From CCI to SEBI Era

Types of Primary Issues

 Free Market Regime
 Pre 1992, CCI regulated the new issues under Capital Issues Act 1947.
 Where the issuing company has to take the prior permission for issue
& timing, size and quantum of issue was decided by CCI.
 Pricing of the issue
 New companies – only at par
 Existing company having substantial reserves – CCI Formula based on
1. Net asset value & 2. Price earning value
 Problem of under pricing
 Introduction of free pricing regime – 1992
 Regulation of SEBI
 Pricing of an issue
 Public issue of common shares is essentially carried out in two
ways:
 Fixed price method, and
 Book-building method.
 Fixed price issues are issues in which the issuer is allowed to price
the shares as he wishes. The basis for the price is explained in an
offer document through qualitative and quantitative statements.
This offer document is filed with the stock exchanges and the
registrar of companies.

 Book-building is a process of price discovery used in public offers.

The issuer sets a base price and a band within which the investor is
allowed to bid for shares
 Primary Issues (Methods to issue shares)
Primary Issue

Public Issue Right Issue Private Placement

Private Placement
Initial Public Offering (Unlisted Companies )
( First time offer by an An offer to sale the Direct sale to selected
unlisted company ) shares to existing persons
SHs
Preferential Issue
Follow on Public Allotment of shares to
Offering (FPO) some selected persons
(An offer of sale of u/s 81 of C.A.)
shares by listed
companies Qualified Institutional
Placement for listed
companies
 Public Issue
• When an issue/offer of securities is made to new investors for
becoming part of shareholders’ family of the issuer it is called
as Public Issue.
– Initial Public Offer (IPO): When an unlisted company makes either a
fresh issue of securities or offers its existing securities for sale or both
for the first time or both for the fist time to the public, it is called an
IPO.
– Followed Public Offering (FPO): When an already listed company
makes either a fresh issue of securities to the public of an offer for sale
to the public, it is called FPO.
– Legally, no public limited company can issue shares to public without
issuing prospectus.
– Advantages to
• Investors
• Issuers
 Offer for Sale
• The Securities and Exchange Board of India (SEBI) permitted the Stock Exchanges to
provide a separate window, i.e. apart from the existing trading system for the normal
market segment, to facilitate Promoters of listed companies to dilute/offload their
holding in listed companies in a transparent manner with wider participation.

(a) Exchanges
The facility of offer for sale of shares shall be available on BSE Ltd (BSE) and National Stock
Exchange (NSE).
(b) Sellers
i. All promoter(s)/ promoter group entities of such companies that are eligible for trading
and are required to increase public shareholding to meet the minimum public shareholding
requirements in terms Rule 19(2)(b) and 19A of Securities Contracts (Regulation) Rules, 1957
(SCRR), read with clause 40A (ii) (c) of Listing Agreement.

ii. Any non-promoter shareholder of eligible companies holding at least 10% of share capital
may also offer shares through the OFS mechanism.

