SEBI/CFD/DIL/DIP/22/2006/8/5

May 8, 2006

To All Registered Merchant Bankers/Stock Exchanges

Dear Sirs,

Sub.: Guidelines for “Qualified Institutions Placement” – Amendments to SEBI (Disclosure and Investor Protection) {DIP} Guidelines, 2000.
1.   In order to make Indian markets more competitive and efficient, it has been decided to introduce an additional mode for listed companies to raise funds from domestic market in the form of “Qualified Institutions Placement” (QIP). Key features of the same are as under:

Issuer: A company whose equity shares are listed on a stock exchange  having nation wide trading terminals and which is complying with the prescribed requirements of minimum public shareholding of the listing agreement will be eligible to raise funds in domestic market by placing securities with Qualified Institutional Buyers (QIBs).

Securities: Securities which can be issued through QIP are equity shares or any securities other than warrants, which are convertible into or exchangeable with equity shares (hereinafter referred to as “specified securities”). A security which is convertible into or exchangeable with equity shares at a later date, may be converted or exchanged into equity shares at any time after allotment of security but not later than sixty months from the date of allotment. The specified securities shall be made fully paid up at the time of allotment.

Investors / Allottees: The specified securities can be issued only to Qualified Institutional Buyers (QIBs), as defined under sub-clause (v) of clause 2.2.2B of the SEBI (DIP) Guidelines. Such QIBs shall not be promoters or related to promoters of the issuer, either directly or indirectly. Each placement of the specified securities issued through QIP shall be on private placement basis, in compliance with the requirements of first proviso to clause (a) of sub-section (3) of Section 67 of the Companies Act, 1956. A minimum of 10% of the securities in each placement shall be allotted to Mutual Funds. For each placement, there shall be at least two allottees for an issue of size up to Rs.250 crores and at least five allottees for an issue size in excess of Rs.250 crores. Further, no single allottee shall be allotted in excess of 50 per cent of the issue size. Investors shall not be allowed to withdraw their bids / applications after closure of the issue.

Issue Size: The aggregate funds that can be raised through QIPs in one financial year shall not exceed five times of the net worth of the issuer at the end of its previous financial year.

Placement Document: Issuer shall prepare a placement document containing all the relevant and material disclosures. There will be no pre-issue filing of the placement document with SEBI. The placement document will be placed on the websites of the Stock Exchanges and the issuer, with appropriate disclaimer to the effect that the placement is meant only for QIBs on private placement basis and is not an offer to the public.

Pricing: The floor price of the specified securities shall be determined on a basis similar to that for GDR / FCCB issues and shall be subject to adjustment in case of corporate actions such as stock splits, rights issue, bonus issue etc.

Other procedural requirements: The resolution approving QIP, passed under sub-section (1A) of Section 81 of the Companies Act, 1956 or any other applicable provision, will remain valid for a period of twelve months from the date of passing of the resolution. There shall be a gap of at least six months between each placement in case of multiple placements of specified securities pursuant to authority of the same shareholders’ resolution. Issuer and Merchant Banker shall submit documents / undertakings, if any, specified in this regard in the listing agreement, for the purpose of seeking in-principle approval and final permission from Stock Exchanges for listing of the specified securities.

Involvement of Merchant Banker: QIP shall be managed by a SEBI registered merchant banker who shall exercise due diligence and furnish a due diligence certificate to Stock Exchanges stating that the issue complies with all the relevant requirements. The merchant banker shall file a copy of the placement document and post issue details with SEBI within thirty days of the allotment, for record purpose.

2.  The above policy decisions have been given effect to by introducing Chapter XIIIA in the SEBI (DIP) Guidelines, 2000. A copy of Chapter XIIIA is enclosed herewith at Annexure I.

3. The amendments made vide this circular shall come into force with immediate effect.

4.  This circular is being issued in exercise of the powers conferred under sub-section (1) of Section 11 of the Securities and Exchange Board of India Act, 1992.

