A Public Issue is defined as an invitation by a company to public to subscribe to the securities offered through a prospectus. Only companies that have not been prohibited from accessing the capital market under any order or direction passed by the Board (SEBI) shall make a issue of securities or access the public to subscribe to them.

Applicability of SEBI Guidelines regarding Public Issues

• All public issues by listed & unlisted companies

• all offers for sale and rights issues by listed companies whose equity share capital is listed,

Applicability of the Guidelines in respect of 'Rights issue'

SEBI DIP guidelines are not applicable in respect of Rights Issue only in case the aggregate value of securities offered does not exceed Rs.50 lacs. Where the issue exceeds Rs.50 Lacs the guidelines are applicable. Even in cases where the aggregate value do not exceed Rs.50 Lacs the company is required to prepare the letter of offer in accordance with the disclosure requirements specified in the guidelines and file the same with SEBI for its information and for being put on the SEBI website

The provisions of the guidelines that are applicable to public issues by unlisted companies shall also apply to offers for sale to the public by unlisted companies. “Offer for sale” means offer of securities by existing shareholder(s) of a company to the public for subscription, through an offer document.

Conditions listed hereunder are to be satisfied by the companies issuing securities offered through an offer document, at the time of filing draft offer document with SEBI and also at the time of filing the final offer document with the Registrar of Companies./Designated Stock Exchange)

1. Filing of offer document

   • The Company to file a draft prospectus with SEBI at least 21 days prior to filing the same with ROC through an eligible Lead Merchant Banker. Where SEBI specifies changes, if any, in the draft Prospectus, the issuer (company) or the lead merchant banker should carry out such changes in the draft prospectus before filing the prospectus with ROCs.

   • A listed company can make any issue of security through a rights issue where the aggregate value of securities, including premium, if any, exceeds Rs.50 lacs, only after filing the letter of offer with the Board (SEBI), through an eligible Merchant Banker

2. Application for listing: A company before making any public issue of securities has to make an application for listing of those securities in the stock exchange (s).

3. Formalities for Issue of securities in dematerialised form: Before making a public issue or rights issue or an offer for sale of securities, the company should into an agreement with a depository for dematerialisation of securities already issued or proposed to be issued to the public or existing shareholders; and should give an option to subscribers/shareholders/investors to receive the security certificates or hold securities in dematerialised form with a depository.

An unlisted company has to satisfy the following conditions to be eligible to make an initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date,

1. The company has net tangible assets of at least Rs. 3 crore in each of the preceding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets. Where the company holds more than 50% of the net tangible assets in monetary assets, the company should made firm commitments to deploy such excess monetary assets in its business/project;and

2. The company has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, (without taking into account extra ordinary items) for at least three (3) out of immediately preceding five (5) years; and

3. The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full years (of 12 months each);

4. In case the company has changed its name within the last one year, atleast 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name; and

5. The aggregate of the proposed issue and all previous issues made in the same financial year in terms of size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document), does not exceed five (5) times its pre-issue networth as per the audited balance sheet of the last financial year.)

An unlisted company not complying with any of the above conditions may make an initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date, only if -

1. The issue is made through the book-building process, with at least 50% of the issue size being allotted to the Qualified Institutional Buyers (QIBs), failing which the full subscription monies shall be refunded or

2. The “project” has at least 15% participation by Financial Institutions/ Scheduled Commercial Banks, of which at least 10% comes from the appraiser(s). In addition to this, at least 10% of the issue size shall be allotted to QIBs, failing which the full subscription monies shall be refunded

And

1. The minimum post-issue face value capital of the company is Rs.10 crore or

2. There should be a compulsory market-making for at least 2 years from the date of listing of the shares subject to the followings.

   • Market makers undertake to offer buy and sell quotes for a minimum depth of 300 shares;

   • Market makers undertake to ensure that the bid-ask spread (difference between quotations for sale and purchase) for their quotes shall not at any time exceed 10%:

   • The inventory of the market makers on each of such stock exchanges, as on the date of allotment of securities, shall be at least 5% of the proposed issue of the company)

An unlisted public company shall not make an allotment pursuant to a public issue or offer for sale of equity shares or any security convertible into equity shares unless in addition to satisfying the above conditions the prospective allottees are not less than one thousand (1000) in number).

Offer for sale

An offer for sale of equity shares of a company or any other security which may be converted into or exchanged with equity shares of the company at a later date, unless the same conditions as laid down above relating initial public offering (IPO) of equity shares or any other security which may be converted make an initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares are satisfied)

Listed Companies

A listed company shall be eligible to make a public issue of equity shares or any other security which may be converted into or exchanged with equity shares at a later date. Provided that in case there is a change in the name of the issuer company within the last 1 year (reckoned from the date of filing of the offer document), the revenue accounted for by the activity suggested by the new name is not less than 50% of its total revenue in the preceding 1 full-year period)

If the issue size is more than or equal to 5 times of pre-issue net-worth, then the listed company has to take the book building route as already stated.

The following entities are exempted:

• a banking company including a Local Area Bank

• public sector banks

• an infrastructure company

  1. whose project has been appraised by a Public Financial Institution (PFI) or Infrastructure Development Finance Corporation (IDFC) or Infrastructure Leasing and Financing Services Ltd. (IL&FS) or a bank which was earlier a PFI; and)

  2. not less than 5% of the project cost is financed by any of the institutions referred to in sub-clause (a), jointly or severally, irrespective of whether they appraise the project or not, by way of loan or subscription to equity or a combination of both.

• rights issue by a listed company

The following additional conditions are also to be satisfied

1. credit rating of not less than investment grade is obtained from not less than two credit rating agencies registered with SEBI and disclosed in the offer document.

2. The company is not in the list of willful defaulters of RBI

3. The company is not in default of payment of interest or repayment of principal in respect of debentures issued to the public, if any, for a period of more than 6 months

An issuer company shall not make an allotment of non-convertible debt instrument pursuant to a public issue if the proposed allottees are less than fifty (50) in number. In such a case the company shall forthwith refund the entire subscription amount received. If there is a delay beyond 8 days after the company becomes liable to pay the amount, the company shall pay interest @15% p.a to the investors)

Where credit ratings are obtained from more than two credit rating agencies, all the credit rating/s, including the unaccepted credit ratings, shall be disclosed

All the credit ratings obtained during the three (3) years preceding the pubic or rights issue of debt instrument (including convertible instruments) for any listed security of the issuer company shall be disclosed in the offer document.

No unlisted company shall make a public issue of equity share or any security convertible at later date into equity share, if there are any outstanding financial instruments or any other right which would entitle the existing promoters or shareholders any option to receive equity share capital after the initial public offering.

No company shall make a public or rights issue of equity share or any security convertible at later date into equity share, unless all the existing partly paid-up shares have been fully paid or forfeited

No company shall make a public or 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