We are here Discuss the legal validity, Procedure & Timelines for Public Issue.
APPLICABLE LAW & REGULATIONS
- The fund raised by the company by a new issue in the primary market by raising capital and convert its private capital into public capital this process is known as “going public or Public issue.”
- The instruments / Securities issued in the Primary markets are long terms through which corporate entities raise funds from the capital market.
- In a primary market, companies or public sector institutions can raise funds through bond issues and sale of new shares through an initial public offering (IPO).
- The governments can raise funds through bond issues through an initial public offering (IPO).
- In this process of raising fund involves an investment banker or finance syndicate of securities dealers.
- The Underwriting of shares is mandatory if shares are issued through Book Building (Price discovery) method.
- The securities traded in the Secondary market after issued in the primary market through IPO.
- The securities traded on a Stock exchange and price of securities decided based on market forces and this market is known as Secondary Market.
TYPES OF ISSUE
When an issue/offer of securities (Shares/Debt Instruments) is made to the general public by the Company as per SEBI Regulation & Guidelines.
- Initial public offer (IPO).
- The UNLISTED COMPANY made a fresh issue of securities (Shares/Debt Instruments) or offers its existing securities for sale or both for the first time to the general public.
- Further public offer (FPO) or Follow on offer.
- The listed company which is makes another a fresh issue of securities already issued or an offer for sale to the General public.
Rights Issue (RI)
- The Company made an issue of securities to its Existing Shareholders on a particular Record Date (The date on which data of its shareholders collected).
- The Right Shares offered to Shareholders in their shareholding Ratio as per their holding on the record date.
- The Company made an issue of securities to its Existing shareholders WITHOUT ANY CONSIDERATION or Free in proportion to their paid-up capital held on a Record Date.
- The Company used its Free Reserve account or Share premium account to made a Bonus issue in ratio to the number of securities held on a record date.
- When a company makes an issue of securities to a select group of persons of 50 at the same time and not exceeding 200 in a financial year and WHICH IS NEITHER A RIGHTS ISSUE NOR A PUBLIC ISSUE.
- The Company should comply with section 42 of Companies Act, 2013.
PRIVATE PLACEMENT OF SHARES OR CONVERTIBLE SECURITIES BY LISTED ISSUER CAN BE OF TWO TYPES
1. Preferential allotment:
- The listed company made an issue of Shares OR Convertible Securities into equity shares, to a selected group of persons in terms of provisions of Chapter VII of SEBI (ICDR) Regulations.
- The issuer has to comply with various relevant provisions like pricing, disclosures in the notice, lock in etc., and also the requirements of the Companies Act, 2013.
- We need to read Section 62 along with Rule 13 of the Companies (Share Capital and Debentures) Rules, 2014 and
- Section 42 along with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014
2. Qualified institutions placement (QIP)
- The listed company issues equity shares or securities convertible into equity shares to Qualified Institutions Buyers (QIBs) as per the terms of provisions of Chapter VIII of SEBI (ICDR) Regulations.
3. Institutional placement programme (IPP)
- The listed Company makes allocation and allotment through Further public offer (FPO) or Follow on offer or offer for sale.
- Of the Equity shares by the promoter/promoter group of listed Company to only Qualified Institutional Buyers (QIBs) in terms of chapter VIIIA of SEBI (ICDR) Regulations, 2009.
- The purpose of an Institutional placement programme (IPP) is to achieving Minimum Public Shareholding (i.e. 25%).
- It an agreement between Underwriter (Normally Book Runner/Merchant Banker OR Syndicate Members) and the Body Corporate with or without conditions, In which underwriter undertake the Liability to subscribe the unsubscribe portion of the securities offered to Public or Existing shareholders of such body corporate.
- Public issue (OTHER THAN through the book-building process) or RIGHTS ISSUE, may be underwritten, then appoint of the Underwriters shall accordance with SEBI (Underwriters) Regulations, 1993.
- The Public Issue through Book Building method then such issue shall be UNDERWRITTEN by Underwriter.
- The issue in which at least 75 % of the net offer to public proposed compulsorily allotted to QIBs not required to be underwritten.
- Underwriter Subscribe the Unsubscribe portion of securities at a predetermined price.
- If syndicate members fail to fulfil its underwriting obligations then lead book runner / Merchant Banker shall liable to complete the underwriting obligations.
- The Book runners and syndicate members shall not subscribe to any shares except to complete its underwriting obligations.
