SEBI (DIP) guidelines 2000 of Public Issue
This query is : Resolved
30 September 2009
Public Issue Requirements
Entry Norms: Entry norms are different routes available to an issuer for accessing the capital market.
I) An unlisted issuer making a public issue of equity shares or any security convertible at a later date into equity i.e (making an IPO) is required to satisfy the following provisions:
Entry Norm I (commonly known as “Profitability Route”)
The Issuer Company shall meet the following requirements:
(a) Net Tangible Assets of at least Rs. 3 crores in each of the preceding three full years(12 months each)of which not more than 50% are held in monetary assets. If more than 50% of net tangible assets are held in monetary assets, the company should have made firm commitments to deploy such excess monetary assets in its business/ projects.
(b) Company has track record of Distributable profits (in terms of Section 205 of the Companies Act, extraordinary items should, be excluded) in at least three of the immediately preceding five years.
(c) Net worth of at least Rs. 1 crores in each of the preceding three full years (12 months each).
(d) If the company has changed its name within the last one year, at least 50% revenue for the preceding 1 year should be from the activity suggested by the new name. (the last 1 year should be reckoned from the date of filling of the offer document.
(e) The issue size should not exceed 5 times the pre-issue net worth as per the audited balance sheet of the last financial year. (Issue for this purpose includes offer through offer document and firm allotment and promoters contribution through offer document)
To provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the parameters, SEBI has provided two other alternative routes to the companies not satisfying any of the above conditions, for accessing the primary Market, as under:
Entry Norm II
Alternative 1. (Commonly known as “QIB Route”)
An unlisted company which does not satisfy the requirements specified above can make an offer to the public, of equity or any other security convertible at a later date into equity only through book building process.
The Issuer Company shall meet the following requirements:
(a) Issue shall be through book building route, with at least 50% of the issue to be mandatory allotted to the Qualified Institutional Buyers (QIBs) otherwise full subscription money is to be refunded.
Alternative 2. (Commonly known as “Appraisal Route”)
(a) The “project”* is appraised and participated to the extent of 15% by Financial
Institutions / Scheduled Commercial Banks of which at least 10% comes from the appraiser(s).
(b) In addition to this, at least 10% of the issue size shall be allotted to QIBs* otherwise full subscription money received should be refunded.
In addition to satisfying the aforesaid both the alternatives above (entry norm 2), the Issuer Company shall also satisfy the following criteria,
The minimum post-issue face value capital shall be Rs. 10 crores or there shall be a compulsory market-making for at least 2 years subject to the following,
--- Market makers undertake to offer buy and sell quotes for a minimum depth of 300 shares.
--- Market makers undertake to ensure that the bid-ask spread for their quotes shall not at any
time exceed 10%.
--- The inventory of the market makers on each of such stock exchanges, as on the date of
allotment of securities, shall be at least 5% of the proposed issue of the company.
*(QIBs here mean public financial institutions, as defined in section 4A of the Companies Act 1956, scheduled commercial banks, mutual funds, foreign institutional investors registered with SEBI, multilateral and development final institutions or venture capital funds registered with SEBI, foreign venture capital investors registered with SEBI, State Industrial Development Corporations, Insurance Companies registered with IRDA, provident funds with minimum corpus of Rs. 25 crores and ‘Project’ as aforesaid means the object for which the monies proposed to be raised to cover the objects of the issue.
In addition to satisfying the aforesaid both the entry norms, the Issuer Company shall also satisfy the criteria of having at least 1000 prospective allottees in its issue.
II) A listed issuer making a public issue (FPO) is required to satisfy the following
requirements :
(a) If the company has changed its name within the last one year, atleast 50% revenue for the preceding 1 year should be from the activity suggested by the new name. (the last 1 year should be reckoned from the date of filling of the offer document.
(b) The aggregate of the proposed issue size and all previous issues made in the same financial year, in terms of issue size does not exceed 5 times the pre-issue net worth as per the audited balance sheet of the last financial year. (Issue for this purpose includes offer through offer document and firm allotment and promoters contribution through offer document).
If the net worth after the proposed issue of equity shares or any security convertible at a later date into equity becomes more than 5 times the net worth prior to the issue, it is required to satisfy the criteria of book building process and allot 50% of the issue size to QIBs failing which the subscription money is required to be refunded.
(iii) Certain category of entities which are exempted from the aforesaid entry norms,
are as under :
(a) Private Sector Banks
(b) Public sector banks
(c) An infrastructure company whose project has been appraised by a Public Financial
Institution or IDFC or IL&FS or a bank which was earlier a PFI and not less than 5%
of the project cost is financed by any of these institutions.
Besides entry norms, there are some mandatory provisions mentioned in the guidelines, which an issuer is expected to comply before making an issue.
Minimum Promoter’s contribution and lock-in: In a public issue by an unlisted issuer, the
promoters shall contribute not less than 20% of the post issue capital which should be
locked in for a period of 3 years. “Lock-in” indicates a freeze on the shares.
