SEBI guidelines for public issues

2.3

Why do we need a regulatory body for Investor protection in India?

India is an ` informationally ' weak market

Progressively softening interest rates and an under performing economy have eroded investment options, and require enhanced investing skills.

Before 1992, Public issues were governed by Chief Controller of Capital Issues (CCCI).

In 1992, CCCI has been abolished and SEBI has been formed.

What is SEBI?

In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body (a statutory Board) in the year 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992.

PREAMBLEThe Preamble of the Securities and Exchange Board of India

describes the basic functions of the Securities and Exchange Board of India as

“…..to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto”

• Securities & Exchange Board of India (SEBI) formed under the SEBI Act, 1992 with the prime objective of – Protecting the interests of investors in securities,– Promoting the development of, and – Regulating, the securities market and for matters

connected therewith or incidental thereto.’

Focus being the greater investor protection, SEBI has become a vigilant watchdog

Functions of sebi

1. Regulating the business in stock markets and other securities markets.

2. Registering and regulating the working of stock brokers and other intermediaries associated with securities market.

3. Registering and regulating the working of collective investment schemes including mutual funds.

4 Promoting and regulating the self-regulating organizations

• Association of Mutual Funds of India (AMFI)

• Registrars Association of India (RAIN)

• Association of Merchant Bankers of India (AMBI)

5 Prohibiting fraudulent and unfair trade practices relating to securities market

6 Promoting investors education and training of intermediaries of securities market

7 Prohibiting insider trading in securities.8 Regulating substantial acquisition of shares

and takeover of companies9 Performing such functions and exercising

powers under the provisions of the Capital Issues (Control ) Act,1947 and Securities Control Act, 1956.

INITIAL PUBLIC OFFER (IPO)IPO is governed by Following:

1. The Companies Act 1956

2. SEBI (Disclosure & Investor Protection) Guidelines, 2000.

3. Securities Contracts (Regulation) Act, 1956

4. Listing norms/Guidelines of NSE/BSE

Guidelines for IPO1. Filing of draft offer document with SEBI through eligible

Merchant Banker at least 30 days prior to filing of prospectus with Registrar of Companies.

2. Any company prohibited by Board can not make an issue of security.

3. Filing of application with Stock exchange for listing and in principal approval is required.

4. Issue of securities in dematerialized form.5. Unlisted company can not make allotment pursuant to

public issue unless prospective allottees are less than 1000 in numbers.

6. Shares can be offered to public either in the form of IPO or offer for sale.

7. The company is not a willful defaulters of RBI and Not defaulted in payment of interest or repayment of debentures issued to public for a period of more than 6 months.

8. There should not be any outstanding warrant or financial instrument giving right to holders an option to receive shares after IPO.

9. There should not be partly paid shares.10. Firm arrangement of 75% means of finance.11. Grading of IPO from at least one credit

rating agency.12. Disclosure of all grading has been to made.13. Disclosure of all expenses incurred for

obtaining grading for IPO.

IPO- ELIGIBILITY• Issue of Equity share or other securities to be converted into

equity on later date by • an unlisted company:

A. Companies having track record must fulfill following conditions:

Net tangible assets of at least Rs.3.00 Crore in each of preceding 3 full year (Full 12 months each) of which not more than 50% is held in monetary assets; if excess, than the company must have firm commitment to deploy such excess monetary assets in business or project.- Clause 2.2.1(a)

Company must have track record of distributable profits for at least 3 years out of immediately preceding 5 years. - Clause 2.2.1(b)

Company must have net worth of Rs.1 Crore in preceding 3 years (full 12 months each). - Clause 2.2.1(c)

If name of the Company has been changed in last 1 year, 50% income of the Company must be earned from the activity suggested by new name. Clause 2.2.1(d)

Aggregate of proposed issue & all previous issues made during that financial year does not exceed to 5 times to its pre issue net worth as per the last audited balance sheet. Clause 2.2.1(e)

B. Companies not fulfilling conditions specified in Clause 2.2.1, have to fulfill following conditions:

(i) Issue through book building process with at least 50% of net offer to public to be issued to QIB.

Or

Project has been appraised & at least 15% participation by FI/Sched. Commercial banks, of which at least 10% from appraiser & at least 10% of issue size from QIBs.

(ii) Minimum post issue face value of capital Rs.10.00 Crore.

Or