A corporate entity may raise capital in the primary market by recouse to public offer, rights issue or private placement. An Initial Public Offer (IPO) is the first time selling of securities to the public in the primary market by a newly formed company. It is the most common source of procuring funds with long or indefinite maturity . Public Issues however refer to raising of both equity capital and debt capital- i.e.
Initial public offer
Subsequent public issues
Debt issues (Debentures/bonds
SEBI Disclosure & Investor Protection Guidelines
Procedure and Regulations governing Public Issues by both listed and unlisted Companies are governed by "The Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000". The guidelines are issued by SEBI under powers vested in terms of Section 11 of the Securities and Exchange Board of India Act, 1992.
Applicability of the Guidelines
These Guidelines shall be applicable to all public issues by listed and unlisted companies, all offers for sale and rights issues by listed companies whose equity share capital is listed, except in case of rights issues where the aggregate value of securities offered does not exceed Rs.50 lacs.
in case of the rights issue where the aggregate value of the
securities offered is less than Rs.50 Lakhs, the company shall prepare the letter
of offer in accordance with the disclosure requirements specified in these guidelines and file the same with the Board for its information and for being put on the SEBI website.
Unless otherwise stated, all provisions in these guidelines applicable to public issues by unlisted companies shall also apply to offers for sale to the public by unlisted companies.
For a proper understanding of the rules and procedures for Public Issues, it is necessary that the interested person refers not only to the text of the original guidelines in the website of SEBI, but also refers to subsequent clarifications issued by SEBI by way of circulars under heading "primary markets"
Companies Debarred from Raising Public issues
No company shall make an issue of securities if the company has been prohibited from accessing the capital market under any order or direction passed by the Board.
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 in a manner specified in the Regulations
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.
Other Essential Formalities for Making Public Issues
No company shall make any public issue of securities unless it has made an application for listing of those securities in the stock exchange (s). No company shall make public or rights issue or an offer for sale of securities, unless -
the company enters into an agreement with a depository for dematerialisation of securities already issued or proposed to be issued to the public or existing shareholders; and
the company gives an option to subscribers / shareholders / investors to receive the security certificates or hold securities in dematerialised form with a depository.
Credit Rating for Debt Instruments
No public or rights issue of debt instrument (including convertible instruments) irrespective of their maturity or conversion period shall be made unless credit rating from a credit rating agency is obtained and disclosed in the offer document.
Where credit rating is obtained from more than one credit rating agencies, all the credit rating/s, including the unaccepted credit ratings, shall be disclosed.
For a public and rights issue of debt-securities of issue size greater than or equal to Rs.100 crores, two ratings from two different credit rating agencies shall be obtained.
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.
Focus on Capital Market Development by SEBI DIP Guidelines
SEBI DIP Guidelines with its main focus on transparency and disclosure obligation of the Issuers is primarily bent on protecting the interests of the Investors. This is in conformity with the role of SEBI as the market regulator. But SEBI has also responsibilities as the market Developer to promote a healthy capital market. In line with this objective DIP guidelines also contain quite a few provisions to strengthen the hands of the issuers to enable them to play an effective role towards creating a healthy capital market.
Some important provisions in favour of Issuers are as under:
Companies can freely price securities to be issued by them (except initial offer)
Before filing the final prospectus, the company can keep a price band of maximum 20%. It means that if the company is not sure of the issue price, it may keep a floor price with a price band of 20%.
Companies are now free to determine the denomination of shares.
Net offer to public should be at least 25% of the issue size. In other words issuers are left with discretion with regards the balance 75%.
The minimum amount to be received from each investor should be Rs. 2,000/-.
Promoters may at their discretion arrange for buy back facility or safety net facility in the prospectus subject to the maximum 1000 shares per allotted. The validity of such scheme, if any shall be for at least 6 months from the date of despatch of share certificates.
Company can come out with an issue within 3 months from the date of the observation letter received from SEBI or where such letter is not received, issue can come out within 3 months days from the 22nd day of the date of filing of the prospectus with SEBI.
Company is required to appoint Compliance Officer to directly liaise with SEBI/Stock Exchanges to comply with various laws and investor's complaints related matters.
The issuers have the option to have a public issue underwritten by the underwriter.
Trading of securities of all new public issues will be in dematerialised form only. This reduces considerable paper work and book keeping obligations at the issuer's level.