IPO Grading: Eligibility norms require credit rating from a credit rating agency registered with Board and its disclosure in the offer document. Where credit ratings are obtained from more than one credit rating agency, all the ratings including the unaccepted credit ratings shall be disclosed. It also requires disclosure regarding all the credit ratings obtained during three year preceding the public issue.
Pricing of an Issue
(a) Who fixes the price of securities in an issue?
Indian primary market ushered in an era of free pricing in 1992. SEBI does not play any role
in price fixation. The issuer in consultation with the merchant banker on the basis of
market demand decides the price. The offer document contains full disclosures of the
parameters which are taken in to account by merchant Banker and the issuer for deciding
the price. The Parameters include EPS, PE multiple, return on net worth and comparison of
these parameters with peer group companies.
Freedom to determine the denomination of shares for public / rights
issues and to change the standard denomination
I) An eligible company shall be free to make public or rights issue of equity shares in any denomination determined by it in accordance with Sub-section (4) of Section 13 of the Companies Act, 1956 and in compliance with the following and other norms as may be specified by SEBI from time to time:
i. In case of initial public offer by an unlisted company,
a. if the issue price is Rs. 500/- or more, the issuer company shall have a discretion to fix the face value below Rs. 10/- per share subject to the condition that the face value shall in no case be less than Rs. 1 per share;
b. if issue price is less than Rs. 500 per share, the face value shall be Rs. 10/- per share;
Provided that nothing contained in sub-clause (i) shall apply to initial public offer made by any government company, statutory authority or corporation or any special purpose vehicle set up by any of them, which is engaged in infrastructure sector.
ii. The disclosure about the face value of shares (including the statement about the issue price being “X” times of the face value) shall be made in the advertisement, offer documents and in application forms in
identical font size as that of issue price or price band.)
II) The companies which have already issued shares in the denomination of Rs.10/- or Rs.100/- may change the standard denomination of the shares by splitting or consolidating the existing shares.
The companies proposing to issue shares in any denomination or changing the standard denomination in terms of clause I or II above shall comply with the following:
(a) the shares shall not be issued in the denomination of decimal of a rupee;
(b) the denomination of the existing shares shall not be altered to a denomination of decimal of a rupee;
(c) at any given time there shall be only one denomination for the shares of the company;
(d) the companies seeking to change the standard denomination may do so after amending the memorandum and Articles of Association, if required;
(e) the company shall adhere to the disclosure and accounting norms specified by SEBI from time to time.
Entry Norms: Entry norms are different routes available to an issuer for accessing the capital market.
I) An unlisted issuer making a public issue of equity shares or any security convertible at a later date into equity i.e (making an IPO) is required to satisfy the following provisions:
Entry Norm I (commonly known as “Profitability Route”)
The Issuer Company shall meet the following requirements:
(a) Net Tangible Assets of at least Rs. 3 crores in each of the preceding three full years(12 months each)of which not more than 50% are held in monetary assets. If more than 50% of net tangible assets are held in monetary assets, the company should have made firm commitments to deploy such excess monetary assets in its business/ projects.
(b) Company has track record of Distributable profits (in terms of Section 205 of the Companies Act, extraordinary items should, be excluded) in at least three of the immediately preceding five years.
(c) Net worth of at least Rs. 1 crores in each of the preceding three full years (12 months each).
(d) If the company has changed its name within the last one year, at least 50% revenue for the preceding 1 year should be from the activity suggested by the new name. (the last 1 year should be reckoned from the date of filling of the offer document.
(e) The issue size should not exceed 5 times the pre-issue net worth as per the audited balance sheet of the last financial year. (Issue for this purpose includes offer through offer document and firm allotment and promoters contribution through offer document)
To provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the parameters, SEBI has provided two other alternative routes to the companies not satisfying any of the above conditions, for accessing the primary Market, as under:
Entry Norm II
Alternative 1. (Commonly known as “QIB Route”)
An unlisted company which does not satisfy the requirements specified above can make an offer to the public, of equity or any other security convertible at a later date into equity only through book building process.
The Issuer Company shall meet the following requirements:
(a) Issue shall be through book building route, with at least 50% of the issue to be mandatory allotted to the Qualified Institutional Buyers (QIBs) otherwise full subscription money is to be refunded.
Alternative 2. (Commonly known as “Appraisal Route”)
(a) The “project”* is appraised and participated to the extent of 15% by Financial
Institutions / Scheduled Commercial Banks of which at least 10% comes from the appraiser(s).
(b) In addition to this, at least 10% of the issue size shall be allotted to QIBs* otherwise full subscription money received should be refunded.
In addition to satisfying the aforesaid both the alternatives above (entry norm 2), the Issuer Company shall also satisfy the following criteria,
The minimum post-issue face value capital shall be Rs. 10 crores or there shall be a compulsory market-making for at least 2 years subject to the following,
--- Market makers undertake to offer buy and sell quotes for a minimum depth of 300 shares.
--- Market makers undertake to ensure that the bid-ask spread for their quotes shall not at any
time exceed 10%.
--- The inventory of the market makers on each of such stock exchanges, as on the date of
allotment of securities, shall be at least 5% of the proposed issue of the company.
