SEBI (ICDR) Regulations 2009 and Recent Amendments
Simplifying the Issue Management
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An Overview
SEBI (ICDR) Regulations deals with Issue of Specified Securities by a new Issuer or a Listed Issuer.
Specified Securities as defined under SEBI ICDR Regulations vs. Securities as defined under
SCRA:Equity Shares
Non-Convertible Preference Shares Stocks
Bonds Debentures Debentures Stock Derivates
Convertible Preference Shares
Units Issued by CIS Govt. Securities
Convertible Securities
Any marketable securities
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Structure of ICDR Regulations
SEBI (ICDR) Regulations, 2009
Preferential IssuesPublic Issues
General Obligations of Issuer and Merchant
Banker in Public Issue / Right Issue
Right Issues
Bonus Issues
QIP
IDR Issues
Issues by SMEs
Schedules
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What ICDR does not Regulate
• Public Issue of Debt Securities(Regulated by SEBI (Issue and Listing of Debt Securities) Regulations 2008)
• Issue of ADRs / GDRs (Regulated by RBI FCCBs and Ordinary Shares [Through Depository Receipt
Mechanism] Scheme, 1993 )
• Issue of FCCBs(Regulated by RBI FCCBs and Ordinary Shares [Through Depository Receipt Mechanism] Scheme, 1993
• Issue of shares pursuant to ESOPs(Regulated by SEBI (Employee Stock Option Plan and Employee Stock Purchase Scheme) Guidelines, 1999)
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ICDR vs. DIP
• Exemption to certain banking and infrastructure companies from eligibility norms for making initial public offers (IPOs) is withdrawn.
• Offer for Sale by Listed Companies Allowed
• Allotment on Firm Basis to specified categories is removed.
• Contribution by persons belonging to promoter group is no more covered under Promoters’ Contribution.
• Underwriting obligation is extended to the whole issue not just up to minimum subscription.
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ICDR vs. DIP – Contd.
• 75% Book Building route is withdrawn.
• Efficient procedure and adequate disclosures under Book-Building Process Specified.
• Mandatory requirement of disclosure of any pledge of shares by promoters.
• Power to Stock Exchange to order revaluation of non-cash consideration for preferential allotment to promoters or related persons.
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Public Issues Framework
Book Build Issue
Fixed Issue
Type & Procedure
Eligibility Requiremen
ts
Allocation of Issue
Pricing Promoters’ Contribution & Lock-in
Public Issue Framework under
SEBI (ICDR) Regulations
Issue Period
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Eligibility RequirementsPrimary Eligibility Requirements• Rs. 3 Crores (Net Tangible Assets) in last 3 years• Rs. 1 Crore (Net Worth) in last 3 years• Distributable profits for 3 years in last 5 years• In case of change of name, 50% revenues from activity suggested by new name• Aggregate of all issues in one financial year not to exceed 5 times issuer’s pre issue
net worthAlternate Eligibility Requirements:• Issue through Book-Building Process with minimum 50% net offer to QIBs ;OR• ‘Project’ has 15% participation from financial institutions/scheduled commercial
banks of which 10% comes from appraisers and min. 10% net offer to QIBs AND• 10 Crores minimum post issue face value capital; OR• 2 years of compulsory market making post issue
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Other Pre-requisites
• Prospective allottees to be not less than 1000.
• Compulsory IPO Grading by credit rating agency before filling RHP with ROC
• No outstanding convertible securities or other right which would entitle the existing promoters or shareholders any option to receive equity shares after public offer.
• Firm arrangements of finance, through verifiable means, for 75% of the stated means of finance excluding the amount to be raised through the public issue to be made.
• Partly paid up shares to be made fully paid or forfeited in the manner specified, before the public offering.
