SEBI-Issue of Capital and Disclosure Requirements in general and specific regulations related to rights issue in India

1. SEBI (ISSUE OF CAPITAL AND
DISCLOSURE REQUIREMENTS)
REGULATIONS AND RIGHTS
ISSUES
Suresh Sundar

2. Origin
• SEBI (Disclosure and Investor Protection Guidelines, 2000)
were to regulate the issue of securities of a company to
public, shareholders and Institutional Investors through
primary market.
• Over the years, subsequent amendments and several issue
specific notifications made it a confusing and disorganized
piece of legislation

3. Development
• To provide DIP guidelines, a statutory backing SEBI notified the
SEBI (Issue of Capital and Disclosure Requirements, 2009)
• SEBI formulated the ICDR regulations to promote the
development of a healthy capital market and to protect the
interest of investors in securities

4. Why?
The ICDR Regulations attempts to
Streamline the framework for public issues
By removing unnecessary regulations,
Introducing market-driven procedures and
Simplifying the clutter of legality

5. Major Changes in ICDR over
DIP
• Uniform Eligibility to Access Public Money
The exemption available to certain banking and infrastructure
companies from eligibility norms for IPOs have been removed
facilitating uniformity.
• Offer for Sale by Listed Companies
Under DIP “offer for sale” was permitted only for unlisted
companies proposing IPOs. Under ICDR even listed companies
can make an offer (subject to eligibility criteria)

6. Changes Contd.
• Removal of Firm Allotments
Pre-IPO placements on firm basis to a maximum of 10% of shares
has been removed providing a level playing field for subscribers
of PI.
• Minimum Promoter’s Contribution
The older guideline of promoter contribution by members in
promoters group, friends, relatives and associates has been
changed to only promoters.

7. Changes Contd.
Other Disclosures:
• No need to disclose the price or price band in Draft Red
Herring Prospectus for fixed price public issue.
• Any pledge of shares by promoters should be disclosed in the
prospectus for PI.

9. Structure
SEBI(ICDR)Regulations2009
Public Issues
Rights Issues
Preferential Issues
Bonus Issues
Issues by SMEs
IDR issues
QIP

10. RIGHTS ISSUE

11. What?
• A rights offering (Issue) is an issue of rights to a company’s
existing shareholders that entitles them to buy additional
shares directly from the company in proportion to their
existing holdings, within a fixed time period through “letter of
offer”
• Generally the subscription price at which the shares may be
purchased will be at a discount to the current market price.

12. Options to the Shareholders
• Take up the rights in full
• Ignore the rights in full
• Transfer or sell the rights in full
(Renounceable rights)
• Take up partially and ignore/transfer the remaining

13. Pros and Cons
Benefits(to company)
• Easy and cheap way to raise money to pay off debt, purchase
equipment or acquire another company
• Bypassing underwriting fees
• No other viable financing alternatives
Benefits (to shareholders)
• Shares are offered at a discount

14. Pros and Cons Contd.
Negatives
• Can be an evidence that the company is struggling
• Dilution of value of existing shares

15. Steps Involved in Allotment
1. Call a board meeting by issue notice of the meeting
2. Approve rights issue including “letter of offer”
3. Send offer letter to all existing shareholders atleast three
days before the opening of issue
4. Receive acceptance/renunciations/rejections from the
members
5. Call a board meeting by issue of notice

16. Steps Involved in Allotment
Contd.
6) 6. Approve allotment by passing a board resolution
7) 7. Issue of share certificates and authorize directors to sign
them
8) 8. Authorize a director to file E-form to RoC within 30 days of
passing the resolution
9) 9. Make allotment within 60 days of receiving application
money

17. SEBI Guidelines regarding Rights
Issues
1. Applicability
These guidelines apply to rights issues made by existing listed
companies with an issue size more than Rs.50 lakhs
2. Withdrawal of the issue
Cannot be withdrawn after announcement of record date. If
done, no eligibility to list the security in the next 12 months

18. SEBI Guidelines Contd.
3. Underwriting is optional
4. Appointment of Registrar to the issue is compulsory
5. Appointment of Merchant Banker
Appointment of a Category -1 merchant banker holding a valid
certificate of registration issued by SEBI is compulsory. Ensure the
compliance of SEBI guidelines.

19. SEBI Guidelines Contd.
6. Partly paid shares
If any must either be made fully paid of forfeited
7. Letter of Offer
It should contain disclosures specified by SEBI (Section III –
Contents of the offer document)
8. Agreement with depository
Company should enter into an agreement with depository for
dematerialization.

20. SEBI Guidelines Contd.
9. Closure of the issue
Must be kept open for a minimum of 30 days but not more than
60 days.
10. Minimum subscription
A minimum of 90% of the issued should be subscribed or else the
entire subscription should be refunded to applicants within 42
days from the date of closure.

21. SEBI Guidelines Contd.
11. No reservation
12. Promoters contribution and lock-in period is not applicable
13. Oversubscription should not be retained under any
circumstances
14. Offer document to be made public
The draft offer document filed with SEBI should be made public
for 21 days from the date of filing

22. SEBI Guidelines Contd.
15. No complaints certificate
After 21 days merchant banker has to file a statement with SEBI
giving a list of complaints received if any and necessary
amendments made if any.
16. Dispatch of the offer letter
Merchant banker has to ensure that the offer letters are
dispatched to all shareholders atleast 1 week before opening of
the issue.
17. Compliance report
A post issue report has to be filed on the 3rd and 50th day from
the date of closing of the subscription.

23. THANK YOU