iii. In case a non-promoter shareholder offers shares through the OFS mechanism,
promoters/ promoter group entities of such companies may participate in the OFS to
purchase shares subject to compliance with applicable provisions of SEBI (Issue of Capital
and Disclosure Requirements) Regulations, 2009 and SEBI (Substantial Acquisition of Shares
and Takeovers) Regulations, 2011
 Offer for Sale
• Size of Offer for sale of shares
The size of the offer shall be a minimum of Rs. 25 crores.
However, size of offer can be less than Rs. 25 crores so as to
achieve minimum public shareholding in a single tranche.
• Allocation
– Minimum of 25% of the shares offered shall be reserved for mutual
funds and insurance companies, subject to allocation methodology.
Any unsubscribed portion thereof shall be available to the other
bidders.
– No allocation will be made in case of order/ bid is below floor price.
– No single bidder other than mutual funds and insurance companies
shall be allocated more than 25% of the size of offer for sale.
– Minimum 10% of the offer size shall be reserved for retail investors.
 Right Issue
• When an issue of securities is made by an issuer to its shareholders
existing as on a particular date fixed by the issuer (i.e. record date),
it is called a rights issue. The rights are offered in a particular ratio
to the number of securities held as on the record date.
– It shall be made only by the listed companies.
– Announcement regarding rights issue once made, shall not be withdrawn
and where withdrawn, no security shall be eligible for listing up to 12
months.
– Underwriting as to the right issue is optional and appointment of Registrar is
compulsory.
– Appointment of category I MBs holding a certificate of registration issued by
SEBI shall be compulsory.
– Letter of Offer shall contain disclosures as per SEBI guidelines.
 Right Issue
– Agreement shall be entered into with the depository for
materialization of securities to be issued
– Issue shall be kept open for a minimum period of 30 days and for a
maximum period of 60 days.
– A minimum subscription of 90 % of the issue shall be received.
– No reservation is allowed for rights issue as regards as FCDs and
PCDs.
– A “No Complaints Certificate” is to be filed by the “Lead Merchant
Banker” with SEBI after 21 days from the date of issue of offer
document.
– Obligatory for a company where increase in subscribed capital is
necessary after two years of its formation or after one year of its
first issue of shares, which ever is earlier.
 Bonus Issue
• When an issuer makes an issue of securities to its existing
shareholders as or on a record date, without any consideration
from them, it is called a bonus issue. The shares are issued out of
the company’s free reserve or share premium account in a
particular ratio to the number of securities held on a record date.
• It is issued under Section 205 (3) of the Companies Act, such
shares are governed by the guidelines issued by SEBI.
– Reservation: In respect of FCDs and PCDs, bonus shares must be reserved
in proportion to such convertible part of FCDs and PCDs. These shares
may be issued at the time of conversion.
– Reserves: The bonus shall be made out of free reserves built out of the
genuine profits of share premium collected in cash only. The reserves
created by revaluation of fixed assets are not capitalized.
– Dividend Mode: The declaration of bonus issue, in lieu of dividend is not
made.
– No default in respect of FDs/ Debentures: The company should not
have defaulted in the payment of any interest or principal in respect of
its FDs, and debt securities issued to it.
– Statutory Dues of the Employees: The company should not have been
defaulted in the payment of its statutory dues to the employees such
as contribution to PF, gratuity, bonus etc.
– Provision in A/A: The A/A of the company should provide for
capitalization of reserves and if not a General Body Meeting of the
company is to be held and a special resolution making provisions in
the A/A for capitalization should be passed.
– A company that announces its bonus issue after the approval of Board
of the Directors must implement the proposal within the period of 6
months from the date of such approval and shall not have the option
of changing the decision.
 Private Placement
• When an issuer makes an issue of securities to a select
group of persons not exceeding 49, and which is
neither a rights nor a public issue, it is called as private
placement.
– Preferential Allotment: When a listed issuer issues shares or
convertible securities, to a select group of persons in terms
of provision of Chapter VII of SEBI (ICDR) Regulations, it is
called a preferential allotment.
– Qualified Institutions Placement: When a listed issuer issues
equity shares or securities convertible into equity shares to
Qualified Institutional Buyers only in terms of provision of
Chapter VII of SEBI (ICDR) Regulation, is called as QIP.
 IPP
1. Mearning
An institutional placement programme may be
made only after a special resolution approving
the institutional placement programme has been
passed by the shareholders of the issuer in terms
of Section 61 (1) (c) of Companies Act 2013
• No partly paid-up securities shall be offered.
• The issuer shall obtain an in-principle approval
from the stock exchange(s).
 2. Restrictions
(1) The promoter or promoter group shall not make institutional placement
programme if the promoter or any person who is part of the promoter group
has purchased or sold the eligible securities during the twelve weeks period
prior to the date of the programme and they shall not purchase or sell the
eligible securities during the twelve weeks period after the date of the
programme:
• Provided that such promoter or promoter group may , within the period
provided in sub-regulation (1), offer eligible securities held by them through
institutional placement programme or offer for sale through stock exchange
mechanism specified by the Board, subject to the condition that there shall
be a gap of minimum two weeks between the two successive offer(s) and
/or programme(s).]
(2) The issuer shall accept bids using ASBA facility only.
(3) The bids made by the applicants in institutional placement programme shall
not be revised downwards or withdrawn.
3. Appointment of Merchant Banker
 4. Offer Document
• (1) The institutional placement programme shall be made on the basis of the
offer document which shall contain all material information
• (2) The issuer shall, simultaneously while registering the offer document with
the Registrar of Companies, file a copy thereof with the Board and with the
stock exchange(s) through the lead merchant banker.
• (3) The issuer shall file the soft copy of the offer document with the Board as
specified in Schedule V, along with the fee as specified in Schedule IV.
• (4) The offer document shall also be placed on the website of the concerned
stock exchange and of the issuer clearly stating that it is in connection with
institutional placement programme and that the offer is being made only to the
qualified institutional buyers.
• (5) The merchant banker shall submit to the Board a due diligence certificate as
per Form A of Schedule VI, stating that the eligible securities are being issued
under institutional placement programme and that the issuer complies with
requirements of this Chapter.
5. Pricing and allocation/allotment
(1) The eligible seller shall announce a floor price or price band
at least one day prior to the opening of institutional
placement programme.
(2) The eligible seller shall have the option to make
allocation/allotment as per any of the following methods –
– (a) proportionate basis;
– (b) price priority basis; or
– (c) criteria as mentioned in the offer document.
(3) The method chosen shall be disclosed in the offer document.
(4) Allocation/allotment shall be overseen by stock exchange
before final allotment.
 6. Allotment
(4)Allocation/allotment under the institutional placement programme shall
be made subject to the following conditions:
(a) Minimum of twenty five per cent. of eligible securities shall be allotted to
mutual funds and insurance companies:
• Provided that if the mutual funds and insurance companies do not
subscribe to said minimum percentage or any part thereof, such minimum
portion or part thereof may be allotted to other qualified institutional
buyers;
(b) No allocation/allotment shall be made, either directly or indirectly, to any
qualified institutional buyer who is a promoter or any person related to
promoters of the issuer:
• Provided that a qualified institutional buyer who does not hold any shares
in the issuer and who has acquired the rights in the capacity of a lender
shall not be deemed to be a person related to promoters.
 7. Minimum Number of Allottees
• (1) The minimum number of allottees for each
offer of eligible securities made under
institutional placement programme shall not be
less than ten:
• Provided that no single allottee shall be allotted
more than twenty five per cent. of the offer size.
• (2) The qualified institutional buyers belonging
to the same group or who are under same
control shall be deemed to be a single allottee.
 8. Period of Subscription and Withdrawal
Offer
• (1) The issue shall be kept open for a minimum
of one day or maximum of two days.
• (2) The aggregate demand schedule shall be
displayed by stock exchange(s) without
disclosing the price.
9. Withdrawal of offer.
• The eligible seller shall have the right to
withdraw the offer in case it is not fully
subscribed.
 10. Transferability of eligible securities.

