The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 govern the public issues, rights issues, preferential allotments, etc. made by companies. These Guidelines, which were notified on 26th August, 2009, rescind the earlier SEBI DIP Guidelines, 2000.

• Public Issues and Offers for Sale by any company

• Rights issue, in excess of Rs. 50 lakhs by a listed company

• Preferential Allotments, Bonus Issue; QIPs by listed companies

• an issue of Indian Depository Receipts.

• A "public issue" means an initial public offer or further public offer;

• An "initial public offer" means offer of specified securities by an unlisted company and includes offer for sale of specified securities by the existing shareholders of an unlisted company;

• An "further public offer" means offer of specified securities by a listed company and includes offer for sale of specified securities by the existing shareholders of a listed company to the public.

• The issuer has appointed one or more merchant bankers (one merchant banker should act as a lead merchant banker), to carry out the obligations relating to the issue

• After filing of a Draft Prospectus/Letter of Offer/ Red Herring Prospectus/ Shelf Prospectus with SEBI (along with necessary documents) by the Merchant Banker at least 30 days prior to the filing of the same with the ROC or the designated stock exchange. A soft copy of the offer document shall also be furnished to SEBI

• SEBI’s corrections, if any, have been incorporated in the Prospectus

• Company has made an application for listing to the Exchanges

• It has entered into an Agreement for demat of shares with a Depository

• All existing partly paid-up equity shares have either been made fully paid-up or forfeited

• An issuer can make IPO of convertible debt instruments without a prior IPO of shares

• There can be no outstanding warrants or other convertible instruments (other than those relating to ESOPs granted in accordance with the SEBI Guidelines) at the time of IPO

• An issuer shall compulsorily obtain grading for IPO from at least one credit rating agency

• Issue size < 5 times pre-issue networth as per the audited balance sheet of the preceding year

• If it has changed its name within the last one year, at least 50% of the revenue for the preceding one full year has been earned by it from the activity indicated by the new name

• If it does not satisfy this condition, then it can make an issue subject to compliance with the conditions applicable for an ineligible unlisted company for making an IPO

• An Offer for Sale means a sale of securities by existing shareholders to the public by way of an Offer Document.

• The conditions specified above for making an IPO must be satisfied.

• All companies are permitted to price their issues in consultation with the lead merchant banker or through the book building process

• Face Value of shares can be determined by the companies – cannot be a decimal of a rupee. Further, in case of an IPO the following additional conditions apply:

• if the issue price is Rs. 500 or more then the Company may fix the face Value below Rs. 10 per share but not lower than Re. 1 per share

• if the issue price is less than Rs. 500 then the Company must have a face Value of Rs. 10 per share

• 25% of the issue size

• 10% of the issue size if the post issue capital of the company calculated at the offer price is more than Rs. 4,000 cr.

• 10% of the issue size in the case of a public sector company

Issue Type	Minimum PC
Initial Public Offer	³ 20% of Post-issue Capital
Further Public Issue	³ 20% of proposed issue or shareholding of 20% of Post-issue Capital
Composite Issue	³ 20% of proposed issue or 20% of Post-issue Capital (excluding the Rights Issue)
Offer for Sale	³ 20% of Post-issue Capital

• In case of further public offer or composite issue, where the promoters contribute more than the stipulated minimum promoters’ contribution, the allotment with respect to excess contribution shall be made at a price determined in terms of the provisions of regulation 76 or the issue price, whichever is higher.

• PC requirements are not applicable in case of:

– issues by 3 years listed companies which have a 3 years dividend track record; or

– rights issues

– companies where no identifiable promoter group exists

• Minimum PC is locked-in for 3 years from commencement of production or date of allotment, whichever is later

• Excess PC is locked-in for 1 year from allotment subject to some exceptions

• In case of an IPO, the entire pre-issue capital of an Unlisted Company subject to certain exceptions is locked in for 1 year from date of allotment in the IPO

• Locked-in shares can be pledged or transferred interse between promoters

Book building means a process undertaken to elicit demand and to assess the price for determination of the quantum or value of specified securities or Indian Depository Receipts, as the case may be, in accordance with these regulations. Its features are as under :

• Book Building could be only for 100% of the net offer to the Public.

• Draft Red Herring Prospectus cannot mention the issue price and the number of securities to be offered.

• Companies can mention the Floor Price, i.e., minimum price below which bids are not accepted or a Price Band. However in case of a Price Band, the cap (i.e., the ceiling price) cannot be more than 20% of the floor price. In case of a follow-on public issue by a listed company, the floor price or price band need not be mentioned in the prospectus.

