SEBI (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) (FOURTH AMENDMENT) REGULATIONS, 2012 - Amendments in conditions of Public Issue

SEBI vide Notification No. LAD-NRO/GN/2012-13/18/5391, published on 12/10/2012 in Gazette of India, has notified certain amendments in SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 which prima facie intends to create necessary deterrence for the Companies and their intermediaries, who treat money raised through public offers as free money and with its mis-use cheats public at large. The above said amendments have already come in to effect with its publication.

Amended provisions with respect to eligibility conditions of a public issue can be briefed as follows:

1. The limit of mandatory allotment to QIBs has been increased from 50% to 75%. [proviso to Regulation 13(2)]
   
   
2. Earlier companies desirous of bring public issues was required to have track record distributable profit for at least 3 out of 5 years, now it should have minimum average pre-tax operating profit of Rs. 15,00,00,000/-, calculated on a restated and consolidated basis, during the 3 most profitable years out of the immediately preceding 5 years. [Regulation 26(1)(b)]
   
   
3. In case of companies desirous of bring public issues, which does not have track record as mentioned above, it may make an IPO if the issue is made through the book-building process and the issuer undertakes to allot, at least 75% of the net offer to QIBs and to refund full subscription money if it fails to make the said minimum allotment to QIBs. [Regulation 26(2)] 
    
   It is pertinent to explain here in simple language that there is no scope of underwriting in such circumstance, wherein intended issuer is not eligible under Regulation 26(1) and hence opts for Regulation 26(2). 
    
4. In case of an IPO, the issuer company shall have to announce the floor price or price band at least 5 working days before the opening of the bid. [Regulation 30(2)]
   
   
5. The announcement related to floor price or price band as stated above will be required to be disclosed on the websites of those stock exchanges, where the securities are proposed to be listed. [Regulation 30(3A)] 
    
6. In case of IPO, the promoters of the issuer company shall have to contribute minimum 20% of the post issue capital. However if the post issue shareholding of the promoters is less than 20%, then alternative investment funds may contribute to meet such shortfall, subject to a maximum of 10% of the post issue capital. [Regulation 32(1)(a)]
   
   
7. The promoter’s contribution as stated above shall be locked in for a period of 3 years. [Regulation 36(a)]
   
   
8. In an issue made through the book building process under sub-regulation (1) of regulation 26, the allocation in the net offer to public category shall be as follows:

1. not less than thirty five per cent to retail individual investors.
2. not less than fifteen per cent to non-institutional investors.
3. not more than fifty per cent to qualified institutional buyers, at least five per cent of which shall be allocated to mutual funds:

[Regulation 43(A)(2)]


8. In an issue made through the book building process under sub-regulation (2) of regulation 26, the allocation in the net offer to public category shall be as follows:

1. not more than 10 per cent to retail individual investors.
2. not more than fifteen per cent to non-institutional investors.
3. not less than seventy five per cent to qualified institutional buyers, at least five per cent of which shall be allocated to mutual funds:

[Regulation 43(A)(2A)]


9. The minimum application size, which was earlier, used to be Rs. 5000 - Rs. 7000, has been increased to Rs. 10,000 - Rs 15000. [Regulation 49(1)]
   
   
10. The allotment of specified securities to each retail individual investor shall not be less than the minimum bid lot, subject to availability of shares in retail individual investor category, and the remaining available shares, if any, shall be allotted on a proportionate basis. [Regulation 50(1A)]
    
    
11. The red herring prospectus filed for making an initial public offer, further public offer or rights issue shall be updated on an annual basis by the issuer company and shall be made publicly accessible in the manner specified by SEBI from time to time.