any other reserved category and then to unreserved categoryIn case of under subscription, the spill over from reserved category is permitted to make good for the under subscription.

Allocation in net offer to publicNo person shall apply for shares more than the net offer made to publicFor securities issued under book building process allocation of shares to be:Minimum 35% to retail individual investorsMinimum 15% to institutional investorsMinimum 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 investorsRemaining to individual investors and other investors other than retail individual investors

Price stabilization through green shoe optionAn 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 meetingIssuer has appointed one of the merchant banker as stabilizing agentAn agreement has been entered into between the issuer and the merchant bankerThe draft and final offer documents contain all material disclosures about the green shoe optionThe 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 optionThe 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 permittedIf 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 mattersThe public issue would be kept open for at least 3 working days but not more than 10 daysPre-issue advertisement for public issue in Hindi, English and local regional newspaper where the registered office is situatedMinimum application value shall invite applications in multiples of minimum application valueThe allotment of securities is done on proportionate basisThe SEBI shall ensure that the basis of allocation was done in fair and proper manner.

Rights issueThe issuer shall announce the record date for the rights issue.Once announced the issuer cannot withdrawIf 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 classThe equity shares reserved shall be issued at the time of conversion of debt instruments on the same terms as rights issue made

Rights issueThe letter of offer along with application form shall be issued to all the stakeholdersThe issue price needs to be decided before the issue and in consultation with the designated stock exchangeThe rights issue shall be open for subscription for at least 15 days to 30 days time period

Rights issuePre-issue advertisement disclosing:Date of completion of offer letterCentres where the stakeholders can obtain the duplicate application formsA statement that the stakeholders who have not received the application forms can submit an application in writing with a format provided for the samefile the application form and submit the application money with designated officialThe 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 documentThe offer document shall disclose all material information which are true and adequate for the investor to take decisionEvery application form shall include a copy of abridged prospectus or letter of offerThe 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 intermediariesProhibition on payment of incentivesPublic 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 issueDraft prospectus need to be available at website of SEBI, merchant bankerThe issuer has disclose all material development within the company or the Group from the time of announcement to the issue dateThe 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 intermediariesIt should be in clear, concise and understandable languageNo slogans / brand names for the issueFinancial data of past 3 yearsNo extensive use of legal / technical terminologiesNo promise on future profitsNo display of models or celebritiesNo advt in form of crawlersAdvice viewers to refer prospectusNo advt of the issue being fully subscribed or over subscribed during the issue period being open

General obligations of issuer and intermediariesThe 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 publicRedressal of investor grievancesAppointment of compliance officerDue diligence by lead banker about the veracity and adequacy of disclosuresThe 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 advtThe 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 SEBILead banker to submit due diligence certificate with SEBI along with final reportThe 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 issueThe issuer can make a preferential issue:Special resolution passed by shareholdersAll shares are in demat formThe issuer is continuously compliant with the listing agreement normsPAN of proposed allottees is obtained Shall not issue preferential securities to person who sold securities in last 6 months

Preferential issueDisclosures in explanatory statement to notice of GM for passing special resolutionObjective of preferential issueProposal of promoters, directors or KMP to subscribe the offerShareholding pattern before and after the issueTime within the preferential issue to be completedIdentity of proposed allottees and % of shares held by them post preferential shares issue

Preferential issueA certificate stating all regulations complied for the issueIndependent qualified valuer certificate to be submitted to stock exchanges for preferential issue is for consideration other than cashThe special resolution shall specify the relevant date and the basis of issue priceAllotment to be done with 15 days of special resolutionTenure of convertible securities of the issuer shall not exceed 18 months from date of

Preferential issueThe pricing can be higher of :Avg of weekly high and low for past 6 months orAvg of weekly high and low for past 2 wksFull consideration to be paid by the allotteesLock in period of 3 yrsPromoters can transfer the shares to another promoter within the group with the lock in period intact

Qualified institutional placementThe issuer issues eligible securities to QIB on private placement basis A special resolution is required to be passed by shareholdersEquity shares of same class are issuedIt is in compliance with minimum public issueQIB issue to be managed by lead bankerIssue to be made as per the placement document containing all material information

Qualified institutional placementPricing:Not less than avg weekly high and low for past 2 weeksFor convertible securities, the issue price to be disclosed while passing special resolutionPrice to be adjusted if the issuer:Makes an issue by capitalization of profitsMakes a right issueConsolidates its outstanding shares in smaller number of sharesDivides outstanding shares by way of stock split

Qualified institutional placementRestrictions:Minimum 10% is offered to mutual fundsNo allotment to be made to promoter The QIB not the withdraw its bid after closure of the issueMinimum number of QIB allottees:2 where the issue size is less than 250 crores5 where the issue size is greaterAllotment to be done with 12 months of special resolutionThe tenure of convertible securities not to exceed 60 months from date of allotment

Bonus issueConditions:It should be authorized by articles of associationIt should not default in payment of interest or principal in respect of FD or debt securitiesNot defaulted in any statutory duesAny partly paid shares are fully paid upBonus shares only against free reservesOnce declared the issue cannot be withdrawn

Indian depository receiptsAll provisions applicable except the disclosure normsRegulations with respect to advt apply for IDR issueEligibility:Issuing company is listed in home countryNot prohibited by any regulatory bodyTrack record of compliance with securities market regulations in home country

Indian depository receiptsConditions:Issue size not less than 50 croresProcedures to be followed is mentioned in prospectusMinimum application amt is Rs 20KAt least 50% to be issued to QIB on proportionate basisBalance 50% to be issued to retail investors or non institutional investorsOne denomination of IDR of issuing co.Minimum subscription of 90% otherwise refund the application money

Indian depository receiptsConditions: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 advtDisclosures in prospectusPost issue reportsUnsubscribed issue Finalization of basis of allotment