The company can offer its specified securities at different prices, subject to the following conditions:
- The company made a reservation of Application for Retail individual investors (RIIs) or Retail Individual Shareholders or Individual Employees shall not exceed the value of Rs. 2 Lakh.
- Company may offer any specified securities at a price lower than the price at which net offer is made to other categories of applicants.
- But the difference shall not exceed 10% of the price at which specified securities are offered to other categories of applicants.
IN CASE OF A BOOK BUILT ISSUE
- The price offered to Anchor Investor (Investor who made Investment of Minimum 10 Cr.) for specified securities shall not less than the price offered to other categories of applicants
- The issuer can offer specified securities to its employees at a price, lower than floor price and the difference between the final price and floor price shall not exceed 10%.
- The price of the specified securities offered in the public issue can be different from the rights issue and
- The company need to given Justification in the Offer documents for such price difference.
The issuer announces the floor price or price band (eg. 120-140)
- at least 2 working days before the opening of the bid (in case of an IPO) and
- at least 1 working day before the opening of the bid (in case of an FPO),
- All the newspapers in which the pre-issue advertisement was released & where the securities are proposed to be listed
- The pre-filled application forms were available on the websites of the stock exchanges.
- The Cap price of the price band shall be less than or equal to 120% of the floor price.
- The Face value of the specified securities is not less than the floor price of the specified securities.
- The “Cap on the price band” in case of convertible debt instruments is applicable on the coupon rate (INTEREST RATE).
FACE VALUE OF EQUITY SHARES
LISTED COMPANY OR FPO
- The Listed Company are free to decide the Face value of Shares.
- But Determined by the Provisions / Norms provided by the Companies Act, 2013 and SEBI from time to time.
- The disclosure about the face value of equity shares shall be provided in the advertisement, offer documents and in application forms in identical font size as that of the issue price or price band.
IN CASE OF INITIAL PUBLIC OFFER (IPO) BY AN UNLISTED COMPANY
- When the Issue price is Rs. 500/- or more, than the issuer company shall have the discretion to fix the Face value per share below Rs.10/- but up to Rs. 1 in any case,
- if the issue price is less than Rs.500 per share, the Face value per share shall be Rs. 10/-.
- The above condition is not applicable when IPO is made by Government company, statutory authority, or corporation or any special purpose vehicle set by or them &
- Those are Involves into INFRASTRUCTURE SECTOR.
* When the post-issue shareholding of the promoters is less than 20% then AIFs (alternative investment fund) may make Arrangement or Contribute to meet the shortfall in minimum contribution but up-to maximum 10% of the post-issue capital as prescribed for promoters of Unlisted company
** While calculating the post-issue capital, The Right Issue Components is excluded from Composite Issue.
- The full Amount of the promoters’ contribution including premium shall be brought by the promoters at least one day before the public issue opening date.
- which shall be kept in an escrow account open with a Scheduled Commercial Bank.
- The contribution of promoters will be released to the company as public issue proceeds.
- However, the promoters have made promoters’ contribution before the public issue and which is already provided to the company.
- Then the company shall attach the cash flow statement with offer document and disclosing the use of promoters’ contribution fund.
- If the promoters’ minimum contribution exceeds Rs.100 crores, then remaining contribution (ABOVE 100 CR) shall be provided by the promoters in ADVANCE ON PRO-RATA BASIS BEFORE THE CALLS ARE MADE ON PUBLIC.
Exemption from the requirement of the Promoter’s Contribution
- Not Identifiable as Promoter
- The shares of the company are frequently traded for last 3 year and have a dividend payment track record of immediately preceding 3 years.
- Right Issue.
SECURITIES INELIGIBLE FOR MINIMUM PROMOTERS’ CONTRIBUTION ( Not included in promoter contribution calculation)
- Any securities acquired in the preceding 3 years.
- Other than cash and revaluation as assets.
- Bonus issue or capitalisation of profit.
- Securities acquired during the preceding one year at a price lower than the price at which is offered to the public in the IPOs by promoters and AIFs.
- Any Securities pledged with any creditor.
MINIMUM OFFER TO PUBLIC
Equity Shares of Each Class or Kind or Debenture Convertible Into Equity Shares Issued By The Company
- The company required to maintain Minimum 25% public shareholding in Point no. 2 & 3 of the above table within three years from the date of listing of the securities as per the manners specified by SEBI.