• The eligible securities allotted under

institutional placement programme shall not
be sold by the allottee for a period of one year
from the date of allocation/allotment, except
on a recognised stock exchange.
 QIP
• When a listed issuer issues equity shares or
non-convertible debt instruments along with
warrants and convertible securities other than
warrants to Qualified Institutions Buyers only,
in terms of provisions of Chapter VIII of SEBI
(ICDR) Regulations, 2009, it is called a QIP.
 QIP
1. Conditions:
A listed issuer may make qualified institutions
placement if it satisfies the following
conditions:
• (a) a special resolution approving the qualified
institutions placement has been passed by its
shareholders;
• (b) the equity shares of the same class,
2. Appointment of merchant banker
 3. Placement Document
• (1) The qualified institutions placement shall be made on the basis of a
placement document which shall contain all material information.
• (2) The placement document shall be serially numbered and copies shall be
circulated only to select investors.
• (3) The issuer shall, while seeking in-principle approval from the recognised
stock exchange, furnish a copy of the placement document, a certificate
confirming compliance with the provisions of this Chapter along with any
other documents required by the stock exchange.
• (4) The placement document shall also be placed on the website of the
concerned stock exchange and of the issuer with a disclaimer to the effect
that it is in connection with a qualified institutions placement and that no
offer is being made to the public or to any other category of investors.

• 168[***]
 4. Pricing
• (1) The qualified institutions placement shall be made
at a price not less than the average of the weekly
high and low of the closing prices of the equity shares
of the same class quoted on the stock exchange
during the two weeks preceding the relevant date.
• [Provided that the issuer may offer a discount of not
more than five per cent. on the price so calculated for
the qualified institutions placement, subject to
approval of shareholders as specified in clause (a) of
regulation 82 of these regulations.]
 5. Restrictions on Allotment
(1) Allotment under the qualified institutions placement shall be made
subject to the following conditions:
(a) Minimum of ten per cent. of eligible securities shall be allotted to
mutual funds:
Provided that if the mutual funds do not subscribe to said minimum
percentage or any part thereof, such minimum portion or part
thereof may be allotted to other qualified institutional buyers;
• (b) No allotment shall be made, either directly or indirectly, to any
qualified institutional buyer who is a promoter or any person
related to promoters of the issuer:
(2) The applicants in qualified institutions placement shall not
withdraw their bids after the closure of the issue.
 6. Minimum Number of Allottees
(1) The minimum number of allottees for each placement of eligible
securities made under qualified institutions placement shall not be
less than:
– (a) two, where the issue size is less than or equal to two hundred and
fifty crore rupees;
– (b) five, where the issue size is greater than two hundred and fifty crore
rupees:

• Provided that no single allottee shall be allotted more than fifty

per cent. of the issue size.
(2) The qualified institutional buyers belonging to the same group or
who are under same control shall be deemed to be a single
allottee.
7. Validity of the Special Resolution
• Allotment pursuant to the special resolution
referred to in clause (a) of regulation 82 shall
be completed within a period of twelve months
from the date of passing of the resolution.
• (2) The issuer shall not make subsequent
qualified institutions placement until expiry of
six months from the date of the prior qualified
institutions placement made pursuant to one
or more special resolutions.
 8. Restrictions on Amount Raised
• The aggregate of the proposed qualified
institutions placement and all previous
qualified institutions placements made by the
issuer in the same financial year shall not
exceed five times the net worth of the issuer
as per the audited balance sheet of the
previous financial year.
 9. Transferability of the securities
• The eligible securities allotted under qualified
institutions placement shall not be sold by the
allottee for a period of one year from the date
of allotment, except on a recognised stock
exchange.
• Thank you