SEBI (ICDR) Regulations 2009

Came into force in Aug 2009

Chapter I – Preliminary (1 to 3)

R1 – Name – ICDR

R2 – Definations

R3 – Application of the regulations

  1. IDR
  2. QIP
  3. Public Issue
  4. Rights Issue by listed co’s exceeding Rs 50 Lakhs
  5. Preferential Issue
  6. Offer for sale (No New Securities are created, only ownership changes
  7. Bonus Issue

Chapter II – General Conditions (4 to 24)

R4 – General Conditions

  1. If Promoters are debarred from accessing capital markets – No Fresh Issue
  2. Before any issue, existing partly paid securities must be fully paid
  3. Firm Evidence / Proof for firm arrangement of finance to the extent of 75% of total finance of the project excluding issue amount

R5 – Appointment of Merchant bankers

  1. Agreement with merchant bankers
  2. Arrangement of Inter se allocation of duties & responsibilities
  3. Appointment of syndicate members in case of book building issue and book building method
  4. Appointment of Intermediaries.

R6 – Filling of Offer documents (prospectus) with SEBI for its approval

  1. Public Issue – Filling with SEBI 30 days prior to filling to registrar of companies
  2. Rights Issue – 30 days prior to filling with stock exchanges

R7 – In-principle approval from stock exchanges must be obtained

R8 – Various documents to be filed with SEBI

  1. Offer Documents (Prospectus / Red Herring Prospectus)
  2. Due Diligence certificate by merchant bankers at various stages
  3. Agreements with merchant bankers & other intermediaries to be filed with SEBI

R9 – Draft Offer documents shall be made public atleast 21 days after filling with SBI & these shall be hosted on SEBI Website, Stock Exchange Website & Merchant Banker Website (For easy access to public)

R10 – Fast Track Issue

Normal Period of issue is considerably issued

  1. Issuer Company should have listed for 3 years
  2. The average market capitalization of issuer company shall be 10,000 Crores
  3. No Prosecution on show cause notice should have been pending
  4. The entire promoter holding shall compulsorily be in demat form

R11 – Opening of the issue

  1. Other than fast track issue – Issue must be open within 12 months from SEBI approval.
  2. Fast Track Issue – It must be open within 90 days from SEBI approval

Catch – Under Sec 60, prospectus which is registered with Registrar of companies (RoC) is valid only for 90 days

Therefore, first register with SEBI, chop out your things for issue and then go to RoC.

R12 – Dispatch of issue material to minimum collection centres

R13 – Underwriting Provision

  1. Other than Book Building Method – Underwriting optional
  2. BookBuilding Method – Underwriting Compulsory

Problem:

ABC Ltd. makes an issue of 10,000 shares of Rs 10/- each at par aggregating to Rs 1 lakh. The issue has been underwritten fully by 4 underwriters P,Q,R,S to the extent of Rs 20000, Rs 30000, Rs 35000 & Rs 15000 respectively. The issue has been closed & following is the information available on subscription.

Item / Amount (Rs)
Valid Subscription Received / 76500
Received through underwriter P / 11700
Received through underwriter Q / 22400
Received through underwriter R / 8300
Received through underwriter S / 22600
Direct Subscription Received / 11500

Compute the underwriter development.

Solution:

Item / Amount (Rs)
Total Subscription Received / 1,00,000
Valid Subscription Received / 76,500
Development / 23,500

Computation of development

Particulars / P / Q / R / S
A / Total Obligations (Given) / 20,000 / 30,000 / 35,000 / 15,000
B / (-) Valid Subscription Received from each underwriter (Given) / 11,700 / 22,400 / 8,300 / 22,600
C / (-) Direct Subscription Received / 2,300 ((20000/100000)*11500) / 3,450 / 4,020 / 1,730
D / Gross Development / 6,000 / 4,150 / 22,680 / 9330 (extra)
E / Distribution of Negative balance of 3 to remaining 3 / 2200
((20000/85000) * 9300)) / 3290 / 3840 / Nil
F / Net Development (D – E) / 3800 / 860 / 18840

