SECURITIES AND EXCHANGE BOARD OF INDIA
SECONDARY MARKET DEPARTMENT
Mittal Court, A Wing, Gr. Floor,
224, Nariman Point, Mumbai 400 021
December 05, 1997
The President/Executive Directors/Managing Directors-
of all the Stock Exchanges
SEBI has issued clarification No. XXI to the guidelines for disclosure and investor protection providing for 100% book building process for new issues. In this connection, a copy of the circular RMB (DIP) Series Circular No. 2 (97-98) dated October 27, 1997 is enclosed for your reference.
The book building process envisages issue of securities in primary market by companies through Book running which offers the benefits of price and demand discovery for the issues. It involves engagement of Intermediaries as Lead Book Runners, Co-book runners and Syndicate Members who act as underwriters in case of devolvement in specified categories of the issue.
The following provisions of the clarification XXI require specific attention of the Stock Exchanges.
The option of 100% Book Building shall be available only to those issuer companies which propose to make an issue of capital of and above Rs. 100 crores.
The issuer company shall after receiving the final observations if any on the offer document from SEBI make an advertisement in an English National daily with wide circulation, one Hindi National newspaper and a Regional Language newspaper with wide circulation at the place where the registered office of the Issuer company is situated. The advertisement so issued shall contain the salient features of the final offer document as specified in Form 2A circulated along with the application form. The information memorandum shall also contain the following:
i) the date of opening and closing of the bidding (not less than 5 days).
ii) the method and process of bidding.
iii) the names and addresses of the syndicate members as well as the bidding terminals for accepting the bids.3. No incentive, whether in cash or kind shall be paid to the investors who have become entitled for allotment of securities.
4. Arrangement shall be made by the Issuer for collection of the applications by appointing mandatory collection centres depending upon the size of the issue.
5. At least 15% of the issue size shall be reserved for allocation to individual investors applying upto 10 tradable lots through the “syndicate members”.
6. 10% of the issue offered to the public through the prospectus shall be reserved for allocation to individual investors who had not participated in the bidding process or have not received an intimation for entitlement of securities under the bidding process. In other words investors who had participated in the bidding process and had received intimation for entitlement of securities shall not be eligible to make an application for the 10% portion mentioned in clause 4.
7.Allotment to investors under the 15% reservation to individual investors applying upto 10 tradable lots through the syndicate members and reservation of 10% of the issue offered to the public through the prospectus for allocation to individual investors who had not participated in the bidding process or had not received intimation for entitlement of securities under the bidding process as prescribed above shall be made on the basis of the proportionate allotment system as laid down by SEBI.
8. Allotment shall be made not later than 15 days from the closure of the issue failing which interest at the rate of 15% shall be paid to the investors.
9. There shall not be any undersubscription in the category of at least 15% of the issue size referred above which shall be reserved for allocation to individual investors applying upto 10 tradable lots through the “syndicate members”.as the Underwriters shall bring in the amount devolved subject to the fulfillment of the minimum shareholders criterion.
10.For the class of investors (0ther than the reservation under 15% of the issue size and 10% of the issue size offered to the public through the prospectus), the allocation shall be determined by the Book Runner(s) based on prior commitment, investor quality, price aggression, earliness of bids etc. The minimum shareholders criterion is not applicable for this category.
11.Allotment made to investors under the reservation of 10% of the issue size offered to the public through the prospectus shall not have to satisfy the minimum shareholders criterion . In case of undersubscription in this category, the Issuer company has the option to allocate it to whichever category it deems fit or let the undersubscribed portion lapse.
12. After, the final observation from SEBI has been received on the offer document, the minimum number of application forms accompanied with Form 2A and offer document containing the final observations received from SEBI, without mentioning the final price shall be despatched to the members of the Stock Exchanges. However, the issue opening and closing date shall be mentioned in the application form. A minimum of 200 application forms per active member of the Stock Exchange where the securities of the issuer company are proposed to be listed and 10,000 forms each to other Stock Exchanges shall be despatched. Further, minimum 1000 offer document, containing the final observations received from SEBI, to each Stock Exchange where the securities of the issuer company are proposed to be listed and minimum 200 offer document, containing the final observations received from SEBI, each to other Stock Exchange would also have to be despatched. These shall be despatched subject to the condition that a minimum gap of 14 days is maintained between the receipt of these applications and issue opening date.
13.After, the price has been determined on the basis of bidding, the statutory public advertisement containing, inter alia, the price as well as a table showing the number of securities and the amount payable by an investor, based on the price determined, shall be issued. The statutory advertisement may be issued before the ROC filing. There shall be a minimum time gap of (5) days between the statutory public advertisement and the issue opening date. The statutory public advertisement shall be issued for a continuous period of three days in an English National daily with wide circulation, one Hindi national paper and a Regional language newspaper with daily circulation at the place where the registered office of the issuer company is situated.
Further, this requires amendment to the listing agreement of the Stock Exchanges. Hence, you are advised to amend the listing agreement on the following lines :
“The company shall comply with the provisions of SEBI Guidelines on Disclosure and Investor Protection issued by SEBI from time to time.”
You are advised to keep us informed about the steps taken to implement the above changes.
SR. EXECUTIVE DIRECTOR
Encl: Copy of the Circular No. RMB(DIP) Series Circular No.2 (97-98).