MINIMUM OFFER TO PUBLIC & OTHER CATEGORY
In case of an issue made through the Book Building process under regulation 32 (1), 129 (1), 32(2) and 129 (2)
- Extra 5% also available for allocation to mutual funds,
- If the balance available in QIBs portion then Mutual Funds are eligible to subscribe that portion.
- The Company may Allocate 60% of QIBs portion to Anchor Investor.
- Disclaimer Clause Of SEBI – SEBI Only Gives Its Observations On The Offer Documents And its Doesn’t Constitute Approval Of Either The Issue Or The Offer Document.”
- Allotment in Dematerialised Form (No Physical Shares)
- All Subscribers/applicants have PAN no.
BASIC CONDITION FOR IPO or FPO BY THE ISSUER
- The Issuer made an application to one or more Stock Exchange for the listing of Securities and select one of them as Designated Stock Exchange.
- The Specified Securities shall be issued in Dematerialised form and agreed with Depository (i.e. CDSL/NSDl).
- Before the filing of the offer document all the specified securities held by the promoters are in dematerialised form.
- The issuer shall convert all partly paid securities into fully paid up or Forfeited.
- The amount shall not exceed 25% of the issue used for General Corporate Purposes as mentioned in the draft offer document.
- The issuer shall make firm arrangements of finance means towards 75% of the stated means of finance excluding the amount to be raised through the proposed public issue or existing identifiable internal accruals.
ELIGIBILITY NORMS FOR PUBLIC ISSUE (Unlisted company)
REGULATION 6 (1)
- An unlisted company make an issue of equity shares or any other securities through an initial public offering (IPO).
- The Company at least have Rs. 3 crores Net tangible assets in EACH of the preceding 3 full years and out of which monetary assets shall not exceed 50%.
- However, if monetary assets exceed 50% of the net tangible assets, then issuer has to make firm commitments to used excess monetary assets in its business or project.
- The public offer is made entirely through an offer for sale than the limit of 50% on monetary assets shall not be applicable.
- The company have Rs. 15 crores minimum average pre-tax operating profit during the 3 most profitable years out of the immediately preceding 5 years.
- The Net Worth of the company at least Rs. 1 crore in each of the preceding 3 full years.
- The aggregate of proposed issue and all previous issues made in the same financial year in terms of size not exceeds five (5) times its pre-issue net worth (Amount by which assets exceed liabilities) as per the audited balance sheet of the last financial year.
- The company changed its name within the last one year then Company has to earn at least 50% of its revenue from activity suggested by the new name in the preceding 1 full year.
Alternative Eligibility Norms (if fails to satisfied above condition)
REGULATION 6 (2)
- Issued through the book-building process and
- 75% of the net offer to the public issued to QIBs otherwise refund subscription money.
OFFER DOCUMENT FILING (REG. 25 & 123)
- Submit the draft letter of offer with the Designated Stock Exchange(s) along with Promoters Details, where the specified securities are proposed to be listed.
- SEBI may give observations or changes in the draft letter of offer within 30 days from the later of the following dates:
- The date of receipt of the draft letter of offer to SEBI; or
- Date of receipt on which satisfactory reply from Lead Merchant banker received to SEBI if there any classification required or
- Date of receipt on which any clarification or Details from any Regulatory bodies or agency received to SEBI if there any pieces of information are required or
- Date of receipt of in-principle approval letter provided by the stock exchanges.
- The Issuer shall comply with all changes specified by SEBI on the draft letter of offer before registering Prospectus or Red Herring prospectus (In Book Building Method) or Shelf prospectus (Issuer make more than one issue in a year) with Registrar of Companies (ROCs) or an appropriate authority, as applicable
- After Registering Letter of offer with ROCs filled (Online & Physical Copy) with SEBI & Stock Exchanges(s).
- The issuer shall file three copies of the draft offer document before making IPO/FPO with the regional office of SEBI along with specified fees by lead Merchant banker, where is Company registered office is situated.
- The lead Merchant banker shall submit the following to SEBI along with the draft offer document:
- An agreement copy of the agreement entered into the issuer and the lead Merchant banker.
- Due diligence certificate.
- Due diligence certificate from the debenture trustee, in case of an issue of convertible debt instruments.
PUBLIC COMMENTS ON DRAFT LETTER OF OFFER [Reg. 26 & 124]
- The Draft Letter of offer for Pubic comments is available for 21 days from the date filled with SEBI & It’s hosted on the website of
- Stock exchanges and
- Lead manager(s).