R14 & 15 –Minimum Subscription of 90% is compulsory

  1. If issue is underwritten – If minimum subscription is not collected then refund of money within 70 days from closure of issue
  2. Is issue is not underwritten then within 15 days from closure of issue

R16 – Issue of more than 500 crores, monitoring agency is compulsory

R17 – period of making calls / manner of making calls - The balance money / other than application money must be called – 12 months from allotment of security

R18 –If refund is not paid as per rule 17 then interest shall be given at the rate promised in the prospectus

R19 – No other issue like bonus issue, rights issue, QIP, etc between filling of offer documents with SEBI till the listing of securities.

R20 to 23 – Convertible Debt Securities (Convertible Debentures / Bonds)

  1. Credit Rating by minimum 1 credit rating agency is compulsory
  2. Compliance with Sec 117 A-B-C of companies act 1956
  3. Debenture Trusties
  4. Debenture Redemption Reserve
  5. Adequate Security Cover (Sec 125 to 143)
  6. Roll over of Non Convertible Debenture (NCD) or Non Convertible portion of convertible debenture

Positive consent of 75% of debenture holders is compulsory

R24 – Alteration or Variation of shareholders legal rights comply with sec 106 of companies act.

Chatpter III of SEBI (ICDR) Regulations 2009 – XI chap, III Regulations

5 Parts

  1. Qualifications to enter capital market (Entry Norms)
  2. Pricing
  3. Promoters Quota (Qty Regulations)
  4. Promoters Quota (Lock-in Period)
  5. Minimum Public Float + Green Shoe Option (GSO)

Part I – Entry Norms

R26(1)

  1. Net Tangible Assets during preceding 3 years should(shall) be atleast Rs 3 Crores out of which not more than 50% shall be in monetary terms
  2. The company should have distributable profits within the meaning of sec 205 of companies act in 3 out of preceding 5 years.
  3. Net worth of the company shall be minimum 1 crore during preceding 3 years
  4. If company has changed name during preceding 12 months, the turnover against the activities under new name shall be minimum 50%
  5. Proposed Issue + Previous Issue (Issue can be private placement) during same financial year should not exceed 5 times the pre-audited networth.

R26(2) – Even if all the above 5 entry norms are not satisfied, even then you are allowed to enter capital market subject to some stringent conditions (Satisfy both a & b)

  1. The compulsory book building method in which minimum 50% shall be offered to QIB

OR

  1. 15% of cost of project should be funded by bank or FI and minimum 10% shall be offered to QIB

AND

  1. Post Issue Capital should be minimum 10 crores

OR

  1. Compulsory Market Making for 2 Years

R26(4) - Number of minimum allottees after public issue should be 1000

R26(5) - Offer for Sale – Shareholders who offers his securities by way of public issue should have been held by shareholders for minimum 1 year

R26(7) –Compulsory grading of IPO by minimum 1 credit rating agency

R27 – Entry Norms for listed companies – Follow on Public Issue

Norms 4 & 5 (of unlisted company) shall also apply to listed company and if listed company is not able to comply to entry norm 4 & 5, then the relaxations provided to unlisted companies shall also be provided to listed company.

Part II – Pricing

R29 – There shall be not be any differential pricing except

  1. Price in public issue & right issue could be different
  2. Maximum discount of 10% can be offered only to retail investors

R30 – In Book building method, there can be either floor price or price band.

If you have price band then cap of the band shall not be more than 120% of the lower of the band.

R31 – Issue Denomination (Denomination of Issue Price / Securities)

  1. If issue is Rs 500 or more then the share denomination could be in the multiples of 1Re not exceeding 10 Rs.
  2. If issue price is less than 500 then it must be 10 only.

Part III – Promoters Contribution (Qty Regulations)

R32 –

  1. In case of unlisted co. promoter shall contribute minimum 20% of post issue capital
  2. In case of listed co. either 20% of post issue capital or 20% of issue size whichever is convenient to the promoters of the company.