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Other Key Decisive CriteriaFixed Price Issue Book-Building Issue
Track record required Track record not required
Book-building not compulsory Book-building compulsory
50% QIB allocation not mandatory 50% QIB allocation Mandatory
No Appraisal Report from Schedule Commercial Banks / Financial Institutions Required
Appraisal Report Required, if not opt for 50% QIB
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Minimum Listing Requirements
Specification of Listing Requirements
BSE
For New Companies
(IPO)Large Cap Companie
s
Small Companie
s
For already Listed
Companies (FPO)
NSE
For New Companies (IPO)
For already Listed Companies (FPO)
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Minimum Listing Requirement -BSENew Companies (IPO) Existing Companies (FPO)
Small Cap Companies Large Cap Companies
Minimum issue size of Rs. 3 crore
Minimum issue size of Rs. 10 crore
No minimum issue size requirement
Market capitalization of not less than Rs. 5 crore
Market capitalization of not less than Rs. 25 crore
Minimum Market Capitalization of the listed capital shall be at least two times of the Paid Up Capital.
Minimum post-issue paid-up capital of Rs. 3 crore
Minimum post-issue paid-up capital of Rs. 3 Crores
A minimum issued and paid up equity capital of Rs. 3 crore .
Minimum income/turnover of Rs. 3 crore in preceding 3 Years
Minimum Net Worth shall be Rs. 20 crore.
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Minimum Listing Requirement -BSENew Companies (IPO) Existing Companies (FPO)
Small Cap Companies Large Cap Companies
Compulsory due diligence by CA or Merchant Banker
A dividend paying track record of atleast 10% for at least the last 3 consecutive years
Minimum 25% public shareholding with not more than 0.5% shareholding with any single shareholding.
At least two years listing record with any of the Regional Stock Exchanges.
Demat trading with CDSL and NSDL.
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Minimum Listing Requirement -NSE
New Companies (IPO) Existing Companies (FPO)
Minimum paid-up capital of Rs. 10 crore
However, if Market Capitalization > Rs. 100 Crore, then Minimum Post-issue paid-up capital is Rs. 5 Crore.
Minimum paid-up capital of Rs. 10 crore and Minimum Market capitalization of Rs. 25 croreORMinimum paid-up capital of Rs. 25 crore ORMinimum Market capitalization of Rs. 50 croreORMinimum Net worth of Rs. 50 Crores in preceding 3 years.
Minimum Market capitalization of Rs. 25 crore
Minimum 3 years of track record of Issuer Company or its promoter company.
Minimum 3 years of track record of Issuer Company or its promoter company.
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Minimum Listing Requirement -NSE
New Companies (IPO) Existing Companies (FPO)
Other criteria Dividend payment record in atleast 2 out of the last 3 FY ORDistributable profits in atleast 2 out of the last 3 FY ORMinimum Net worth of Rs. 50 Crores Other Criteria
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Type & ProcedureType of Issue
Fixed Price Issue Book-Building Issue
Normal Book Building Method
Alternate Book Building Method
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A Comparative AnalysisFixed Price Issue Book-Building Issue
Pre-determination of price / price band, which is made known to the investors
Determination of price on the basis of bids received from the investors. Investors are made known only an indicative floor price / price range.
Demand for the securities offered is known only after the closure of the issue.
Demand for the securities offered can be known everyday as the book is built.
Underwriting is not compulsory in case of Fixed Price Issue
Underwriting is compulsory in case of Book-Built Issue
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Alternate Method of Book-Building• Disclosure of Floor Price• QIBs shall bid at any price above the floor price• Allotment to QIB investors on Price Priority Basis i.e. Highest
bidders get the bided number of shares• Allotment of other investors on proportionate basis• Other investors will be allotted shares at Floor Price• Issuer may
– put a cap on number of specified securities– Allow bidders to revise their bids– Allow bidders to make multiple bids
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Kick Off Meeting
Due Diligence and Documentation
Filing with SEBI and SE
Pre-IPO Structuring
Pre-Marketing SEBI Approval &RoC Filing
Roadshows & Price Band Discovery
RoC filing of finalProspectus
Book building and Pricing
Closing andAllotment
Listing and trading
Marketing Phase of Issue
Preparatory Phase of
Issue
Final Phase
Procedure
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Pricing• Free Pricing – Price to be determined by Issuer in consultation
with Lead Merchant Banker• Differential Pricing
– Retail Individual Investor my be offered shares at less price than that of other categories
– Anchor investors can not be offered shares at less price than any that of other categories
– In case of Composite issue, the price of public issue and right issue can be different.
