Issue of equity and debt..full process in simple language

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Miss Suman

Miss Suman (Querist)
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05 June 2014 Sebi guidelines also be included

Lalit Kumar

Lalit Kumar (Expert)
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05 June 2014 I am answering based on the presumption that its a first time issue via IPO. Kindly let me know in case you need to know for FPO..

Public Issue

1) What are the eligibility norms for an unlisted company for making a public issue?

An unlisted company has to satisfy the following criteria to be eligible to make a public issue

Pre-issue networth of the co. should not be less than Rs.1 crore in last 3 out of last 5 years with minimum networth to be met during immediately preceding 2 years and
track record of distributable profits for at least three (3) out of immediately preceding five (5) years and
the issue size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document) shall not exceed five (5) times its pre-issue networth.
In case an unlisted company does not satisfy any of the above criterion, it can come out with a public issue only through the Book-Building process. In the Book Building process the company has to compulsorily allot at least sixty percent (60%) of the issue size to the Qualified Institutional Buyers (QIBs), failing which the full subscription monies shall be refunded.

2) What are the eligibility norms for a listed company for making a public issue?

A listed company is eligible to make a public issue if the issue size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document) is less than five (5) times its pre-issue networth.

If the issue size is more than or equal to 5 times of pre-issue networth, then the listed company has to take the book building route and allot sixty percent (60%) of the issue size to the Qualified Institutional Buyers (QIBs), failing which the full subscription monies shall be refunded.

For details refer Chapter II of SEBI (DIP) Guidelines and relevant clarifications issued subsequently.

3) Are there any restrictions on pricing by companies?

The companies can freely price their equity shares. However they have to give justification of the price in the offer document / letter of offer

4) What are the requirements regarding promoters contribution and lock-in?

In case of an Initial Public Offer (IPO) i.e. public issue by unlisted company, the promoters has to necessarily offer at least 20% of the post issue capital.

In case of public issues by listed companies, the promoters shall participate either to the extent of 20% of the proposed issue or ensure post-issue share holding to the extent of 20% of the post-issue capital.

In case of any issue of capital to the public the minimum contribution of promoters shall be locked in for a period of 3 years, both for an IPO and Public Issue by listed companies.

In case of an IPO, if the promoters contribution in the proposed issue exceeds the required minimum contribution, such excess contribution shall also be locked in for a period of one year.

In case of a public issue by a listed company, participation by promoters in the proposed public issue in excess of the required minimum percentage shall also be locked-in for a period of one year as per the lock-in provisions as specified in Guidelines on Preferential issue.

Beside the above, in case of IPO the entire pre-issue share capital i.e. paid up share capital prior to IPO and shares issued on a firm allotment basis along with issue shall be locked-in for a period of one year from the date of allotment in public issue.

5) What is the basis of allotment?

In case of over-subscription in a fixed price issue the allotment is done in marketable lots, on a proportionate basis (for details refer to clause 7.6.1 of DIP Guidelines).

In case of a book building issue, allotment to Qualified Institutional Buyers and Non-Institutional buyers are done on a discretionary basis. Allotment to retail investors is done on a proportionate basis as per provisions of Clause No. 7.6.1 of Guidelines.

6) How does one come to know of issues on offer and from where can one get copies of the draft offer document?

Every week SEBI issues press releases for information of the public, details of offer documents filed with SEBI and observations issued. Details can be obtained from the "Primary Market ' page of the SEBI website. The draft offer document can also be purchased from the SEBI office where the document is filed on payment of Rs.100/- by way of DD drawn in favor of SEBI. The draft offer document/letter of offer remains posted on SEBI website for a period of 21days from the date of filing the same to SEBI and can also be downloaded from there.

6) From where does one get the application forms and the prospectus?

Application form can be obtained from the lead manager and brokers to the issue. The application forms are also generally available at collecting bankers. Name and addresses of the Lead Manager are available in the prospectus/letter of offer

7) Can the public give their comments/complaints on the Issuer company or others connected with the issue?

Yes, the objective of making offer document public is to invite public comments. The comments should be given within 21 days of the filing of the Draft offer document with SEBI.

8) Where does one complain in case of wrong/ non-disclosures/ mis-statement in the offer document?

The Primary Market Division in SEBI

9) Within how many days an investor should receive the refund order/ allotment advise?

Despatch of refund orders / allotment advice is to be within 2 working days of finalisation of the basis of allotment

Companies are required to finalise the basis of allotment within 30 days from the closure of the issue in case of a fixed price issue and within 15 days from the closure of the issue in case of a book building issue or else they are liable to pay interest @ 15% p.a.