R33 – Certain Shares / Securities are ineligible for promoters contribution.

  1. Issue during preceding 3 years to promoters by way of other than cash or issue out of revaluation of assets.
  2. Issue to promoters during preceding 1 year at a price lower than the public issue price. If promoter is ready to pay difference in cash to the company then SEBI allows.

Part IV – Promoters Contribution (Lock-in period)

R36 –

  1. Minimum 20% contribution of promoter shall be locked in for minimum 3 years from the date of allotment or date of commencement of commercial production.
  2. Any excessive contribution above 20% shall be locked in for 1 year
  3. In case of other investors like reservation, etc, issue should be locked in for 1 year

R39 – The locked in quantity can be pledged against loan given to the issuer company provided the terms & conditions of the loan ask for such pledge.

R40 – Inter se transfer of locked in quantity is allowed. (Transfer from one promoter to another promoter in the promoter group)

Part V – Minimum Public Float + GSO

R41 –Minimum Qty to be offered to public

(Same as Sec 19(2) of Securities Contract Regulation Act 1956)

  1. In normal circumstances, 25% of a issue size should be offered to public
  2. Under Abnormal conditions, 10% of the issue size to be issue to public if following conditions are fulfilled
  3. Infrastructure, Telecom, Information Technology Sector Cos.
  4. Minimum issue size should be 100 crores
  5. Minimum 90 lakhs shares or securities
  6. Minimum 60% offered to QIB

R42 – Reservation on Competitive Basis

BookBuilding Method / Other than book building method – Fixed Price
1 / Employees of issuer company & group cos. – Max 10% /
2 / The Shareholder of Issuer Co. or Group Co. – Max 10% /
3 / Deposit holders, bond holders, debenture holders & Subscribers to the services provided by Co. / Not There

R43 – Minimum Quota

BBM

  1. Minimum 35% to retail investors
  2. Min 15% for HNI
  3. Max 50% to QIB

2 Cases Max becomes Minimum

  1. Under Rule 19(2)b – 60%
  2. 50%

Other than BBM

Retail Investors becomes 50% and rest shall be proportionally reduced

R45 – GSO

R46 – Offer Period – Min 3 Days, Max 10 days – No Extension whatsoever

R47 – Minimum Application Money (Range Rs 5000 to 7000)

  1. Minimum Application Money – 25 % of issue price and balance 75% shall be called within 12 months from allotment otherwise forfeit shares.

R45 – Green Shoe Option (GSO) (First exercised by Company called Green Shoe Ltd)

If Issue is oversubscribed, maximum 15% can be retained by the co. over & above the issue size.

Theory

  1. The appointment of stabilizing agent who must be merchant banker (Issuer co. should appoint)
  2. It is applicable for both IPO as well as follow on issue.
  3. Special Resolution u/s 81-1A of companies act must be passed.
  4. Maximum 15% can be retained
  5. All details of green shoe option shall be given in Red Herring Prospectus (RHP), Prospectus & other documents
  6. Agreement between issuer co. and stabilizing agent about the entire green shoe option
  7. Stabilizing agent in consultancy with issuer co or lead merchant banker shall decide about the quantity to be over allowed.
  8. Assumption – Issue is oversubscribed
  9. Stabilizing agent can only buy and cannot sell during stabilizing period.
  10. Stabilizing period is period of 30 days from the date of listing.
  11. Assuming stabilizing agent took decision to over allow 15% (Which is maximum permissible) – It should be allotted on proportional basis.
  12. Shares which are to be over allotted or rather which were over allotted should/must be borrowed from either promoter / shareholder holding more than 5% shares.
  13. The borrowed qty should be return after 30 days to the person from whom it was borrowed.
  14. Stabilizing period has started

During initial 15 days nothing was bought by the stabilizing agent as the price was stable.

On 16th day onward, price started following & therefore he bought 12% of shares (issue size) and market reacted and price got stabilized again.

