Background
Chapter IV of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 regulates preferential issues by listed entities, which involve the issuance of specified securities to a select group of persons on a private placement basis. It lays down conditions relating to eligibility, pricing, disclosures, lock-in, and procedural requirements to ensure that such issuances are conducted in a fair and transparent manner. The Chapter is intended to prevent misuse of preferential allotments, protect the interests of existing and minority shareholders, and ensure objective valuation of securities. Overall, it facilitates capital raising by companies while safeguarding market integrity and investor confidence.
Applicability
These Regulations shall be applicable to:
Compliance Requirements under the Regulation
The draft offer document filed with the Board shall be made public for comments, if any, for a period of at least twenty one days from the date of publication of the public announcement under sub-regulation (2), by hosting it on the websites of the issuer, the Board, stock exchanges where specified securities are proposed to be listed and lead manager(s) associated with the issue.
The issuer shall, within two working days of filing the draft offer document with the Board, make a public announcement in one English national daily newspaper with wide circulation, one Hindi national daily newspaper with wide circulation and one regional language newspaper with wide circulation at the place where the registered office of the issuer is situated, disclosing to the public the fact of filing of the draft offer document with the Board and inviting the public to provide their comments to the Board, the issuer or the lead manager(s) in respect of the disclosures made in the draft offer document.
Lead manager(s) shall, after the expiry of 21-day period the draft offer document was made available to public to comment from date of filing with SEBI, submit to the Board a summary of the comments received and consequential changes, if any, that are required to be made in the draft offer document
Issuer and lead manager(s) shall ensure that Offer Documents are hosted on websites of Issuer, SEBI, S.E. where specified securities are proposed to be listed and lead manager(s) associated with the issue and its contents are same as versions as filed with ROC,SEBI and stock exchanges, as applicable
The lead manager(s) and the stock exchanges shall provide copies of the Offer Documents to the public as and when requested and may charge a reasonable sum for providing a copy of the same
The disclosure about the face value of equity shares shall be made in the draft offer document, offer document, advertisements and application forms, along with the price band or the issue price in identical font size.
The issuer may determine the price of equity shares, and in case of convertible securities, the coupon rate and the conversion price, in consultation with the lead manager(s) or through the book building process, as the case may be.
The issuer shall undertake the book building process in the manner specified in Schedule XIII.
Issuer may mention a price/price band in Offer Document (in case of fixed price issue) & floor price/price band in RHP (in case of a book built issue) and determine price at a later date before filing prospectus with the ROC. Prospectus filed with ROC shall contain only one price/specific coupon rate
i) Cap on price band & coupon rate in case of convertible debt instruments, shall be less than or equal to 120% of floor price(Cap of price band shall be less than equal to 105% of Floor Price
ii) Floor price or final price shall not be less than face value of the specified securities
iii) The issuer shall announce the floor price or the price band at least two working days before opening of bid in pre-issue and price band advertisement in the format specified under Part A of Schedule X in the same newspapers in which the public announcement under sub-regulation (2) of Regulation 124 was published
iv) Announcement shall contain relevant financial ratios computed for both upper and lower end of price band and also a statement drawing attention of investors to section title “basis of issue price” of offer document
v) Announcement & relevant financial ratios shall be disclosed on websites of S.E. and shall also be pre-filled in application forms to be made available on websites of S.E.
8. Offering of specified securities at Differential pricing (Regulation 128)
i) The issuer may offer its specified securities at different prices, subject to certain conditions.
