SECURITIES AND EXCHANGE BOARD OF INDIA
PRIMARY MARKET DEPARTMENT
Mittal Court, A Wing, Gr. Floor,
224, Nariman Point, Mumbai 400 021
RMB DIP Series Circular No. 2 (1999- 2000)
October 11, 1999
To:
To All Registered Category I Merchant Bankers
Dear Sirs,
Sub: SEBI (Disclosure and Investor Protection) Guidelines Clarification No. XXV
Securities and Exchange Board of India, has issued clarifications to the Guidelines for Disclosure and Investor Protection from time to time in order to strengthen the disclosure norms and to bring out the reforms in the Primary Market.
The Board in its meeting held on March 19, 1999, considered the issue of standard denomination of equity shares issued by companies with a view to give flexibility to the companies for determining the same. The standard denomination for securities was limited to Rs. 10 or Rs. 100 in terms of Central Government circulars.
The Board after considering the issue has decided to give flexibility to companies to determine the denomination of its equity shares. Henceforth, the companies shall be free to issue shares at a fixed amount to be determined by them in accordance with section 13(4) of the Companies Act, 1956. Accordingly, SEBI vide circular no. SMDRP/POLICY/CIR-16/99 dated June 14, 1999, has already advised all the stock exchanges of the aforesaid decision.
Further, it has been decided by the Board that henceforth there shall be only one set of disclosures and entry norms for all the issues, and that a company shall give the justification for the issue price in the offer document, irrespective of the issue price based on the parameters laid down in the SEBI Guidelines for Disclosures and Investor Protection.
It has been the constant endeavor of SEBI to popularise the concept of trading in dematerialised form in the interest of investors. The concept of trading in dematerialised form offers various benefits to the investors like
elimination of bad deliveries, faster disbursement of corporate benefits and prompt transfer and registration of the transfer etc. Besides these benefits, it also eliminates the risks associated with the physical certificates viz, loss, theft, forgery etc.
The Board has therefore decided in the meeting held on June 23, 1999 that no company shall make a public/rights issue/offer for sale of securities unless it enters into an agreement for dematerialisation with a depository registered with the Board and gives an option to the investors either to receive the security certificate or to hold them with a depository.
Accordingly, a Clarification no. XXV has been issued pursuant to the aforesaid decisions of the Board. A copy of the Clarification is enclosed.
Part A of the Clarification pertains to Guidelines relating to the eligibility of the companies for public/rights issue.
Part B of the Clarification pertains to freedom to determine the denomination of shares for public/rights issue.
Part C of the Clarification pertains to the norms for free pricing of public issues.
Part D of the Clarification pertains to the disclosure requirements for public/ rights issues.
Part E of the Clarification pertains to the requirements with respect to the manner of specifying the information in the offer document.
This Clarification is being issued in pursuance of sub-section (1) of the Section 11 of the Securities and Exchange Board of India Act, 1992.
This Clarification shall come into force with effect from October 11,1999 and shall be applicable to the offer documents pending with SEBI.
However, Part A of this Clarification shall not be applicable to those companies which have filed their prospectus with Registrar of Companies or Letter of Offer with Stock Exchanges on or before October 18, 1999.
Please acknowledge receipt.
Yours faithfully,
(O. P. Gahrotra)
Sr. Executive Director
Encl : As above
PART A: GUIDELINES RELATING TO THE ELIGIBILITY OF THE COMPANIES FOR PUBLIC/RIGHTS ISSUE
In Part A of Clarification XV dated April 17, 1996, after the existing clause 3 the following clause 4 shall be inserted :-
“4. No company shall make public/rights issue or an offer for sale of securities, unless-
the company enters into an agreement with a depository for dematerialisation of securities already issued or proposed to be issued to the public or existing shareholders ; and
the company gives an option to subscribers/ shareholders/investors to receive the security certificates or hold securities with a depository.”