5. This circular is available on SEBI website at www.sebi.gov.in under the category “Legal Framework”. The entire text of the SEBI (DIP) Guidelines, 2000, including the amendments issued vide this circular, is available on SEBI website under the categories “Legal Framework” and “Issues and Listing”.

Yours faithfully,

Neelam Bhardwaj

Encl.: a/a

ANNEXURE I

CHAPTER XIII-A OF THE SEBI (DIP) GUIDELINES, 2000

GUIDELINES FOR QUALIFIED INSTITUTIONS PLACEMENT (QIP)

13A.1 Applicability

13A.1.1 This Chapter shall apply to any issue of equity shares / fully convertible debentures (FCDs) / partly convertible debentures (PCDs) or any securities other than warrants, which are convertible into or exchangeable with equity shares at a later date (hereinafter referred to as “specified securities”), made to Qualified Institutional Buyers (QIBs) pursuant to this chapter, by a listed company which fulfills the following conditions:

(a) its equity shares of the same class are listed on a stock exchange having nation wide trading terminals; and

(b) it is in compliance with the prescribed minimum public shareholding requirements of the listing agreement.

Explanation:

(i) The term “Qualified Institutional Buyers” shall have the same meaning as assigned to it in clause 2.2.2B (v).

(ii) For the purpose of sub-clause (a) of clause 13A.1.1, securities that are convertible into or exchangeable with securities which are listed on a stock exchange having nation wide trading terminals, shall be deemed to be securities of the class into which they are convertible or with which they are exchangeable.

13A.2  Investors

13A.2.1  Only QIBs shall be eligible for allotment of specified securities issued pursuant to this Chapter.

13A.2.2  Minimum of 10 per cent of specified securities issued pursuant to this chapter shall be allotted to mutual funds.

13A.2.3 If no mutual fund is agreeable to take up the minimum portion mentioned in clause 13A.2.2 or any part thereof, such minimum portion or part thereof may be allotted to other QIBs.

13A.2.4  No allotment shall be made under this chapter, either directly or indirectly, to any QIB being a promoter or any person related to promoter/s.

Explanation:

For the purpose of this clause, QIB who has all or any of the following rights shall also be deemed to be a person related to promoter/s:

(a) rights under a shareholders’ agreement or voting agreement entered into with promoters or persons related to the promoters;

(b) veto rights; or

(c) right to appoint any nominee director on the board of the issuer.

Provided that a QIB who does not hold any shares in the issuer and who has acquired the aforesaid rights in the capacity of a lender shall not be deemed to be a person related to promoter/s.

13A.2.5 Investors shall not be allowed to withdraw their bids after the closure of issue.

13A.3 Pricing

13A.3.1 An issue of specified securities made under this Chapter shall be made at a price not less than the higher of the following:

i)  The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date;

OR

ii)   The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the two weeks preceding the relevant date.

Explanation:

a)  “relevant date” for the purpose of this clause means the day which is thirty days prior to the date on which the meeting of general body of shareholders is held, in terms of sub-section (1A) of Section 81 of the Companies Act, 1956 or other applicable provision to consider the proposed issue.

b)  “stock exchange” for the purpose of this clause means any of the recognised stock exchanges in which the equity shares of the issuer of the same class are listed and in which the highest trading volume in such shares has been recorded during the six months immediately preceding the relevant date.

13A.3.2 Pricing of shares on conversion

13A.3.2.1  Where securities which are convertible into or exchangeable with equity shares at a later date are issued pursuant to this Chapter, the issuer shall determine the price of the resultant shares in terms of clause 13A.3.1 above, subject to clause 13A.3.2.2.

13A.3.2.2  The relevant date for the above purpose may, at the option of the issuer, be either the one referred in Explanation (a) to clause 13A.3.1 or a day thirty days prior to the date on which the holder of the securities which are convertible into or exchangeable with equity shares at a later date becomes entitled to apply for the said shares.