ii) Discount, if any, shall be expressed in rupee terms in the offer document
9. Issuer may offer its specified securities at different prices, subject to following:
a) retail individual investors or retail individual shareholders or employees entitled for reservation made under Reg. 130 may be offered specified securities at a price not lower than by more than 10% of price at which net offer is made to other categories of applicants, excluding anchor investors
b) in case of a book built issue, price of the specified securities offered to the anchor investors shall not be lower than price offered to other applicants
c) in case of a composite issue, price of the specified securities offered in the public issue may be different from price offered in rights issue and justification for such price difference shall be given in offer document
d) in case issuer opts for alternate method of book building in terms of Part D of Schedule XIII, the issuer may offer the specified securities to its employees at a price not lower by more than 10% of the floor price
10. Allocation in the Net Offer when Issue is made through Book Building process under Reg 103(1) (Regulation 129(1),(3))
In issue made through book building process under Reg.103(1), allocation in net offer category shall be as follows:
a) not less than 35% to retail individual investors;
b) not less than 15% to non-institutional investors;
c) not more than 50% to QIBs, 5% of which shall be allocated to mutual funds
i) Provided that:
a) unsubscribed portion in either of the categories specified in clauses (a) or (b) may be allocated to applicants in any other category
b) in addition to 5% allocation available in terms of clause (c), mutual funds shall be eligible for allocation under balance available for QIBs
ii) In issue through book building, Issuer may allocate
11. Allocation in the Net Offer when Issue is made through Book Building process under Reg 103(2) (Regulation 129(2),(3))
In issue made through book building process under Reg.103(2), allocation in net offer category shall be as follows:
(a) not more than 10% to retail individual investors
(b) not more than 15% to non-institutional investors
(c) not less than 75% to QIBs, 5% of which shall be allocated to mutual funds.
i) Provided that unsubscribed portion in either categories specified in clauses (a) or (b) may be allocated to applicants in other category. Provided further that in addition to 5% allocation available in terms of clause (c), mutual funds shall be eligible for allocation under balance available for QIBs.
ii) In issue through book building, Issuer may allocate upto 60% of portion available for allocation to QIBs to Anchor investors as per Sch XIII.
iii) Allocation in non-institutional investors’ category in issue through book building shall be :
(a) 1/3rd of portion available to non-institutional investors shall be reserved for applicants with application size of > Rs. 2 lacs and up to Rs. 10 lakh
(b) 2/3rd of portion available to non-institutional investors shall be reserved for applicants with application size of >Rs. 10 lacs. Unsubscribed portion in either of sub-categories specified in clauses (a) or (b) may be allocated to applicants in other sub-category of non-institutional investors.
Issues made thru other than book building , allocation in net offer category shall be:
a)minimum 50% to retail individual investors &
b) remaining. to:
i) individual app. other than retail individual investors &
ii) other investors incl corporate bodies/institutions, irrespective of no.of specified sec. applied. The unsubscribed portion in either of the categories specified in clauses (a) or (b) may be allocated to applicants in the other category.
12. Reservations on a competitive basis to be made out of the issue size (Regulation 130)
Issuer can allocate portion of issue size on competitive basis, excluding promoters’ contribution to employees & shareholders (excluding promoters & group) of listed companies (subs/promoter).No reservations to be made for lead manager/registrar/syndicate members/their promoters/ directors/employees/associate group/companies as per Companies Act.
i) In FPO other than Composite Issue, reservation to be made out of issue size excl. promoters’ contribution for existing retail individual shareholders.
ii) Reservations subject to following conditions:
a) Employee reservation cannot exceed 5% of post-issue capital, with a maximum allotment of ₹2 lakhs per employee. In case of under-subscription, the limit may be raised to ₹5 lakhs per employee
b) Reservation for shareholders (excl. promoters) cannot exceed 10% of issue size
c) No additional subscription can be made by persons receiving reservations, except employees & retail shareholders of listed issuer/subsidiaries
d) Unsubscribed portions in reserved categories may be reallocated, with any remaining portion added to net offer
e) In case of under-subscription in net offer category, unsubscribed portion may spill over from reserved categories to public offer
iii) Applicant in any reserved category may make application for any no. of specified securities, but not exceeding reserved portion for that category.
The abridged prospectus shall contain the disclosures as specified in Part E of Schedule VI and shall not contain any matter extraneous to the contents of the offer document. Every application form distributed by the issuer or any other person in relation to the issue shall be accompanied by a copy of the abridged prospectus.
The issuer shall accept bids using only the ASBA facility in the manner specified by SEBI.