- A public announcement (where the company registered office is situated) made by an issuer for public comments on Draft letter of offer filed with SEBI Within 2 days in
- One English national daily newspaper,
- One Hindi national daily newspaper and
- One Regional language newspaper.
- The lead manager(s) shall file details of public comments with SEBI after the expiry of the above given period and make changes according to them.
ASBA [Reg. 35 & 132]
- All the application for Bids shall accept using only the ASBA (Application Supported by Blocked Amount) facility.
SECURITY DEPOSIT [Reg. 38 & 135]
- The Minimum 1% amount of the issue size shall be deposit by the company to the stock exchange, which shall be refundable or forfeited as per the manner specified by SEBI.
GRADING OF IPO (Applicable to IPO only) [Regulation 39]
- An IPO company need to appoint one or more credit rating agencies registered with SEBI.
- IPO is rated by Credit rating agencies.
Opening of the Public Issue [Regulations 44 & 140]
- The Public issue (both IPO and FPO) may be opened within 12 months from the date of receipt of observation from SEBI subject to compliance of Section 26 (4) of companies act, 2013.
- The company may open the issue within 3 months from SEBI observation in the case of Shelf Prospectus.
- The Public issue shall be opened after 3 working days of registering Red herring prospectus (In Book Building Method) or Prospectus (Fixed price Issue) with ROCs.
Period of Subscription [Reg. 46 & 142]
- The public issue shall open for Minimum 3 & maximum 10 working days.
- Any revision in price band then the company shall extend the bidding period for a minimum of 3 working days.
- In the case of unnatural event or strike happen then the company shall extend the bidding period for a minimum of 3 working days.
Minimum Subscription [Reg. 45 & 141]
- The issuer shall receive minimum 90% subscription of issue size as per offer document except for offer for sale of securities.
- In IPO, the company in addition to above minimum subscription shall offer & allotted 25% of post-issue capital to the public of each class or kind of equity shares or debentures convertible into equity shares.
- Non-receipt of Minimum subscription, the company shall liable to refund all application monies within 15 days from the closure of the issue.
Manner of Calls [Reg. 48 & 144]
- The company shall call its outstanding subscription monies within 12 months from date of allotment except in case issuer appoints any monitoring agency the limit 12 months is not applicable.
- The applicant not able to pay call money then its account transfer to call in arrear and shares will be forfeited.
Monitoring Agency [Regulations 41 & 137]
- The Public issue size exceeds Rs. 100 cr. excluding offer for sale then the company shall ensure that issue proceeds are properly monitored or managed by Public Financial Institutions (PFIs) or Commercial banks named as banker to the issue in the offer document.
- The above condition/provisions are not applicable if the issuer is Public Financial Institutions (PFIs) or Commercial banks or Insurance company.
- The monitoring agency shall submit its report (Quarterly basis) to the company till 95% of issue fund have been utilised excluding fund for general corporate purposes.
- The company shall submit above Quarterly report of Monitoring agency with stock exchange & upload on its website within 45 days from the end of the quarter.
Application Size & Value [Reg. 47 & 143]
- The applicant has to pay a minimum of 25% at the time of making an application for specified securities.
- But in case of the offer for sale (Right issue) 100% payable at the time of application.
- Minimum application value is between 10 to 15 Thousands at the time of application for specified securities.
Allotment and Basis of Allotment [Reg. 49 & 145]
- The company shall have a minimum 1000 prospective Investor for making allotment as a public issue.
- There is no excess allotment of securities offered through offer documents except in case of oversubscription for rounding purpose after consultation with the stock exchange.
- The issuer shall not make an allotment according to a public issue if the number of prospective allottees is less than one thousand.
- The reservation shall not exceed 2 lakh for Retail Investor & 5 lakh for eligible employees.
Post issue Formalities
- The company is not able to allotted securities or refunded or unblocked the application monies within time mention in offer document then the company is liable to pay 15% per annum interest rate to investors.
Reporting to Promoters and promoter group [Reg. 54 & 150]
- The company shall report all the transaction of promoter & promoters group between the date of filing of letter of offer & the date of closure of an issue to the stock exchange within 24 hours of such transactions.
Post-issue reports [Regulations 55 & 151]
- The final Due diligence & post issue report to the stock exchange is submitted by the Lead manager to the offer within
- 7 days of finalisation of allotment or
- 7 days of refund of application monies (In Failure of Issue)