Period of 30 days is over then the stabilizing agent will approach the co. for the remaining 3%.

Compulsory fresh issue by the co for which he will pay money out of over allotment / money collected

So 12% + 3% will be given back to the promoter / shareholders. If the stabilizing agent borrows 0% (if the price do not fall) then the co. will issue the whole qty of 15% and compensate the stabilizing agent.

In first case, the co’s capital a/c by 3 Rs and in the 2nd case 15 Rs

Some illustration missing here

Chapter IV: Rights Issue: Sec 81 (1)

Issue to the existing shareholders

(Whereas public issue 81 (1A) Special Resolution has to be passed)

Regulations 52 to 56

R52

  1. Fixation of Record date (to ascertain the date of entitlement of rights issue_
  2. No Withdrawal of rights offer after fixation of record date
  3. If withdrawn, no listing application for 12 months from such record date

R53 – No Rights Issue if any warrants or Partly Convertible Debentures (PCD), Fully Convertible Debentures are outstanding unless rights offer is made to such holders.

R54 – Dispatch of rights issue application – Minimum 3 days before issue opens.

If shareholders do not issue forms then, they are allowed to apply on plain paper

Offer Period – Minimum 15 days, Maximum 30 days

(No Question on this)

Chapter V – Manner of disclosure of offer documents (or contents of offer documents)

  1. Prospectus
  2. Abridged Prospectus (Short)
  3. Letter of Offer in case of rights issue

R57 – R58 – 19 items to be disclosed (To Be Studied from SEBI Website)

Chapter VI – General Obligations of Issue Company & Intermediaries relating rights Issue, Public Issue

R59 – No Incentives shall be given in cash / kind other than permissible incentives

R60 – Whatever information is given in offer documents shall be actual and shall not be projections

R61 – Contents of offer documents on various websites and contents filed with regulatory authorities shall be the same.

R62 – Issuer Co. Shall appoint company secretary as compliance officer for redressal of grievances of investors.

R63 – Post Issue Reports

  1. 3 days report from the closure of issue should be given by Merchant Banker
  2. Final Post Issue report to be given within 15 days of closure of issue by Merchant Banker.

Chapter VII: Preferential Issue (Private Placement) (R70 to 79)

(Issue can be to existing allottees or shareholders or to new allottees)

Rule 1 – No. of allottees shall not to exceed 49 – Sec 67

Rule 2 – Special Resolution has to be passed – Sec 81(A)

Rule 3 – The shares / securities held by existing allottees must be in demat form

Rule 4 – Existing allottees should not have sold any shares during 6 months prior to relevant date (30 days prior to general meeting in which special resolution u/s 81(1A) was passed)

E.g. 31st Dec Special Resolution Passed  Relevant Date is 1st Dec)

Rule 5 – Stautory Auditor shall certify that preference share issue is being made as per chapter 7 of ICDR

Rule 6 – Allotment shall be made within 15 days from date of special resolution otherwise fresh special resolution has to be passed. (Delay Statutory Authority can be considered)

Rule 7 – Issue Price

  1. Average of weekly high & low of closing prices during 6 months preceding relevant date

OR

  1. During 2 weeks preceding relevant date (Whichever is higher)

Ruke 8 – Preferential issues to QIB – It shall not exceed 5 times the pre-issue audited net worth (Only 2 weeks applicable)

Rule 9 – Types of Preferential Issue

  1. Convertible Warrants – Minimum 25% should be collected as advance money & remaining 75% should be collected within 18 months from allotment
  2. Other types of securities – Fully Convertible Debentures (FCD)

Partly Convertible Debentures (PCD)

Rule 10 – Lock in provisions

A.

1. Securities issued to promoters – should be locked for 3 years upto 20%

2. Securities issued to other than promoters – should be locked for only 1 year

B. Existing allottees – Lock in of exiting shares from relevant date upto 6 months from allotment.

E.g. Relevant Date 1st Dec – Date of allotment 16 Jan + 6 Months

i.e. from 1st Dec – 15 July will be the lock in period for the existing shares that they have held.