Lead manager to ensure availability of Offer Doc & issue material including application forms with S.E, syndicate members, registrar to issue, registrar & share transfer agents, DPs, stock brokers, underwriters, bankers to issue, investor associations & self certified syndicate banks before opening of issue.
Any person connected with the issue, shall not offer any incentive, whether direct or indirect, in any manner, whether in cash or kind or services or otherwise to any person for making an application in Initial Public Offer, except for fees or commission for services rendered in relation to the issue.
If issuer making FPO other than book building, desires to have the Issue underwritten, it shall enter into Underwriting Agreement with merchant bankers/stock brokers registered with SEBI, prior to filing of Prospectus, indicating therein max no. of securities to be subscribed at a predetermined price.
i) Predetermined price shall not be less than issue price
ii) Details of such Underwriting Agreement to be entered into Prospectus
iii) Underwriting Agreement may be entered by Issuer making FPO other than through book building, prior to filing of Prospectus indicating therein the number of specified securities they shall subscribe to on account of rejection of applications, either by themselves or by procuring subscription, at a predetermined price which shall not be less than the issue price, and shall disclose the fact of such underwriting agreement in the prospectus.
Where FPO is made through book building process, issue shall be underwritten by lead manager(s) & syndicate member(s), provided that at least 75% of net offer proposed to be compulsorily allotted to QIBs for compliance of eligibility conditions specified in Reg. 103(2) shall not be underwritten.
a) Issuer before filing Prospectus, must enter into underwriting agreement with lead manager(s) (LM) & syndicate member(s) (SM), specifying no. of securities they will subscribe to in event of bid rejection at a price not less than the issue price & disclose this agreement in Prospectus
b) If Issuer wants to underwrite Issue to cover under-subscription, it must, before filing RHP, enter into underwriting agreement with LM & SM, specifying max. no. of securities they will subscribe to at a price no less than issue price & disclose this agreement in RHP
iii) If SM fail to fulfil its underwriting obligation, LM to fulfil the same
c) LM &syndicate member(s) shall not subscribe to Issue in any manner except for fulfilling their underwriting obligations
d) In case of underwritten issue, LM shall undertake min. underwriting obligations as specified in SEBI (Merchant Bankers) Reg. 1992
e) Where Issue is required to be underwritten, underwriting obligations should be at least to extent of min. subscription.
19. Monitoring agency in case of FPO (Regulation 137(1)-(3))
If Issue size (excluding size of offer for sale by selling shareholders exceeds Rs.100cr, Issuer shall make arrangements for use of proceeds of Issue to be monitored by a credit rating agency registered with SEBI. This clause shall not apply to issue of specified securities by bank/PFI/insurance company.
i) The monitoring agency shall submit its report to the issuer in format specified in Schedule XI on a quarterly basis, till 100% of the proceeds of the issue actually raised have been utilised.
ii) The board of directors and the management of the issuer shall provide their comments on the findings of the monitoring agency as specified in Schedule XI.
20. Publishing & submission of the Report of Monitoring Agency under Reg. 137(4) of ICDR (Regulation 137(4))
The issuer shall, within forty five days from the end of each quarter, publicly disseminate the report of the monitoring agency by uploading the same on its website as well as submitting the same to the stock exchange(s) on which its equity shares are listed.
All public communication, publicity materials, advertisements and research reports shall comply with the provisions of Schedule IX.
After filing RHP (for book-built issues) or Prospectus (for fixed-price issues) with ROC, the issuer must make a pre-issue and price band advertisement in the same newspapers in which the public announcement under sub-regulation (2) of Regulation 124 was published.
i) Pre-issue and price band advertisement shall be in the format and shall contain disclosures specified in Part A of Schedule X.
ii) The issuer may release advertisements for issue opening and issue closing, which shall be in the formats specified in Parts B and C of Schedule X.
iii) During the period the issue is open for subscription, no advertisement shall be released giving an impression that the issue has been fully subscribed or oversubscribed or indicating investors’ response to the issue.