13A.3.3 The specified securities allotted pursuant to this Chapter shall be made fully paid up at the time of their allotment.

13A.4 Adjustments in price

13A.4.1 The prices considered for determination of issue price of specified securities as provided in clause 13A.3.1 and 13A.3.2.1 shall be subject to appropriate adjustments if the issuer company:

a.  makes an issue of shares by way of capitalization of profits or reserves (other than by way of a dividend on shares);

b. makes an issue of shares on rights basis

c.consolidates its outstanding shares into a smaller number of shares;

d.divides its outstanding shares (including by way of stock split);

e. re-classifies any of its shares into other securities of the company;

f.is involved in such other similar events or circumstances, which in the opinion of the concerned Stock Exchange, requires adjustments.

13A.5 Currency of the Security

13.A.5.1 In case of a security which is convertible into or exchangeable with equity shares at a later date, the same may be converted/ exchanged in to equity shares at any time after the date of allotment of the security, no later than sixty months from the date of allotment.

13.A.6 Shareholders’ Resolution

13A.6.1 Allotment of specified securities issued pursuant to this Chapter shall be completed within twelve months from the date of passing of the resolution in terms of sub-section (1A) of Section 81 of the Companies Act, 1956 or any other applicable provision.

13A.6.2 The resolution passed at the meeting of shareholders referred to in clause 13A.6.1 above shall specify that the allotment is proposed to be made to QIBs pursuant to this Chapter and shall also specify the relevant date on the basis of which price of the resultant shares as specified under clause 13A.3.2.2 shall be determined.

13A.6.3 The placements made pursuant to authority of the same shareholders’ resolution shall be separated by at least six months between each placement.

13A.7  Placement Document

13A.7.1 Specified securities shall be issued pursuant to this Chapter on the basis of a placement document.

13A.7.2 The placement document shall contain all material information, including the information specified in Schedule XXIA.

13A.7.3  The placement document shall be a private document provided to select investors, through serially numbered copies.

13A.7.4 The placement document shall also be placed on the website of the concerned stock exchange and of the issuer with a disclaimer to the effect that it is in connection with an issue to QIBs under this Chapter and that no offer is being made to the public or to any other category of investors.

13A.7.5 A copy of the placement document shall be filed with the Board for record purpose within 30 days of the allotment of specified securities.

13A.8 Number of allottees

13A.8.1 The minimum number of allottees for each placement of specified securities made pursuant to this Chapter shall not be less than:

(a) two, where the issue size is less than or equal to Rs. 250 crores;

(b) five, where the issue size is greater than Rs. 250 crores.

Provided that no single allottee shall be allotted more than 50% of the issue size.

Provided further that QIBs belonging to the same group or those who are under common control shall be deemed to be a single allottee for the purpose of this clause.

Explanation:

For the purpose of this clause –

(i)The expression ‘QIBs belonging to the same group’ shall derive meaning from the concept of ‘companies under the same group’ as provided in sub-section (11) of Section 372 of the Companies Act, 1956;

(ii) “Control” shall have the same meaning as is assigned to it by clause (c) of Regulation 2 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.

13A.9 Restrictions on amount raised

13A.9.1  The aggregate of the proposed placement and all previous placements made in the same financial year pursuant to this Chapter shall not exceed five times the net worth of the issuer as per the audited balance sheet of the previous financial year.

13A.10 Transferability of specified securities

13A.10.1 Specified securities allotted pursuant to this Chapter shall not be sold by QIB for a period of one year from the date of allotment, except on a recognised stock exchange.

Explanation:

For the purpose of this clause, it is clarified that any sale by way of a bulk or block transaction in accordance with the procedures prescribed by the Board and the stock exchange, shall also be treated as a sale on a recognised stock exchange.

13A.11 Obligations of Merchant Bankers

13A.11.1 Any issue and allotment of specified securities pursuant to this Chapter shall be managed by Merchant Banker(s) registered with SEBI.