EXPLANATION:
A ‘depository’ shall mean a depository registered with the Board under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996.”
PART B : FREEDOM TO DETERMINE THE DENOMINATION OF SHARES FOR PUBLIC / RIGHTS ISSUES AND TO CHANGE THE STANDARD DENOMINATION.
An eligible company shall be free to make public / rights issue of equity shares in any denomination determined by it in accordance with sub-section (4) of section 13 of the Companies Act, 1956 and in compliance with the norms as specified by SEBI in circular no. SMDRP/POLICY/CIR-16/99 dated June 14, 1999 and other norms as may be specified by SEBI from time to time.
The companies which have already issued shares in the denomination of Rs. 10/- or Rs.100/- may change the standard denomination of the shares by splitting or consolidating the existing shares.
Provided that the company enters into an agreement with a depository for dematerialization of its shares already issued.
The companies proposing to issue shares in any denomination or changing the standard denomination in terms of clause 1 or 2 above shall comply with the following :-
the shares shall not be issued in the denomination of decimal of a rupee;
the denomination of the existing shares shall not be altered to a denomination of decimal of a rupee;
at any given time there shall be only one denomination for the shares of the company;
the companies seeking to change the standard denomination may do so after amending the Memorandum and Articles of Association, if required;
the company shall adhere to the disclosure and accounting norms specified by SEBI from time to time.
PART C : FREE PRICING IN PUBLIC ISSUES BY UNLISTED COMPANIES
1. Henceforth, an unlisted company eligible to make a public issue and desirous of getting its securities listed on a recognized stock exchange pursuant to a public issue, shall be free to price its equity shares or any securities convertible at a later date into equity shares subject to the compliance with disclosure norms as specified by SEBI from time to time.
2. Para 4 of Part C of Clarification XXIII dated February 12, 1999, shall be substituted with the following:
“An eligible infrastructure company shall be free to price its equity shares subject to the compliance with the disclosure norms as specified by SEBI from time to time.”
3. The banks (whether public sector or private sector) may freely price their issue of equity shares or any securities convertible at a later date into equity share subject to approval by the Reserve Bank of India as per the Guidelines contained in Part B of the Clarification XXII dated June 5, 1998.
PART D : GUIDELINES ON DISCLOSURES IN OFFER DOCUMENT AND APPLICATION FORM
The requirement of making disclosures under the heading “Basis for Issue Price” as per clause 8 of Part A of Clarification XIV dated March 1,1996, in case of premium issues, shall now be applicable to all the issues irrespective of the issue price.
Under the heading ‘Option to Subscribe’ as required in clause C.9 of ‘Part II of Schedule II’ as specified in para II of Part A of Clarification XIV dated March 1,1996, the following statement shall be incorporated:-
“The lead merchant banker shall incorporate a statement in the offer document and in the application form to the effect that the investor shall have an option either to receive the security certificates or to hold the securities with a depository”.
PART E : REQUIREMENTS WITH RESPECT TO THE MANNER OF SPECIFYING INFORMATION.
Pursuant to the change in denomination, the compliance with the following shall be ensured while making disclosure in the offer document:-
(i) all the financial data affected by the change in denomination of shares shall be clearly and unambiguously presented in the offer document.
(ii) comparison of financial ratios representing value per share and comparison of stock market data in respect of price and volume of securities shall be clearly and unambiguously presented in the offer document.
(iii) the capital structure incorporated in the offer document shall be clearly presented giving all the relevant details pertaining to the change in denomination of the shares.
APPLICABILITY
This Clarification shall come into force with effect from October 11,1999 and shall be applicable to the offer documents pending with SEBI.
However, Part A of this Clarification shall not be applicable to those companies which have filed their prospectus with Registrar of Companies or Letter of Offer with Stock Exchanges on or before October 18, 1999.
Unless otherwise modified by this clarification all the existing provisions of the Guidelines and the Clarifications issued by SEBI from time to time shall remain in force.