Subject to the compliance with the provisions of the Companies Act, 2013, a public issue may be opened within twelve months from the date of issuance of the observations by the Board under sub-regulation (4) of regulation 123. Provided that in case of a fast track issue, the issue shall open within the period specifically stipulated under the Companies Act, 2013.
In case of shelf prospectus, the first issue may be opened within three months of issuance of observations by the Board.
The issue shall be opened after at least three working days from the date of filing the RHP with the Registrar of Companies in case of book built issues and prospectus with the Registrar of Companies in case of fixed price issues.
The minimum subscription to be received in the issue shall be at least ninety per cent of the offer through the offer document, except in case of an offer for sale of specified securities.
In the event of non-receipt of minimum subscription, all application monies received shall be refunded to the applicants forthwith, within four days from the closure of the issue.
A further public issue shall be kept open for at least three working days and not more than ten working days.
i) In case of a revision in the price band, the issuer shall extend the bidding (issue) period disclosed in the red herring prospectus, for a minimum period of three working days, subject to the provisions of Regulation142(1)
ii) In case of force majeure, banking strike or similar unforeseen circumstances, the issuer may, for reasons to be recorded in writing, extend the bidding (issue) period disclosed in the red herring prospectus (in case of a book built issue) or the issue period disclosed in the prospectus (in case of a fixed price issue), for a minimum period of one working day, subject to the provisions of Regulation 142(1).
30. Application and minimum application value in case of FPO (Regulation 143)
Issuer to state in Offer Document that minimum application size for specified securities to fall within Rs. 10000 to Rs. 15000.
i) A person shall not apply for more specified securities in the net offer category than are available to the public. Non-institutional investors’ applications must not exceed the total securities offered, minus those allocated to qualified institutional buyers.
ii) The issuer shall invite applications in multiples of the minimum application value
iii) Minimum sum payable on application per specified security shall be at least 25% of the issue price. In case of an offer for sale, the full issue price for each specified security shall be payable at the time of application.
If the issuer proposes to receive subscription monies in calls, it shall ensure that the outstanding subscription money is called within twelve months from the date of allotment in the issue and if any applicant fails to pay the call money within the said twelve months, the equity shares on which there are calls in arrear along with the subscription money already paid on such shares shall be forfeited. It shall however not be necessary to call the outstanding subscription money within twelve months, if the issuer has appointed a monitoring agency in terms of regulation 137.
The issuer shall not make an allotment pursuant to a public issue if the number of prospective allottees is less than one thousand. The authorised employees of the designated stock exchange along with the lead manager(s) and registrars to the issuer
Post-issue responsibilities of the lead manager(s) shall be such as specified in Regulation 148 of ICDR.
Lead manager(s) shall confirm to the bankers to issue by way of copies of listing and trading approvals that all formalities in connection with issue have been completed and that the banker is free to release the money to the issuer or release the money for refund in case of failure of the issue. The lead manager(s) shall ensure that the monies received in respect of the rights issue are released to the issuer in compliance with the provisions of sub-section (3) of section 40 of the Companies Act, 2013, as applicable.
In case the issuer fails to obtain listing or trading permission from the stock exchanges where the specified securities were listed, it shall refund through verifiable means the entire monies received within four days of receipt of intimation from stock exchanges rejecting the application for listing of specified securities, and if any such money is not repaid within four days after the issuer becomes liable to repay it the issuer and every director of the company who is an officer in default shall, on and from the expiry of the fourth day, be jointly and severally liable to repay that money with interest at the rate of fifteen per cent per annum.
The issuer shall ensure that all transactions in securities by the promoters and promoter group between the date of filing of the draft offer document or offer document, as the case may be, and the date of closure of the issue shall be reported to the stock exchanges within twenty four hours of such transactions.
The issuer shall also ensure that any proposed pre-offer placement disclosed in the draft offer document shall be reported to the stock exchange(s), within twenty-four hours of such pre-offer transactions (in part or in entirety).
