SEBI (ICDR) Regulations 2009 and Recent Amendments

Simplifying the Issue Management

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

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

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)

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to certain banking and infrastructure companies from eligibility norms for making initial public offers (IPOs) is withdrawn.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.

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• 75% Book Building route is withdrawn.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.

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

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

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.

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

Minimum Listing Requirements

Specification of Listing Requirements

BSE

For New Companies (IPO)

Large Cap Companies

Small Companies

For already Listed Companies (FPO)

NSE

For New Companies (IPO)

For already Listed Companies (FPO)

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.

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.

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.

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

Type & Procedure

Type of Issue

Fixed Price Issue Book-Building Issue

Normal Book Building Method

Alternate Book Building Method

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

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

19

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

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)

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

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

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’ contribution

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.

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

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 QIB

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

Issue Period

Activity 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

Key Terms of Issue

Anchor Investor

ASBA

Green Shoe Option

Safety Net Scheme

Fast Track Issue

Red Herring Prospectus

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.

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.

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.

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.

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

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 SMEs

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

Highlights of Amendments

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.

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

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

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

Thank You

Pavan Kumar VijayManaging Director

Corporate Professionals Capital Pvt. LtdSEBI Registered Category I Merchant Banker

D-28, South Extension -I,New Delhi-110 049Ph: 011-40622200

Email: info@indiacp.com