– In case of alternate method of book building, shares may be issued to employees at lower price.
(the differential pricing shall not be more than 10% of the floor price)
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Pricing Contd.
Pricing of Issue
Disclosure of Pricing
Fixed Price Issue
Price or Price Band
Book –Build issue
Floor Price or Price Band
Timing of disclosure of pricing
IPO
Atleast 2 WD before Opening of Bid
FPO
Atleast 1 WD before Opening of Bid
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Pricing Contd.
Face Value of Shares
Issue Price per share < Rs. 500
Face Value = Rs. 10
Issue Price per share > Rs. 500
Face Value = Rs. 1-10
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Promoters’ Contribution
Minimum Promoters’ Contribution
IPO
Min. 20% of Post Issue Capital
FPO
Min. 20% of Proposed Issue Size
Min. 20% of Post Issue Capital
Composite Issue
Min. 20% of Proposed issue Size
Min. 20% of Post Issue Capital excl. Right Issue Component
OR OR
Certain specified securities are ineligible for minimum promoters’ contributionCA DHRUV AGRAWAL
Securities are ineligible for minimum promoters’ contribution• Securities acquired during the preceding 3 years for consideration other than cash.• Specified securities acquired during the preceding 1 year at a price below Issue
price,However, if promoters pay the difference, or acquired pursuant to merger etc., then such securities are eligible.
• Securities allotted to promoters acquired during the preceding 1 year at a price below Issue price against funds brought in by them in case of conversion of partnership firm into company.
• Securities pledged with any creditor.
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Pricing and Lock-in of Promoters’ Contribution
Promoters’ Contribution
Minimum Promoters’ Contribution
Price = Issue Price
Lock-In = 3 years
Promoters’ Contribution in excess of Minimum
Promoters’ ContributionPrice = average of 26 weeks and 2 weeks
preceding the reference date, which ever is
higher OR Issue Price, whichever is higher
Lock-In = 1 year
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Allocation of Issue – Book Building Route
Retail individual investor
QIB
Offer through offer document
Promoters’ Contribution
Issue Size
Non-institutional investor
Anchor Investor
Mutual Funds
ReservationNet offer to
public
Min. 20% of Issue Size
Min. 25% of Issue Size
Min. 15% of NOPMax. 50% of NOP Min. 35% of NOP
Min. 5% of NOP Max. 30% of QIBCA DHRUV AGRAWAL
Allocation of Issue – Fixed Price Issue
Other investors
Offer through offer document
Promoters’ Contribution
Issue Size
Retail Individual Investors
ReservationNet offer to
public
Min. 20% of Issue Size
Min. 25% of Issue Size
Min. 50% of NOP Max. 50% of NOP
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Issue PeriodActivity Fixed
Price Issue
Book-build Issue
Minimum day 3 3
Maximum days 10 7
Maximum number of days issue to be kept open in case of revision in price band
N.A. 10
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Key Terms of Issue
Anchor Investor
ASBA
Green Shoe Option
Safety Net Scheme
Fast Track Issue
Red Herring Prospectus
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Key Considerations in Public Issue• Fund requirement vs. maximum dilution• Offer for sale or Fresh Issue or Combination of both• Fixed Price issue or Book Building Issue• Stock Exchanges, where to list.• Involvement of Anchor Investor• % of allotment to different category of investor.
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Right Issue & Key ConsiderationsRight Issue• Meaning – Issue of shares by a company to its existing
shareholders• Free Pricing• Issue of Letter of Offer
Key Considerations• Rights Issue vs. Further Public offering• Extent of Capital Expansion and its impact on EPS• Increase in Promoters’ shareholding and applicability of SEBI
Takeover Code.• Reservation of rights for convertible instruments.
