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Public Issue

What are the eligibility norms for an unlisted company for making a public issue?

An unlisted company has to satisfy the following criteria to be eligible to make a public issue

  1. Pre-issue networth of the co. should not be less than Rs.1 crore in last 3 out of last 5 years with minimum networth to be met during immediately preceding 2 years and
  2. track record of distributable profits for at least three (3) out of immediately preceding five (5) years and
  3. the issue size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document) shall not exceed five (5) times its pre-issue networth.

In case an unlisted company does not satisfy any of the above criterion, it can come out with a public issue only through the Book-Building process. In the Book Building process the company has to compulsorily allot at least sixty percent (60%) of the issue size to the Qualified Institutional Buyers (QIBs), failing which the full subscription monies shall be refunded.

What are the eligibility norms for a listed company for making a public issue?

A listed company is eligible to make a public issue if the issue size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document) is less than five (5) times its pre-issue networth.

If the issue size is more than or equal to 5 times of pre-issue networth, then the listed company has to take the book building route and allot sixty percent (60%) of the issue size to the Qualified Institutional Buyers (QIBs), failing which the full subscription monies shall be refunded.


For details refer Chapter II of SEBI (DIP) Guidelines and relevant clarifications issued subsequently.

Are there any restrictions on pricing by companies?

The companies can freely price their equity shares. However they have to give justification of the price in the offer document / letter of offer
 

What are the requirements regarding promoters contribution and lock-in?

In case of an Initial Public Offer (IPO) i.e. public issue by unlisted company, the promoters has to necessarily offer at least 20% of the post issue capital.

In case of public issues by listed companies, the promoters shall participate either to the extent of 20% of the proposed issue or ensure post-issue share holding to the extent of 20% of the post-issue capital.

In case of any issue of capital to the public the minimum contribution of promoters shall be locked in for a period of 3 years, both for an IPO and Public Issue by listed companies.

In case of an IPO, if the promoters contribution in the proposed issue exceeds the required minimum contribution, such excess contribution shall also be locked in for a period of one year.

In case of a public issue by a listed company, participation by promoters in the proposed public issue in excess of the required minimum percentage shall also be locked-in for a period of one year as per the lock-in provisions as specified in Guidelines on Preferential issue.

Beside the above, in case of IPO the entire pre-issue share capital i.e. paid up share capital prior to IPO and shares issued on a firm allotment basis along with issue shall be locked-in for a period of one year from the date of allotment in public issue.

What is the basis of allotment?

In case of over-subscription in a fixed price issue the allotment is done in marketable lots, on a proportionate basis (for details refer to clause 7.6.1 of DIP Guidelines).

In case of a book building issue, allotment to Qualified Institutional Buyers and Non-Institutional buyers are done on a discretionary basis. Allotment to retail investors is done on a proportionate basis as per provisions of Clause No. 7.6.1 of Guidelines.

How does one come to know of issues on offer and from where can one get copies of the draft offer document?

Every week SEBI issues press releases for information of the public, details of offer documents filed with SEBI and observations issued. Details can be obtained from the "Primary Market ' page of the SEBI website. The draft offer document can also be purchased from the SEBI office where the document is filed on payment of Rs.100/- by way of DD drawn in favor of SEBI. The draft offer document/letter of offer remains posted on SEBI website for a period of 21days from the date of filing the same to SEBI and can also be downloaded from there.

From where does one get the application forms and the prospectus?

Application form can be obtained from the lead manager and brokers to the issue. The application forms are also generally available at collecting bankers. Name and addresses of the Lead Manager are available in the prospectus/letter of offer

Can the public give their comments/complaints on the Issuer company or others connected with the issue?

Yes, the objective of making offer document public is to invite public comments. The comments should be given within 21 days of the filing of the Draft offer document with SEBI.

Where does one complain in case of wrong/ non-disclosures/ mis-statement in the offer document?

The Primary Market Division in SEBI

Within how many days an investor should receive the refund order/ allotment advise?

Despatch of refund orders / allotment advice is to be within 2 working days of finalisation of the basis of allotment

Companies are required to finalise the basis of allotment within 30 days from the closure of the issue in case of a fixed price issue and within 15 days from the closure of the issue in case of a book building issue or else they are liable to pay interest @ 15% p.a.

In case of non-receipt of the refund order / share certificate/ allotment advise what is the course of action available to the investor?

The investor should give his complaint in writing to the lead manger/ registrar/ Investor Grievance Cell of SEBI.

Within how many days should the company get its securities listed after the issue?

The post issue lead manager ensures that all steps for completion of the necessary formalities for listing and commencement of trading at all stock exchanges where the securities are to be listed are taken within 7 working days of finalisation of basis of allotment.

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Is it mandatory to have a Demat Account for applying in public issue?

An investor has the option to apply for and receive the shares in physical form. However, it is advisable to get the allotment in Demat form as the shares in IPO shall be compulsorily tradable in Demat segment in Stock Exchanges. Dealing of physical shares (allocated in IPO) will not be accepted. In case of an IPO of any security of issue size of Rs. 10 crore or more, security shall be issued only in dematerialised form. In book built issues, for QIBs and large investors (applying for more than 1000 shares) allotment shall be only in Demat form and hence they should have a Demat account.

From where can I get the addresses of the companies and details of change of names etc.?

From the stock exchanges and Registrar of Companies

What is Book Building?

SEBI Guidelines define Book Building as a process undertaken by which a demand for the securities proposed to be issued by a corporate body is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of a notice, circular, advertisement, document or information memoranda or offer document

What is the main difference between offer of shares through book building and offer of shares through normal public issue?

Price at which securities will be allotted is not known in case of offer of shares through book building while in case of offer of shares through normal public issue, price is known in advance to investor. In case of Book Building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.

What is minimum number of days for which bid should remain open in book building?

Book should remain open for minimum of 5 days.

Can open outcry system be used for book building?

No. As per SEBI, only electronically linked transparent facility is allowed to be used in case of book building.

Is the issue price for placement portion and net offer to public the same?

Yes.

What is the floor price in case of book building?

Floor price is the minimum price at which bids can be made.

Can the Individual Investor use book building facility for making an application?

Yes.

Can the bidder revise his bids?

Yes.

What proof can bidder request from trading member for entering bids?

A bidder can request for a transaction registration slip as the proof of his/ her having entered the bid. Whenever a bid is entered by trading members in to the system, a unique transaction registration slip is automatically generated. Transaction registration slip gives details regarding number of shares bided for, price, the client name etc.


Is it possible to enter bids less than floor price?

No. The system automatically rejects the bids if price is less than floor price.

Users may note to go through the Guidelines in detail for a thorough understanding of the provisions. Queries seeking information of an advisory nature would not be responded to by SEBI. Users are also advised to refer to "Quick Guide for Investors" for jurisdictions of relevant authorities for various matters. Queries pertaining to other authorities would not be responded to by SEBI.