Presentation Fund Raising IMT Ghaziabad August 2 2015

Public Offer & Private Placement

• By Public Company

• Public offer through prospectus (IPO / FPO)

• Private Placement

• Rights Issue

• Bonus Issue

• By Private Company

• Private Placement

• Rights Issue

• Bonus Issue

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Share Capital & Debentures

•Equity Share Capital• With voting rights • With differential rights as to dividend, voting or otherwise

• Preference Share Capital• Redeemable Preference Shares up to 20 years but can exceed 20

years and up to 30 years for specified infrastructure projects• Convertible Preference Shares – Optionally or Compulsorily

Convertible •Share Warrant•Debentures

• Non-Convertible Unsecured Debentures• Non-Convertible Secured Debentures • Convertible Debentures – Optionally Convertible or

Compulsorily Convertible

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Various Concepts of Capital

• Authorised Capital or Nominal Capital – means the capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company

• Issued Capital – means such capital as the company issues from time to time for subscription

• Subscribed Capital – means such part of the capital which is for the time being subscribed by the members of a company

• Called-Up Capital – means such part of the capital which has been called for payment

• Paid-up share capital or Share capital paid-up - means such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called

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Equity Shares & Preference Shares

Equity Shares

• Means all share capital which is not a preference share

• Equity is a pure risk capital

• Also called common stock or ordinary shares

Preference Shares

• Carries preferential right with respect to •Payment of dividend as a fixed amount or an amount calculated at a fixed rate

•Repayment of capital including payment of any fixed premium or premium on a fixed scale prescribed in the memorandum or articles of the company

• Can be redeemable, convertible, cumulative, non-cumulative, participating or non-participating – but cannot be irredeemable

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Equity Shares with Differential Rights

• Public companies have to comply with DVR rules

• New DVR rules are more stringent than existing DVR rules:

o Track record of distributable profits in last 3 FYs – means companies with less than 3 years of existence cannot issue DVRs

o No default in filing financial statements for the last 5 FYs

o No default in (i) redemption of preference shares, matured deposits or debentures, (ii) repayment of term loans of scheduled banks and PFIs, (iii) payment of interest or declared dividend, and (iv) employee statutory payments

o DVR shares cannot exceed 26% of the total equity share capital including DVRs

o Company not been penalised by a court or Tribunal in last 3 years of any offence under the RBI Act, SEBI Act, SCRA, FEMA Act or any special act

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Preference Shares

• Can be issued up to 20 years period except in case of infrastructure projects it can be up to 30 years provided prescribed % of shares are annually redeemed at the preference shareholders’ option

• Premium on RPS only payable out of profits (and not securities premium a/c) for some companies

• Provision for issue of new RPS to redeem earlier RPS in case of failure to redeem or pay dividend - consent of NCLT & 75% (by value) of preference shareholders needed

• Distinction between cumulative and non-cumulative preference shares w.r.t voting rights removed – all kinds of preference shares entitled to vote on all matters if dividend remains unpaid for 2 years

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Debentures

•Meaning: Includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not•Secured and Unsecured Debentures

Issue of Secured Debentures

• The period of redemption cannot exceed 10 years except in a company engaged in the setting up of infrastructure projects for which the maximum period is 30 years

• Security by creation of charge on the properties or assets of the company, having a value which is sufficient for the due repayment of the amount of debentures and interest thereon

• Appointment of debenture trustee

Creation of Debenture Redemption Reserve

• Created out of profits of the company available for distribution of dividend• DRR equivalent to at least 50% of the amount raised through debenture• Each year on or before April 30, invest or deposit, not less than 15% of the amount of

debentures maturing during the year ending on March 31 of the next year in certain prescribed methods

• The remaining invested or deposited shall not at any time fall below 15% of the amount of the debentures maturing during the year ending on March 31 of that year

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• The shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the articles of the company

• Every share in a company shall be distinguished by its distinctive number

• Can be issued in physical form or dematerialised form

• Share / Debentures certificate shall be prima facie evidence of the title of the person to such shares

• Every member of a company holding equity share capital therein shall have a right to vote on every resolution placed before the company

• Preference shareholders have right to vote on certain matters only unless their dividend is unpaid for 2 years

• Voting rights in respect of preference shares – no distinction between cumulative and non-cumulative preference shares

• Bonus issuance – certain conditions imposed – cannot be issued from revaluation reserve and in lieu of dividend – Offer once made cannot be withdrawn

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•Prohibition of issue of shares at discount - issue at discount to be void

•Issue of sweat equity shares permitted - means such equity shares as are issued by a company to its directors or employees at a discount or for consideration, other than cash, for providing their know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called

•Concept of calls in arrears, calls in advance and forfeiture of shares

•Restriction on giving of loans or other financial assistance by a company for purchase of its own shares

•Preferential issue value to be determined by registered valuer

•Convertible debentures can be issued subject to shareholders’ resolution

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Process of Private Placement

• New issuances by private companies to be either (i) rights or bonus issues, or (ii) private placement

• Private placement definedo any offer of securities/ invitation to subscribe to securities to a

select group of persons through issue of a private placement offer letter

o offer/ invitation to persons not exceeding 200 in a financial year + prescribed conditions

• Issue of equity instruments now have to comply with private placement norms and preferential allotment norms!