13A.11.2 The merchant banker shall exercise due diligence.

13A.11.3  The merchant banker shall furnish to each stock exchange on which the same class of shares or other securities are listed, a due diligence certificate stating that the issue is being made pursuant to this Chapter and complies with its requirements, along with the application made for seeking in-principle approval for listing of the specified securities.

13A.11.4 The merchant banker shall also furnish to each stock exchange on which the same class of shares or other securities are listed, the documents, undertakings, etc, if any, specified in the listing agreement for the purpose of seeking in-principle approval and final permission from Stock Exchanges for listing of the specified securities.

13A.12 Issuer Certification

13A.12.1 The issuer shall furnish a copy of the placement document to each stock exchange on which the same class of shares or other securities are listed.

13A.12.2 The issuer shall also furnish to each stock exchange on which the same class of shares or other securities are listed, a certificate stating that the issue is being made pursuant to this Chapter and complies with its requirements, along with the application made for seeking in-principle approval for listing of the specified securities.

13A.12.3  The issuer shall also furnish to each stock exchange on which the same class of shares or other securities are listed, the documents, undertakings, etc, if any, specified in the listing agreement for the purpose of seeking in-principle approval and final permission from Stock Exchanges for listing of the specified securities.

13A.13 Non-applicability of Chapter XIII

13A.13.1 Nothing contained in Chapter XIII shall apply to an issue of specified securities made pursuant to this Chapter.

SCHEDULE XXIA

[Clause 13A.7.2 ]

DISCLOSURES IN PLACEMENT DOCUMENT

1.Disclaimer to the effect that the Memorandum relates to an issue made to Qualified Institutional Buyers under Chapter XIIIA and that no offer is being made to the public or any other class of investors.

2. Glossary of Terms/Abbreviations

3. [Financial Statements Contained Herein]

4.Merchant Bankers/Managers to the placement and other advisors

5.Summary of the Offering and Instrument

6.Risk Factors

7.Market Price Information

Disclose particulars of:-

a high, low and average market prices of shares of the company during the preceding three years

b. monthly high and low prices for the six months preceding the date of filing of the prospectus

c. number of shares traded on the days when high and low prices were recorded in the relevant stock exchange during period of (i) and (ii) above, and total volume traded on those dates

d. the stock market data referred to above shall be shown separately for periods marked by a change in capital structure, with such period commencing from the date the concerned stock exchange recognizes the change in the capital structure (e.g., when the shares have become ex-rights or ex-bonus)

e. the market price immediately after the date on which the resolution of the Board of Directors approving the issue was approved

f.  the volume of securities traded in each month during the six months preceding the date on which the offer document is filed with ROC

g. Along with high, low and average prices of shares of the company, details relating to volume of business transacted should also be stated for respective periods.

8.Use of proceeds

a. purpose of the issue;

b. break-up of the cost of project for which the  money is raised through issue;

c. the means of financing such project; and

d. proposed deployment status of the proceeds at each stage of the project.

9.Capitalization Statement

10.Dividends

11.Selected Financial and Other Information

The audited consolidated or unconsolidated financial statements prepared in accordance with Indian GAAP shall contain the following:

a. Report of Independent Auditors on the Financial Statements

b. Balance Sheets

c. Statements of Income

d. Schedules to Accounts

e. Statements of Changes in Stockholders’ Equity

f. Statements of Cash Flows

g. Statement of Accounting Policies

h. Notes to Financial Statements

i. Statement Relating to Subsidiary Companies (in case of unconsolidated financial statements)

12.Management’s Discussion and Analysis of Financial Condition and Results of Operations

13. Industry Description

14.Business Description

15.Organizational Structure and Major Shareholders

16.Board of Directors and Senior Management

17.Taxation Aspects relating to the Instrument

18.Legal Proceedings

19.Accountants

20.General Information

21. Such Other information as is appropriate to enable the investor to make an informed decision.sebi press_logo Circular

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