Regulation for preferential issue
Purpose: - SEBI has issued the guidelines for preferential issues for prevention of allotment of shares to themselves at a low price than market and also for the sake of other interest holders of the Company. Regulation 70 to 79 from chapter VII of SEBI (ICDR) contains the following:--
“Relevant date” In case of preferential issue relevant date mean :-
- For equity shares/convertible securities relevant date means 30 days prior to the date when meeting was held to consider the proposed preferential issues. But in case of preferential issues comes under corporate debt restructuring, relevant date would be date of such approval by RBI.
Conditions for preferential issue :-
- A listed issuer can make preferential issue of specified securities if :-
- Special resolution passed
- Equity shares are in dematerialized form
- Comply with the provisions of listing agreement
- Issuer has obtained the PAN of proposed allottees.
The issuer shall not make preferential issue of specified securities to any person who has sold equity sharesof the issuer during 6 months preceding the relevant date. Relaxation can beavailed only in respect of regulation 29 A of SEBI ( Substantial acquisition of sharesand takeover) regulations 1997.
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Where any promoter/promoter group has subscribed to warrants but warrants couldn’t be received , the promoter group shall be ineligible on issue of preferential shares for a period of 1 year and period of 1 year would be counted from :-
- The date of expiry of tenure of warrants ( assuming conversion option is not exercised)
- The date of cancellation of warrants
As the case may be.
Regulation 74 :- Allotment of specified securities should be completed within 15 days of passing of special resolution, otherwise fresh resolution need to be passed and relevant price of specified shares will also be considered w.r.t date of latter resolution.
Regulation 75 :- the tenure of convertible securities of the issuer shall not exceed 18 months from the date of their allotment.
Regulation 76 :- Pricing of equity shares should not be less than the highest of below quotes
- If shares are listed on recognized stock exchange then price of equity shares will be :-
- Avg of weekly high and low of closing prices of relevant equity shares during 6 months preceding the relevant date
- Avg of weekly high and low of closing prices of relevant equity shares during 2 weeks preceding the relevant date
- But if shares are listed for less than 6 months :-
- At the price upon which Intial public offer was made or value of shares derived according to section 391 to 394 of companies act.
- And the above 2 conditions are also inclusive.
- Any preferential issue of securities to Qualified Institutional buyers should not exceed 5 in no.
And issue to QIP should not be less than the average of 2 week high and low of closing prices preceding the relevant date.
Regulation 78 :- Lock in of specified securities
- Promoter’s securities not less than 20 % of total capital of the issuer, would be locked in for a period of 3 years from the date of allotment of specified securities. But the securities issued in excess of 20 % of total capital would be locked in for a period of 1 year from the date of allotment of such specified securities.
- Such securities allotted to other than promoter/promoter’s group would be locked in for a period of 1 year from the date of their allotment.
- When securities are converted , then lock in period of equity shares would be reduced to the extent of convertible securities already locked in.
- Preferential issue made under corporate debt restructuring framework by RBI would be locked in for a period of 1 year from the date of allotment.
- If amount calculated under reg 76 is not paid by allottee , then equity shares will be continued to be locked in till such amount paid by allottee.
- The entire pre-preferential allotment shall be locked in from the relevant date upto a period of 6 months from the date of preferential allotment.
Regards
Renu
CAclubindia
