Securities and Exchange Board of India

CIRCUALR

SEBI/CFD/MB/IS/3/2008/29/08
August 29, 2008

To All Registered Merchant Bankers

Dear Sirs,

Sub.: Effective date of ASBA Process and clarification on clause 2.8 of SEBI (Disclosure and Investor Protection (DIP)) Guidelines, 2000

In exercise of the powers conferred under sub-section (1) of section 11 of the Securities and Exchange Board of India Act, 1992, all merchant bankers are informed as under:

(1) Effective date of SEBI Circular on ASBA process

(a) It is mentioned in SEBI circular no. SEBI/CFD/DIL/DIP/31/2008/30/7 dated July 30, 2008 that the said circular shall come into effect from the date to be specified by SEBI, once few eligible banks are recognised as Self Certified Syndicate Banks (SCSBs)

(b) In this regard, it is hereby informed that as of date, the following banks have been recognised as SCSBs and appear in the list of SCSBs displayed on SEBI website at www.sebi.gov.in :

(i) Corporation Bank

(ii) Union Bank of India

(iii) HDFC Bank

(iv) State Bank of India

(v) ICICI Bank Limited

(c) It is further informed that the above mentioned circular shall come into effect from the date of issuance of this circular. All the above mentioned banks are eligible to function as SCSBs in public issues made through book building route, opening on or after September 1, 2008.

(2) Clarification on clause 2.8 of the SEBI (DIP) Guidelines, 2000

(a) Clause 2.8 of the SEBI (DIP) Guidelines, 2000 states as under:

 “No company shall make a public or a rights issue of securities unless firm arrangements of finance through verifiable means towards 75% of the stated means of finance, excluding the amount to be raised through proposed Public / Rights issue, have been made.”

(b) It may be stated that for the purpose of the above mentioned clause, debt funding from financial institutions/ banks is considered as “firm arrangement of finance”, only if the financial institutions/ banks extending the debt funding have given final sanction letters in this regard to the issuer company.

(c) In relation to the above, it has been brought to our notice that in case of mega projects involving high debt component, companies take considerable time in obtaining final sanction letter for loans from financial institutions/ banks, as the process involves syndication, proper timing, exploration of various funding options (both within and outside India), etc. In order to make it practicable for companies raising funds for mega projects with debt funding requirement of at least Rs.1000 crores, it has been decided that the above mentioned clause 2.8 shall be deemed to have been complied with, if the following conditions are satisfied:

(i) The issuer company has obtained “in-principle sanction” letters for the proposed debt funding from all the relevant financial institutions/ banks;

(ii) The promoters of the issuer company have given a legally enforceable undertaking/ guarantee to meet the gap in funding in the event of inability of the issuer company to arrange firm financing arrangements;

(iii) The funding gap, which the promoters have undertaken to meet, does not exceed 33% of the promoters’ measurable unencumbered net worth, as evidenced by the certificate given by the statutory auditors of the issuer company in this regard;

To illustrate: Suppose a project size of Rs.16000 crores is being financed through public issue of Rs.6000 crores and debt from banks of Rs.10000 crores. The provisions of clause 2.8 shall be considered to have been sufficiently complied with, if firm arrangements are made to the extent of Rs.7500 crores (i.e., 75% of Rs.10,000 crores). For meeting the gap of Rs.7500 crores, if the promoters were to give a guarantee, the promoters must have a minimum unencumbered net worth of Rs.22,727.28 crores. If the measurable unencumbered net worth of the promoters is less than Rs.22,727.28 crores, then the amount of firm arrangement which can be arranged through promoters’ measurable unencumbered net worth shall be reduced by 33% of the extent of shortfall and the balance shall have to be arranged through firm bank finance.

(iv) For the purposes of computation of promoters’ net worth, the value of promoters’ unencumbered shareholding in listed companies at an average market price over 26 weeks has been considered;

(v) The above mentioned undertaking/ guarantee has been included in the list of material contracts and documents for inspection required under clause 6.15.1 of the SEBI (DIP) Guidelines, 2000;

(vi) The Lead Merchant Bankers to the Issue have satisfied themselves about the adequacy of funds available with the promoters of the issuer company giving the undertaking/ guarantee as mentioned above and the capability of such promoters to fullfil their commitments.

(vii) The offer document of the issuer company contains adequate disclosures about how the Lead Merchant Bankers to the Issue have satisfied themselves in this regard.

(d) It is informed that in respect of cases other than that mentioned in para (c) above, the extant requirement of obtaining final sanction letter to comply with the above mentioned clause 2.8, shall continue.

(e) All merchant bankers are advised to take note of the above and ensure compliance.

Yours faithfully,

Neelam Bhardwaj

 

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