*(QIBs here mean public financial institutions, as defined in section 4A of the Companies Act 1956, scheduled commercial banks, mutual funds, foreign institutional investors registered with SEBI, multilateral and development final institutions or venture capital funds registered with SEBI, foreign venture capital investors registered with SEBI, State Industrial Development Corporations, Insurance Companies registered with IRDA, provident funds with minimum corpus of Rs. 25 crores and ‘Project’ as aforesaid means the object for which the monies proposed to be raised to cover the objects of the issue.
In addition to satisfying the aforesaid both the entry norms, the Issuer Company shall also satisfy the criteria of having at least 1000 prospective allottees in its issue.
II) A listed issuer making a public issue (FPO) is required to satisfy the following
requirements :
(a) If the company has changed its name within the last one year, atleast 50% revenue for the preceding 1 year should be from the activity suggested by the new name. (the last 1 year should be reckoned from the date of filling of the offer document.
(b) The aggregate of the proposed issue size and all previous issues made in the same financial year, in terms of issue size does not exceed 5 times the pre-issue net worth as per the audited balance sheet of the last financial year. (Issue for this purpose includes offer through offer document and firm allotment and promoters contribution through offer document).
If the net worth after the proposed issue of equity shares or any security convertible at a later date into equity becomes more than 5 times the net worth prior to the issue, it is required to satisfy the criteria of book building process and allot 50% of the issue size to QIBs failing which the subscription money is required to be refunded.
(iii) Certain category of entities which are exempted from the aforesaid entry norms,
are as under :
(a) Private Sector Banks
(b) Public sector banks
(c) An infrastructure company whose project has been appraised by a Public Financial
Institution or IDFC or IL&FS or a bank which was earlier a PFI and not less than 5%
of the project cost is financed by any of these institutions.
Besides entry norms, there are some mandatory provisions mentioned in the guidelines, which an issuer is expected to comply before making an issue.
Minimum Promoter’s contribution and lock-in: In a public issue by an unlisted issuer, the
promoters shall contribute not less than 20% of the post issue capital which should be
locked in for a period of 3 years. “Lock-in” indicates a freeze on the shares.
IPO Grading: Eligibility norms require credit rating from a credit rating agency registered with Board and its disclosure in the offer document. Where credit ratings are obtained from more than one credit rating agency, all the ratings including the unaccepted credit ratings shall be disclosed. It also requires disclosure regarding all the credit ratings obtained during three year preceding the public issue.
Pricing of an Issue
(a) Who fixes the price of securities in an issue?
Indian primary market ushered in an era of free pricing in 1992. SEBI does not play any role
in price fixation. The issuer in consultation with the merchant banker on the basis of
market demand decides the price. The offer document contains full disclosures of the
parameters which are taken in to account by merchant Banker and the issuer for deciding
the price. The Parameters include EPS, PE multiple, return on net worth and comparison of
these parameters with peer group companies.
Freedom to determine the denomination of shares for public / rights
issues and to change the standard denomination
I) An eligible company shall be free to make public or rights issue of equity shares in any denomination determined by it in accordance with Sub-section (4) of Section 13 of the Companies Act, 1956 and in compliance with the following and other norms as may be specified by SEBI from time to time:
i. In case of initial public offer by an unlisted company,
a. if the issue price is Rs. 500/- or more, the issuer company shall have a discretion to fix the face value below Rs. 10/- per share subject to the condition that the face value shall in no case be less than Rs. 1 per share;
b. if issue price is less than Rs. 500 per share, the face value shall be Rs. 10/- per share;
Provided that nothing contained in sub-clause (i) shall apply to initial public offer made by any government company, statutory authority or corporation or any special purpose vehicle set up by any of them, which is engaged in infrastructure sector.
ii. The disclosure about the face value of shares (including the statement about the issue price being “X” times of the face value) shall be made in the advertisement, offer documents and in application forms in
identical font size as that of issue price or price band.)
II) The companies which have already issued shares in the denomination of Rs.10/- or Rs.100/- may change the standard denomination of the shares by splitting or consolidating the existing shares.
The companies proposing to issue shares in any denomination or changing the standard denomination in terms of clause I or II above shall comply with the following:
(a) the shares shall not be issued in the denomination of decimal of a rupee;
(b) the denomination of the existing shares shall not be altered to a denomination of decimal of a rupee;
(c) at any given time there shall be only one denomination for the shares of the company;
(d) the companies seeking to change the standard denomination may do so after amending the memorandum and Articles of Association, if required;
(e) the company shall adhere to the disclosure and accounting norms specified by SEBI from time to time.
30 September 2009
It is SEBI(DIP) guideline so what is ur query
30 September 2009
Very nicely explained the Requirements by Mr.Tapas.
Just to make a note that the Name of the above SEBI DIP Guidelines has been changed to Issue of Capital and Disclosure Requirements Regulations, 2009 (ICDR). It also includes some changes made in Presentation and Preparation of the Offer documents.
Just to make a note that the Name of the above SEBI DIP Guidelines has been changed to Issue of Capital and Disclosure Requirements Regulations, 2009 (ICDR). It also includes some changes made in Presentation and Preparation of the Offer documents.
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