The company issuing securities through an offer document shall satisfy the following conditions:
1.1 Filing of offer document
1.1.1) No company shall make any issue of a public issue of securities, unless a draft prospectus has been filed with the Board, through an eligible Merchant Banker,
Provided that if within 21 days from the date of submission of draft Prospectus, the Board specifies changes, if any, in the draft Prospectus (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes in the draft prospectus before filing the prospectus with ROCs.
1.1.2) No listed company shall make any issue of security through a rights issue where the aggregate value of securities, including premium, if any, exceeds Rs.50 lacs, unless the letter of offer is filed with the Board, through an eligible Merchant Banker, at least 21 days prior to the filing of the Letter of Offer with Regional Stock Exchange (RSE).
Provided that if, within 21 days from the date of filing of draft letter of offer, the Board specifies changes, if any, in the draft letter of offer, (without being under any obligation to do so), the issuer or the Lead Merchant banker shall carry out such changes before filing the draft letter of offer with RSE.
1.1.3) Companies barred not to issue security
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.
1.1.4) Application for listing
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).
1.1.5) Issue of securities in dematerialized form
No company shall make public or rights issue or an offer for sale of securities, unless:
(a) the company enters into an agreement with a depository for dematerialization of securities already issued or proposed to be issued to the public or existing shareholders;
(b) and the company gives an option to subscribers/ shareholders/ investors to receive the security certificates or hold securities in dematerialized form with a depository.
Explanation:
A depository shall mean a depository registered with the Board under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996.
1.2) Initial Public Offerings by Unlisted Companies
2.2.1) An unlisted company 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 it meets all the following conditions:
(a) The company has net tangible assets of at least Rs. 3 crores in each of the preceding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets.
Provided that if more than 50% of the net tangible assets are held in monetary assets, the company has made firm commitments to deploy such excess monetary assets in its business/project
(b) The company has a track record of distributable profits in terms of Section 205 of the Companies Act, 1956, for at least three (3) out of immediately preceding five (5) years
Provided further that extraordinary items shall not be considered for calculating distributable profits in terms of Section 205 of Companies Act, 1956;
(c) The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full years (of 12 months each)
(d) 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
(e) 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
1.2.2 An unlisted company not complying with any of the conditions specified in Clause 1.2.1 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 it meets both the conditions (a) and (b) given below:
(a) (i) 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
(a) (ii) 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
(b) (i) The minimum post-issue face value capital of the company shall be Rs. 10 crores.
OR
(b) (ii) There shall be a compulsory market-making for at least 2 years from the date of listing of the shares, subject to the following:
(a) Market makers undertake to offer buy and sell quotes for a minimum depth of 300 shares;
(b) Market makers undertake to ensure that the bid-ask spread (
(c) 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.
1.2.2.A) 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 conditions mentioned in Clause 1.2.1 or 1.2.2 as the case may be, the prospective allottees are not less than one thousand (1000) in number
1.2.2 B) For the purposes of clauses 1.2.1 and 1.2.2 above
(i) Net Tangible Assets shall mean the sum of all net assets of the company, excluding intangible assets, as defined in Accounting Standard 26 (AS 26) issued by the Institute of Chartered Accountants of India.
(ii) Project means the object for which the monies proposed to be raised to cover the objects of the issue.
(iii) In case of partnership firms which have since been converted into companies, the track record of distributable profits of the firm shall be considered only if the financial statements of the partnership business for the said years conform to and are revised in the format prescribed for companies under the Companies Act, 1956 and also comply with the following:
a. adequate disclosures are made in the financial statements as required to be made by the companies as per Schedule VI of the Companies Act, 1956;
b. the financial statements shall be duly certified by a Chartered Accountant stating that:
I. the accounts as revised or otherwise and the disclosures made are in accordance with the provisions of Schedule VI of the Companies Act, 1956; and
II. the accounting standards of the Institute of Chartered Accountants of India (ICAI) have been followed and that the financial statements present a true and fair picture of the firm’s accounts.
(iv) In case of an unlisted company formed out of a division of an existing company, the track record of distributable profits of the division spun off shall be considered only if the requirements regarding financial statements as specified for partnership firms in sub-clause (iv) above are complied with.
(v) Qualified Institutional Buyer shall mean:
a. public financial institution as defined in section 4A of the Companies Act, 1956;
b. scheduled commercial banks;
c. mutual funds;
d. foreign institutional investor registered with SEBI
e. multilateral and bilateral development financial institutions;
f. venture capital funds registered with SEBI;
g. foreign venture capital investors registered with SEBI;
h. state industrial development corporations;
i. insurance companies registered with the Insurance Regulatory and Development Authority (IRDA);
j. provident funds with minimum corpus of Rs. 25 crores;
k. pension funds with minimum corpus of Rs. 25 crores).
1.2.3. OFFER FOR SALE
1.2.3.1) An offer for sale shall not be made 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 conditions laid down in clauses 1.2.1 and 1.2.2, as the case may be and in clause 1.2.2.A , are satisfied.)
1.2.4) Offer for sale can also be made if provisions of clause 1.2.2 are complied at the time of submission of offer document with Board.
1.3) Public ISSUE LISTED COMPANIES
1.3.1) 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 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), issue size does not exceed 5 times its pre-issue
Provided (further) 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.
1.3.2) A listed company which does not fulfill the conditions given in the provisos to Clause 2.3.1 above shall be eligible to make a public issue, subject to complying with the conditions specified in clause 2.2.2.
1.4) Exemption from eligibility norm
1.4.1) The provisions of clauses (1.2 and 1.3) shall not be applicable in case of:
i) a banking company including a Local Area Bank (hereinafter referred to as Private Sector Banks) set up under sub-section (c) of Section 5 of the Banking Regulation Act, 1949 and which has received license from the Reserve Bank of India; or
ii) a corresponding new bank set up under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980, State Bank of India Act 1955 and State Bank of India (Subsidiary Banks) Act, 1959 (hereinafter referred to as public sector banks);
iii) an infrastructure company: a) (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) ¢b) 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; iv) rights issue by a listed company.
1.5) CREDIT RATING FOR DEBT INSTRUMENTS
1.5.1.A No issuer company shall make a public issue or rights issue of debt instruments (whether convertible or not
(i) 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;
(ii) The company is not in the list of willful defaulters of RBI;
(iii) 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.)
1.5.2) (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.)
1.5.4) All the credit ratings obtained during the three (3) years preceding the public or rights issue of
1.6) Outstanding Warrants or Financial Instruments
1.6.1) 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.
1.7 ) Partly Paid-up Shares
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 clause 1.5.2.
1.8) Means of Finance
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.)