The lead manager(s) shall submit a final post-issue report as specified in Part A of Schedule XVII, along with a due diligence certificate as per the format specified in Form F of Schedule V, within seven days of the date of finalization of basis of allotment or within seven days of refund of money in case of failure of issue.
Issuer shall not make FPO of specified securities (public/rights/pref./QIP/bonus) between filing offer document/prospectus with ROC & listing/refund except for ESOS/SARS in fast track issue, unless full disclosure of proposed no. of securities/amount to be raised is made in offer Document/OD. Similarly, An issuer shall not make any further issue of specified securities in any manner whether by way of public issue, rights issue, preferential issue, qualified institutions placement, issue of bonus shares or otherwise, except pursuant to an employee stock option scheme or a stock appreciation right scheme in case of other issues, during the period between the date of filing the draft offer document and the listing of the specified securities offered through the offer document or refund of application monies; unless full disclosures regarding the total number of specified securities or amount proposed to be raised from such further issue are made in such draft offer document or offer document, as the case may be.
An issuer may provide green shoe option for stabilising the post listing price of its specified securities, if approved by shareholders resolution in same GM as held for approving the public issue and such other conditions as laid down in Reg.153(1) of ICDR. Various conditions and provisions w.r.t stabilising agent/process, etc are stipulated in Reg 153(2)-(11) of ICDR.
Issuer shall not alter terms (including the terms of issue) of specified securities which may adversely affect interests of the holders of those specified securities. However, Issuer can do so except with the consent in writing of the holders of not less than three-fourths of the specified securities of that class or with the sanction of a special resolution passed at a meeting of the holders of the specified securities of that class.
Requirement of filing Draft Offer Document with SEBI along with requisite documents and making modifications as suggested by SEBI to Draft Offer Document shall not apply where FPO is made through Fast Track Route and eligibility conditions as stated in Regulation 155 to ICDR are fulfilled. Eligibility: -Eq. shares listed on S.E. for min.3 years -Promoter group’s shares must be dematted – Avg. Public shareholding market cap ≥ ₹1000 cr in any one S.E where it’s listed -Trading turnover ≥.2% of listed shares in last 6 months(based on free float if public shareholding < 15%) -Delivery-based turnover ≥10% of total turnover in last 6 months -Compliance with listing agreement/LODR for 3 years except minor lapses disclosed in Offer Doc(OD) -95% of investor complaints resolved by end of qtr preceding ref. date -No pending show-cause notices (except for penalties)against issuer/promoters/directors. If issued/ prosecution proceedings initiated, disclose them & their impact in OD -If settled securities violations in last 3years, disclose compliance in OD -No suspension of equity shares in last 3years -No conflict of interest between lead manager(s) and issuer/group -Restated financial statements adjusting for impact of audit qualifications for F.Y. for which accounts are disclosed in OD.
The issuer shall file the offer document with the Board and the stock exchanges in accordance with sub-regulations (7) and (8) of regulation 123 and shall pay fees to the Board as specified in Schedule III. The lead manager(s) shall submit to the Board, the following documents along with the offer document:
a) a due diligence certificate as per Form A of Schedule V including additional confirmations as specified in Form E of Schedule V;
b) in case of a fast track issue of convertible debt instruments, a due diligence certificate from the debenture trustee as per Form B of Schedule V.
Explanation: For the purposes of this regulation: “reference date” means the date of filing the red herring prospectus (in case of a book built issue) or prospectus (in case of a fixed price issue) with the Registrar of Companies.
In case of FPO incl. fast track route, promoters/shareholders in control of Issuer shall provide exit offer to dissenting shareholders as per Companies Act, in case of change in objects/variation in terms of contract related to objects referred to in offer doc as per conditions & manner provided in Schedule XX. The exit offer shall not apply where there are neither identifiable promoters nor shareholders in control of the listed issuer.
Penalty & Punishment
(a) imposition of fines;
(b) suspension of trading;
(c) freezing of promoter/promoter group holding of designated securities, as may be applicable in coordination with depositories;
(d) any other action as may be specified by the Board from time to time.
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