• The Bids can remain open for 3 and not more than 10 working days, including the days for which the issue is kept open in case of revision in price band.

• Means an issue of capital u/s. 81(1) of the Companies Act to existing shareholders through a Letter of Offer

• Merchant Banker if issue exceeds Rs. 50 lakhs

• Free Pricing

• Minimum Promoters’ Contribution is not required

• Rights Issue of Debt instruments requires a Credit Rating

• Bonus shares can be issued out of free reserves or share premium collected in cash

• Revaluation Reserves cannot be used – however they can be used in the case of unlisted companies

• Bonus Issue in lieu of dividend is not permitted

• Bonus can be issued pending conversion of FCDs/PCDs provided appropriate reservation is made for the convertible portion of these instruments

• In case of any partly-paid shares outstanding on the date of allotment, the same shall be made fully paid-up

• Board of Directors must implement its decision within 2 months in case of shareholders approval is needed. Articles must provide for the same

• Company must not have defaulted on interest/repayment of FDs, debentures and statutory dues such as PF, Bonus, Gratuity, etc.

• A company which announces a bonus issue after the board approval and does not require its shareholders’ approval for capitalisation of the profits or reserves as per its Articles of Association, must implement the bonus issue within 15 days of the board approval

It is an issue by a listed company of equity shares / securities convertible into equity pursuant to a resolution u/s. 81(1A) of the Companies Act, to any select group by way of private placement. FCDs/Warrants/PCDs/Convertible Preference Shares are covered.

• Notice u/s. 81(1A) must contain the prescribed particulars

• Auditors must certify the Issue Price

• Shareholders’ Resolution must be implemented within 15 days except in case of pending regulatory approvals

• Conversion of warrants, FCD, etc., must be within 18 months of allotment

• Guidelines do not apply to securities issued under a Court approved merger/demerger

• In case of warrants, minimum 25% must be paid upfront on allotment

• If the warrants are not exercised the 25% would be forfeited

• A preferential issue cannot be made unless the issue is in compliance with the conditions for Continuous Listing, such as Clause 40A of the Listing Agreement

• In case the issue is to promoters, relatives, related parties and associates for consideration other than cash, then a valuation report from an independent valuer must be submitted to the Exchanges for the assets against which the shares are issued.

• In case the proposed preferential issue allottees have sold any shares in the listed company within 6 months prior to the allotment then they are not eligible for the allotment

• Now even companies which are listed for less than 6 months can make a preferential issue.

• Certain relaxations are given for an allotment pursuant to a scheme of Corporate Debt Restructuring

• The issuer has obtained the Permanent Account Number of the proposed allottees.

• Check the requirements of making an open offer to the Public in case of Preferential Issues which cross the threshold limits under Rules 10 & 11 of the SEBI Takeover Regulations

SEBI has introduced the concept of Qualified Institutional Placements which is quite similar to preferential issue. Equity shares/ fully convertible debentures (FCDs)/ partly convertible debentures (PCDs) or any securities other than warrants, which are convertible into or exchangeable with equity shares, can be issued to Qualified Institutional Buyers (QIBs) by a listed company which fulfils the following conditions:

1. its equity shares of the same class are listed on a stock exchange having nationwide trading terminals for at least one year as on the date on which it issues the Notice for General Meeting ; and

2. it complies with the minimum public shareholding requirements of Cl. 40A the listing agreement.

At least 10% of the issue shall be to mutual funds. If however, they do not agree, then it can be allotted to QIBs. QIBs who are promoters or related to promoter/s cannot be issued securities.

The Issue Price shall not be less than the average of the weekly high and low of the closing prices of the equity shares of the same class quoted on the stock exchange during the 2 weeks preceding the relevant date

Relevant Date = 30 days prior to the EGM date where a resolution u/s. 81(1A) is passed

Each convertible instrument issued has a tenure of 60 months from the date of allotment.

The minimum number of allottees for each placement of specified securities made shall not be less than:

Provided that no single allottee shall be allotted more than 50% of the issue size.

Provided further that QIBs belonging to same group or under common control shall be deemed to be a single allottee

The aggregate of the proposed QIPs and all previous QIPs made in the same financial year shall not exceed 5 times the net worth of the issuer as per the audited balance sheet of the previous financial year.

There is a lock-in of 1 year from the date of allotment, except for sale on a recognised stock exchange.