CS Vinita Nair,  Ruchira Shinde

Preamble-  SEBI has vide Notification No. LAD-NRO/GN/2014-15/06/1372 dated 25th August, 2014 issued Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2014 (the Amendment) making few amendments in the conditions for IPO, Minimum offer to Public, allocation of net offer to public, pricing of equity shares and Schedule XI dealing with the Book Building process. Several portions have been made in line with SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011.

Detailed analysis of the Amendments made:

Regulation/Sub-regulation
Dealing with
Existing Regulations
Amendment
Remarks
26 (6) clause (c)
Reg 26: Conditions for initial public offerSub Reg (6): Offer for sale of equity shares to public if such equity shares have been held for a period of atleast 1 year prior to filing of draft offer document with the Board.
New Insertion
(c) if the specified securities offered for sale were issued under a bonus issue on securities held for a period of at least one year prior to the filing of draft offer document with the Board and further subject to the following, -(i) such specified securities being issued out of free reserves and share premium existing in the books of account as at the end of the financial year preceding the financial year in which the draft offer document is filed with the Board ; and
(ii) such specified securities not being issued by utilization of revaluation reserves or unrealized profits of the issuer
The requirement to hold the shares for a period of one year was not applicable in following two cases:a)       OFS of specified securities by Government Company/ Statutory authority /Corporation or SPV set up and controlled by any of the above, which is engaged in infrastructure sector;b)       OFS pursuant to High Court order u/s 391-394 of Act, 1956 in lieu of business and invested capital in existence for a period of more than 1 year from approval.
Board has inserted a third exemption for OFS made for specified securities issued through bonus issue on such securities held for a period of 1 year prior to filing of draft offer documents subject to conditions specified in the sub-clause.
41
Minimum offer to public
Subject to the provisions of sub-clause (b) of clause (2) of rule 19 of Securities Contracts (Regulations) Rules, 1957, the net offer to public:(a) in case of an initial public offer, shall be at least ten per cent. or twenty five per cent. of the post-issue capital, as the case may be; and(b) in case of a further public offer, shall be at least ten per cent. or twenty five per cent. Of the issue size, as the case may be.
Minimum net offer to public.The minimum net offer to the public shall be subject to the provisions of clause (b) of sub-rule (2) of rule 19 of Securities Contracts (Regulations) Rules, 1957
The limits specified in the regulation has been deleted as similar limits are already specified in SCRA Rules.
43(3)
Allocation of net offer to public
In an issue made through the book building process, the issuer may allocate upto thirty per cent. of the portion available for allocation to qualified institutional buyers to an anchor investor in accordance with the conditions specified in this regard in Schedule XI.
In an issue made through the book building process, the issuer may allocate upto sixty per cent. of the portion available for allocation to qualified institutional buyers to an anchor investor in accordance with the conditions specified in this regard in Schedule XI
The Amendment has increased the portion for allocation to QIBs to an anchor investor[2].Schedule XI Paragraph 10 sub paragraph (c) dealing with Book Building process has been amended to increase the limit from thirty to sixty percent. Further condition for reservation to MF has been made applicable even in case of anchor investor portion to the extent of 1/3rd portion.
71A
Frequently traded shares
New Insertion
For the purpose of this Chapter, frequently traded shares means shares of an issuer, in which the traded turnover on any stock exchange during the twelve calendar months preceding the relevant date, is at least ten percent of the total number of shares of such class of shares of the issuer:Provided that where the share capital of a particular class of shares of the issuer is not identical throughout such period, the weighted average number of total shares of such class of the issuer shall represent the total number of shares.
For the purpose of preferential issue meaning of frequently traded shares have been inserted. It is in line with the definition of frequently traded shares under SEBI (SAST) Regulations, 2011.
Regulation 76
Pricing of equity shares
Pricing of equity shares
Pricing of equity shares- Frequently traded shares
The words closing price appearing in Regulation 76 has been replaced with volume weighted average price, which is defined under SEBI (SAST) regulations, 2011[3]
Regulation 76A
Pricing of Equity Shares Infrequently traded shares.
New Insertion
Where the shares are not frequently traded, the price determined by the issuer shall take into account valuation parameters including book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such companies:Provided that the issuer shall submit a certificate stating that the issuer is in compliance of this regulation, obtained from an independent merchant banker or an independent chartered accountant in practice having a minimum experience of ten years, to the stock exchange where the equity shares of the issuer are listed.
This is in line with method specified under Regulation 8 (2)(e) of SEBI ( SAST) Regulations, 2011 which deals with Offer price in case of shares which are not frequently traded.
Regulation 76B
Adjustments in pricing – Frequently or Infrequently traded shares
New Insertion
The price determined for preferential issue in accordance with regulation 76 or regulation 76A, shall be subject to appropriate adjustments, if the issuer :(a) makes an issue of equity shares by way of capitalization of profits or reserves, other than by way of a dividend on shares;(b) makes a rights issue of equity shares;
(c) consolidates its outstanding equity shares into a smaller number of shares;
(d) divides its outstanding equity shares including by way of stock split;
(e) re-classifies any of its equity shares into other securities of the issuer;
(f) is involved in such other similar events or circumstances, which in the opinion of the concerned stock exchange, requires adjustments

[1]  https://taxguru.in/sebi/issue-capital-disclosure-requirements-amendment-regulations-2014.html

[2] “anchor investor” means a qualified institutional buyer who makes an application for a value of ten crore rupees or more in a public issue made through the book building process in accordance with ICDR Regulations

[3] volume weighted average market price” means the product of the number of equity shares traded on a stock exchange and the price of each equity share divided by the total number of equity shares traded on the stock exchange;

[The above post is contributed by CS Vinita Nair and Ruchira Shinde at Vinod Kothari & Co. They can be contacted at vinita@vinodkothari.com and ruchira@vinodkothari.com  respectively]

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