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Preferential Issue – Key Considerations• Allotment of warrants or shares• Relevant date for allotment of warrants – GM to approve allotment or BM to
convert warrants• Eligibility of allotees
– Shareholding of allottee should be in demat form– No Prior sale of shares by the allottee– Relationship with promoters and with other allottees shall be checked– Allottee should have PAN No.
• Lock-in of securities for 3 years in case of promoters and 1 year in case of non-promoter.
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QIP – Key Considerations• Relaxed timeline allowed upto a period of 12 months• Conversion Period of eligible convertible securities is 60 Months• Pricing of issue is allowed at the time of opening of Issue.• No lock-in on acquisition of shares through QIP.• Minimum allotment of 10% to Mutual Funds.• FDI norms are applicable on allotment to NRIs.
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Recent Amendments in ICDR
29 Sep 2009
5 Copies of Offer document of Issue size upto Rs. 50 Crores to be filed with regional office and Offer document of Issue Size exceeding Rs. 50 Crores to be filed with Head office
28 Aug 2009 Promulgation of Regulations
29 Sep 2009Explanation of ASBA facility such as Meaning of ASBA, Self-certified Syndicate Bank, Eligibility of Investors, Timelines, Process in brief.
01 Jan 2010 -Facility of ASBA extended from Book-Built Public and Right Issues to all Public and Right Issue
11 Dec 2009
- Amendment in Provisions wrt reservations- Amendment in Provisions wrt Financial
Statements- Alternate Method of Book Building
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Recent Amendment in ICDR
08 Jan 2010
- Amendment in Provisions relating to differential pricing in Alternate Method of Book Building
05 Mar 2010
Mandatory disclosures of details of allottees in QIP and the corresponding Pre and Post QIP issuer shareholding of allottee in the Issuer company.
06 Apr 2010
Facility of ASBA extended to QIBs also which was not earlier available to them.
13 Apr 2010
- Definition of Employee extended to cover Employees of Holding & Subsidiary Companies
- Min. 30% allocation to RII in case of public issue of IDRs
- Introduction of Issue of specified securities by SMEsCA DHRUV AGRAWAL
Recent Amendments in ICDR
22 Apr 2010
Reduction in Time between Issue closure and listing from average 22 days to 12 days
26 Apr 2010
Guidelines for market makers on Small and Medium Enterprise (SME) exchange/separate platform of existing exchange having nation wide terminal
17 May 2010 Issue of Model Equity Listing Agreement for SMEs
18 May 2010
Setting up of a Stock exchange/ a trading platform by a recognized stock exchange having nationwide trading terminals for SME
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Highlights of Amendments
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Audit of Financial Statements
• The financial statements stated in RHP can be certified by only those auditors who have subjected themselves to the peer review process of the Institute of Chartered Accountants of India (ICAI) and hold a valid certificate issued by the ‘Peer Review Board’ of the ICAI.
• Otherwise, Re-audit of Financial statements for one full financial year and the stub period.
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Definition of Employee • Employee for the purpose of reservation shall cover
– a permanent and full-time employee, working in India or abroad, of:• the issuer• its Holding Company• Its Subsidiary Company• Its material associates
– a director of the issuer, whether whole time or part time.• But does not include promoters and an immediate relative of the promoter
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Issue and Listing of shares by SMEs
Applicability
Post-Issue Face Value Capital <= Rs. 10 Crores
Mandatory to follow SME provisions
Post-Issue Face Value Capital > Rs. 10 Crores but <= Rs. 25
CroresOptional to follow
SME provisions
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Issue and Listing of shares by SMEs• No need to filing DRHP with SEBI before filing it with ROC or DSE• SEBI will not give observations on offer document• 100% underwriting of issue is mandatory.• Minimum 15% underwriting obligation of Merchant Banker• Nominated Investors can also underwrite the issue• Minimum Application Value = Rs. 1 Lac• Minimum Number of Allottee = 50• Compulsory Market Making for minimum 3 years• Promoters’ holding is not eligible for being offered to market maker
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• CONTACT
• GLOBAL ACADEMY OF PROFESSIONS• D 60, 3RD FLR,LAXMI NAGAR,• DELHI-92• 9810425103