Merchant Banking and Financial Services, III Semester (MBA), UNIT-2
Definition of Eligibility Norms
An initial public offering for sale of equity shares or any other security convertible into equity shares can be made by an unlisted company subject to fulfillment of all the following conditions: During each of the preceding 3 full years, the company should have Net tangible assets of at least ` 3 crore. Out of these net tangible assets 50% should be in monetary assets. The company should have made distributable profits for at least 3 out of the immediately preceding 5 years. The company must have a net worth (total of paid up equity capital and free reserves excluding revaluation reserves minus total of accumulated losses and deferred expenditure not written off) of at least ` 1 crore in each of the preceding 3 full years. In case of change of its name, the company should have at least 50% of the revenue from the new activity mentioned in the suggested new name in the preceding full year. Total of the proposed issue and all previous issues in the same financial year, should not exceed 5 times its pre-issue net worth.
An unlisted company which does not fulfill any of these five
conditions can issue shares if it satisfies alternatively the following two
conditions.
It issues through book building process. At least 50% of the net
offer is allotted to a Qualified Institutional Buyer (QIB) like a public
financial institution, banks, mutual funds, FIIs, development finance
institutions, VCFs, a foreign venture capital investor registered with SEBI,
SIDCs, Insurance Companies…..or banks/ financial institutions participate in
the project to an extent of 15% of which 10% should come from the appraises.
The minimum post issue capital of the issuer would be ` 10 crores or there would be a compulsory
market making for at least 2 years from the date of listing of the shares. The
number of prospective allottees should not be less than 1000.
Public Issue by Listed
Companies
All listed companies can issue shares/convertible securities
provided the issue size in a financial year does not exceed 5 times their pre
issue net worth as per the audited balance sheet of the last financial year.
If the name of the issuer company is changed within the last one
year, the revenue from the activity suggested by the new name should not be
less than 50% of the total revenue in the preceding one full year.
If the above two conditions are not satisfied, a listed company can
make a public issue through the book building process with the same conditions
as applicable to unlisted companies.
Listed companies can also raise funds through Qualified
Institutional placement.
Exemptions
The above norms for listed and unlisted companies are not
applicable in the following cases.
Private/Public sector banks
Infrastructure companies whose project has been appraised by a
PFI/IDFC/ILFS or a bank which was earlier a PFI and also not less than 5% of
the project cost has been financed by any of the appraising institutions
jointly/severally.
Rights issue by a listed company.
Issues both public and rights of a convertible debt instruments –
conditions
A convertible debt instrument means an instrument/security which
creates/acknowledges indebtedness. It includes debentures, bonds and other
securities.
Conditions for issue of a
Debt Instrument
The following conditions should be satisfied on the date of filing
the draft offer document with SEBI and also on the date of filing the final
offer document with the ROCs/designated stock exchange:
The offer document should disclose credit rating obtained from at
least two SEBI registered credit rating agency.
The issuer company should not be in the RBI’s defaulters list.
In case of debentures, the issuer company should not be in default
for more than six months in the payment of interest and repayment of principal.