If 10 shares already held by the existing shareholders than they will be locked in ill 15 July and the new 100 offered to the existing allottees would be locked in for 1 year.

Chapter VIII – QIP to QIB (R80 to R91)

  1. Relevant Date (RD) is date of Board Resolution
  2. Special Resolution has to be passed u/s 81 (1A)
  3. Compulsory Appointment of Merchant Bankers
  4. Allotment shall be made within 12 months from special resolution date
  5. Pricing – Average of weekly high & low of closing prices during 2 weeks preceding relevant date.
  6. Minimum 10% Quota should be given to mutual funds
  7. Minimum No. of Investors
  8. Issue Upto 250 Crores – 2
  9. Above 250 Crores - 5
  10. Quantum of issue shall not exceed 5 times the pre-issue audited networth
  11. Maximum conversion period of convertible instruments is 60 Months
  12. Lock in period is 1 year from allotment

Exception: If shares are sold through stock exchange then no lock in period

Chapter IX: Bonus Issue Regulations

Chapter X: IDR – 605 A …. ADR / GDR

  1. Isuser company (E.g. Standard Chartered Bank) should have been listed in home country
  2. The Minimum issue size should be 50 crores
  3. Minimum Application Money is 20000 (per application)
  4. Minimum / Atleast 50% of the issue should be bought by QIB
  5. Minimum Subscription 90%

Chapter XI:

If these regulations are breached by anybody

  1. No access to capital markets
  2. SEBI order to sell or disinvest
  3. Sec 24 – Jail upto 10 years or fine upto 25 crores or both

Important Topics:

  1. Entry Norms
  2. Green Shoe Option
  3. Preferential Issue

SEBI (Substantial Acquisition of Shares & Takeover) Regulations 1997 (Takeover Code)

Total Regulations = 46 (Appeal to SAT)

If 15% or more share capital of listed co. (Target Co. – TC) is acquired then one must acquire minimum 20% additional shares of that co.

(Logic – gives the exit opportunity to the existing shareholders) This code is applicable even if a unlisted subsidiary co\s 15% shares are acquired & if holding co. is a listed co.

Q. Draw a table describing the time frame for takeover (Max time) of listed Cos. in India.

A.

1. No Competitive Bid – 94 Days (Max)

2. Without Competitive Day – 94 +21 days = 115 days (Max)

(If competitive bid is made, it has to be made within..

Rough Work / Day / Activity
- / 1 / Memorandum of Understanding, Agreement / Contract (Oral or written) to acquire 15% or more of a listed co.in India.
- / 4 / Public Announcement in the prescribed format in newspaper for offering to buy additional 20%
4 + 14 / 18 / Submit letter of offer to SEBI for approval by acquirer
4 + 30 / 34 / Record Date is to be fixed by the target co. to decide who are eligible for getting the offer
18 + 21 (After expiration of 21 days from date of submission to SEBI) / 40 / After expiry of 21 days of submission of Letter of Offer to SEBI. Dispatch of letter of offer to shareholders of target co. may start (if in 21 days, no objection, then deemed approval)
4 + 45 / 49 / Dispatch of letter of offer should complete
4 + 55 / 59 / Issue must open / Offer must open for subscription
79 – 7 upto 7 days prior to closing of offer / 72 / Offer price can be reversed / In case of competitive bid
100 – 7 = 93rd Day
79 – 3 (Upto 3 days prior to closing of offer) / 76 / Withdrawal of offer by shareholders of the target co. / Competitve bid
100 – 3 = 97th Day
55 + 20 (Opening of Offer) / 79 / Offer Should Complete / Competitive bid – 100 days
79 + 7 / 86 / Special Account is required to be opened as per regulation 29
79 + 15 / 94 / Complete the payment and close the formalities
79 + 45 / 124 / Final report by merchant banker to SEBI

In case of competitive bid (Only changes)