• Rules define “Preferential Offer” to mean:

o Issue of equity shares or convertible securities

o To any select person or group on a preferential basis

o Excludes public issue, rights issue, ESOP, ESPS, sweat equity, bonus, DRs issued outside India or foreign securities 11


• Private placement limit does not include QIBs and ESOPs

• Preferential issue price to be determined by registered valuer

• Rules prescribe: o 200 person limito The value of the offer or invitation per person must be

with an investment size of not less than INR 20,000 of the face value of the securities – Very Tricky Issue!

o Above 2 conditions not applicable to NBFCs and HFCs if RBI / NHB have prescribed regulations and they are compliant with themo Special resolution to issue all securities required for each

offer

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• In Private Placement monies payable shall be paid through cheque or demand draft of other banking channels but not by cash

• Allotment of Securities within 60 days from the date of receipt of application money

• Money received on application shall be kept in a separate bank account and shall not be utilised for any purpose except

• For adjustment against allotment of securities • For repayment of monies where the company is unable to allot

securities

• Certificate for the allotted securities to be issued• Within 2 months from the date of allotment of shares• Within 6 months from the date of allotment of debentures

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Derivative

• Means the derivative as defined in the Securities Contracts (Regulation) Act, 1956 – for example equity linked debentures

• Securities Contracts (Regulation) Act, 1956 defines derivative as under:

• Derivative includes –

• (A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences of any other form of security;

• (B) a contract which derives its value from the prices or index of prices of underlying securities

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Depository Receipts

GDR•Means any instrument in the form of a depository receipt, by whatever name called created by a foreign depository outside India and authorised by a company making an issue of such depository receipts

•The underlying security is the equity share of the Indian company

IDR•Means any instrument in the form of a depository receipt, by whatever name called created by a domestic depository in India and authorised by a company incorporated outside Indian making an issue of such depository receipts

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Prospectus • Means any document described or issued as a prospectus and includes a red

herring prospectus or shelf prospectus or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate

• Document containing offer of securities for sale to the public to be deemed prospectus – only public company can issue prospectus

• Specific matters to be stated in prospectus• Variation in the terms of contract or objects in prospectus – Possible only

with the approval of shareholders by way of a special resolution, the dissenting shareholders to be given exit by the promoter or controlling shareholder at exit price

• Offer of sale to the public through prospectus• Public offer of securities to be in dematerialise form• Shelf Prospectus• Red Herring Prospectus

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Prospectus

•Issue of application forms for securities accompanied by an abridged prospectus

•Criminal liability for mis-statements in prospectus – Same punishment as for fraud under Section 447

•Civil liability for mis-statements in prospectus – Liable to pay compensation to every person who has sustained loss or damage acting on any statement incuded or omitted in the prospectus

•Where prospectus is issued with intent to defraud the applicants for the securities or any other person or for any fraudulent purpose, persons referred to in Section 35(1) will be personally responsible without any limitation of liability for all or any of the losses or damages that may have been incurred by any person who subscribed to the securities on the basis of such prospectus

•Punishment for fraudulently inducing persons to invest money – punishment under Section 447

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Prospectus

•No allotment of securities if the amount stated in the prospectus as the minimum subscription and the sums payable on application have been paid to and received by the company

•If the minimum subscription or the amount payable on application is not received within 30 days from the date of the issue of prospectus, the entire amount received has to be refunded

•Securities to be dealt in stock exchanges

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Various Forms of Fund Raising

•IPO / FPO / Institutional Placement Programme

•Rights Issue

•Bonus Issuance – though not really a fund raising exercise

•Private Placement / Preferential Allotment

•ADR / GDR

•Qualified Institutional Placement

•PE Investment

•Bank Financing

•ECB including FCCB

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Thank You

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Disclaimer:This presentation has been compiled for general information and does not constitute professional guidance

or legal opinion. Readers should obtain appropriate professional advice. 20

Presentation Fund Raising IMT Ghaziabad August 2 2015

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