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Securities and Exchange Board of India

Chief General Manager
Corporation Finance Department
Division of Issues and Listing
(Board) : 22850451- 56 , 22880962 – 70
(Extn. : 249)
(Direct) : 22882946
Fax : 22045633

SEBI/CFD/DIL/DIP/1 3/2004/28/5
May 28, 2004

To All Registered Merchant Bankers Dear Sirs,

Sub: Amendments to the SEBI (Disclosure and Investor Protection){DIP} Guidelines,2000

1.  As a part of its constant endeavor to ensure transparency and efficiency in the market and also to streamline and simplify the existing procedures, SEBI has been reviewing the guidelines on an ongoing basis. In this regard, the feedback received from market participants as well as policy recommendations made by the committees set up by SEBI are taken into consideration.

2. The SEBI Board, after considering the above, has approved certain modifications to be incorporated in the captioned Guidelines.

3. Accordingly, SEBI, under the provision of Section 11(1) of SEBI Act, is hereby issuing the amendments to SEBI (DIP) Guidelines, 2000; (hereinafter referred as “ the guidelines” ) incorporating the modifications approved by the SEBI Board. The amendments are detailed in Annexure I and are categorized and summarized as follows

4. Restriction on splitting of shares

4.1 At present, the guidelines permit the issuer to determine the denomination of shares for public / rights issue and to change the standard denomination. It was observed that many issuers were going in for share splits just before the IPOs. Based on recommendation of advisory committee, the guidelines have been amended to restrict pre IPO splitting of shares. The amendments inter alia provide for a floor face value of Re.1 per share, the face value to necessarily be Rs.10 per share for issue price below Rs.500/- per share, and permit issuer companies to fix the face value below Rs 10/- per share only in cases where the issue price is Rs 500/- or more.

5. Terms of the issue

5.1 The existing provisions in the guidelines define minimum tradable/ application lot in terms of number of shares based on the offer price per share. Further, the minimum application money is stipulated at not less than Rs. 2000/-. The above provisions are to be viewed in the background of the original definition of the retail individual investor, viz., an investor who has applied for 1000 shares or less.

5.2 Subsequently, vide circular dated August 14, 2003, SEBI revised the definition of retail individual investor as an investor who applies or bids for securities of or for a value of not more than Rs.50,000/-. This amendment necessitated review of the existing provisions pertaining to minimum application size in terms of number of shares.

5.3 Accordingly, it has been decided to replace provision relating to minimum application size / tradeable lot in terms of number of shares based on offer price, by the minimum application value, which shall fall within the range of Rs.5000- Rs.7000. The applications can be made in multiples of such value. The same has been explained along with an illustration in the guidelines.

6.Post Issue Obligations

6.1 As per the existing guidelines, in the event of oversubscription in an issue, the allotment is to be made in terms of the proportionate allotment procedure, subject to determination of successful applicants by drawal of lots and allotting a minimum of 100 shares/ minimum tradeable lot to successful applicants.

6.2 The said provisions necessitated a review in view of the altered ground realities where trading in demat form is the norm, flexibility given to issuer for determining the minimum application lot and also in view of the new definition of retail individual investors.

6.3 Accordingly it has been decided to introduce allotment on proportionate basis within the specified categories, rounded off to the nearest integer subject to a minimum allotment being equal to the minimum application size as fixed and disclosed by the issuer. The same has been explained alongwith an illustration in the guidelines.

7. Public issue of Bonds by Designated Financial Institutions under a shelf prospectus.

7.1 It has been observed that financial institutions regularly come out with a public issue of unsecured redeemable bonds. These institutions file a shelf prospectus which states the total amount to be raised during the year along with the oversubscription option. Each time the institution comes out with the issue in terms of the shelf prospectus, it files an Information Memorandum / prospectus, which states the total amount to be raised through the tranche alongwith over subscription option.

7.2 As per clause 12.10.4(b) of the guidelines, the maximum target amount raised, shall not exceed twice the minimum target. It has been observed that the public issue of bonds, where tax savings bonds / infrastructure bonds are offered, have received heavy oversubscription (which exceed the maximum target amount mentioned in the prospectus). In such a scenario, returning of the excess subscription would adversely affect the investors whose tax planning measures normally take into account such investments.

7.3 In view of above, the guidelines have been amended to provide that once the issue size and over subscription limits are disclosed in the shelf prospectus, issuers can raise and retain any amount through the tranche issues subject to the same being within the respective limits specified in shelf prospectus and also subject to the condition that the issuer has to disclose the minimum amount proposed to be raised and the maximum over subscription proposed to be retained in the information memorandum / prospectus filed in respect of issues under a shelf prospectus.

8. Definition of Employees

8.1 Clause 8.3.4 of the guidelines permits an issuer company to make reservations / firm allotments to various categories of persons. Among the various categories provided for in the said clause, one category is mentioned as “Permanent employees (including working directors) of the company and in case of a new company, the permanent employees of the promoting companies”. However the term “employee” has not been defined in the guidelines.

8.2 In view of the above, the guidelines have been amended to define the term employee SEBI, on the lines of the definition of the said term in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase) Guidelines 1999

9. Reservation for shareholders

Clause 8.3.4 of the guidelines has been amended to permit reservation on competitive basis, in further public issue by a listed company, for the retail shareholders i.e those shareholders who are holding shares worth Rs 50,000/- subject to the allotment being on proportionate basis as is the case while allotting shares in public category.

10. Green Shoe Option (GSO) facility

As GSO is essentially a device to ensure post issue price stability, the guidelines have been amended to clarify that this facility is available in all public issues, viz. Initial public offers ( including fresh issue or offer for sale) , follow – on offerings, public issues either through book building or fixed price route. Further, the guidelines have also been amended to permit all pre IPO shareholders ( including promoters) in case of IPOs and pre issue share holders holding more than 5% shares, (including promoters) in case of follow on offerings, to lend their shares for the purpose of GSO as per the conditions specified in the Chapter VIII A.of the guidelines.

11 . Applicability

11.1 The amendments shall come into force with immediate effect.

You are directed to ensure compliance with the provisions of SEBI (DIP) guidelines 2000 and amendments thereof. This circular along with the annexure is available in SEBI website at Full text of SEBI (DIP) guidelines 2000 including the amendments issued vide this circular is also available in SEBI’s web site under Primary Market Section.

Yours faithfully,


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