What is a preferential Issue?

 Select group of people

 Private placement basis
 Does not include
o Public issue, Rights issue , Bonus issue
o Employee stock option scheme or Employee stock purchase scheme
o Qualified Institutions placement
o Issue of sweat equity shares
o Depository receipts issued in a country outside india or foreign countries(like ADRs and
GDRs)
What is QIP
 Eligible sec
 Private placement basis
 Special resolution
 Same class

What is Inst Placement Pro

 Same class
 Offered by issuer,promoter grp listed only to QIB

Public company may issue through

 Prospectus
 Private placement
 Rights issue,bonus,

Private company may issue

 Private placement
 Rights issue,bonus,

Private placement
 Identified by BOD
 Not exceeding 200
 Excluded
o QIB
o Employes

General Condition of Public Issue

 Promoter , directors of issuer-not barred from capital markets
 Should not be in control of company barred from cap mks
 Should not be of willful defaulters by RBI or not be more than 6 months(int or Principal)
 Applied to recog stk exchange(nation wide terminal)
 an agreement with a depository for dematerialization

 partly pd should be fully paid up or forfeited

  finance through verifiable means towards 75% of the stated means of finance
 EXCLUDING the amount to be raised through the proposed public issue or rights issue or
through existing identifiable internal accruals, have been made.
 Warrants –tenure not more than 18 months ,upfront 25% rest on conversion or forfeited
 Rights shares, the promoters or promoter group shall not renounce their rights except to the
extent of renunciation with in the Promoter group

IPO
 Net tangible asset of at least 3 cr in each of the preceding three full years
 not more than 50% are held in monetary assets(not be applicable in case the public offer is
made entirely through offer for sale.)
 min of 15 cr as pre op tax profit in at least three years of the immediately preceding five years.
 NW of 1 cr in each of the preceding three full years.
 change in the company’s name, at least 50% of the revenue for preceding one year should be
from the new activity denoted by the new name

 The issue size should not exceed 5 times the pre-issue net worth

OR
 Issue shall be through book building route, with at least 75% of net offer to the public to be
mandatory allotted to the Qualified Institutional Buyers (QIBs)

Note
 Allotment should be more than 1000
 Earlier it was mandatory to grade the prospectus but now it is optional
 Share should be held for 1 yr prior to filing of offer doc for offer for sale

Anchor Investor
 Only in case of IPO
 QIB –value of 10 cr book building process
 25% upfront and 75% 2 days prior to closure of issue
 30 days lock in period
 60% available to QIB allotted to Anchor Invest
 1/3rd reserved to domestic MF
 Cannot be related to promoter or grp or lead managers

Deferential pricing
 Retail investor/shareholders or employees
 Investment not more than 2 lac
 Discount max 10% of issue price
Composite issue
 Rts issue or public issue
 There is price diff in both the issue
 Justification should be given

Price band
 Cap less than 120% of floor price
 Diff between floor and final price not more than 20%

Face value
 If price is 500 or more then Fv can be less than 10
 If 500 or less then Fv shall be rs 10
Does not apply to IPO of govt co,stat authority SPV set up any of them engaged in infra sector

Min Promoter contribution MPC

-IPO cont not less than 20% of post issue cap

-FPO-20% of proposed issue size or post issue
-Composite issue-20% of proposed issue size or post issue excl rights issue

Lock in period for Promoters cont

-3 yrs from date of commencement of prodn or date of allotment in public issue which ever is later
-Over and above of MPC lock in is 1 yr

Who is promoter
-control over affairs directly or indirectly
-instrumental in planning of offer ss to public
-named in the offer docor annual report
-accordance with whose advice ,director or Bod act
Merely as a professional capacity is not a promoter

Promoter grp
-promoter and imme relative
-body corporate 20% or more holding of the promoter

Financial Institutions, Scheduled banks, foreign Portfolio Investors & MF are not included in promoter
grp

QIB
 MF, venture cap ,foreign venture cap
 FII and sub account
 Public fin inst
 Pension corpus min 25cr
 Provident fund min 25Cr
 Commercial banks
  Insurance co reg with IRDA
 State industrial development corp
 National investment fund

Convertible debt ins –tenure not more than 18 months from date of allotment

ASBA
 Anchor investor aren’t permitted
 block the application money in a Bank Account

Net Offer to Public

 < INR 1600 Crore- Atleast 25%
 INR 1600-4000 Crore- Atleast such percent should be offered to public which is equivalent to the
value of Rs.400 crores, if the POST ISSUE CAPITAL
 > INR 4000 Crore- Atleast 10%
However in case of B and C get 25% within 3 yrs

Public Shareholding
 Held by Public
 DRs( with voting rights listed in intl stock exchange)
 Employee benefit scheme are excluded from Public shareholding
 Min Public shareholding is 25% of each class of SS

Period of subscription
 3 days and not more than 10 days
 Extention of min 3days but not more than 10 days

Min Application value -10000 to 15000 and not less than 25% of issue price

Prospectus
 Relevant info
 True nature of the company
 No inducing statement like market leaders ,leading players
 Easy to understand
 Letter of Offer is for rights issue
 RHP SP Info Memo. is for public issue
SPA
 Bonus shares
 Write off Preliminary exp, expenses of, or the commission paid or discount allowed on, any issue
of shares or debentures of the company
 premium payable on redemption of any redeemable preference shares or deb
 buyback

Sweat eq share
 to director and employee for consideration other than cash at a discount from Mk price
 within a period of 12 months of the date of special resolution
 15% of eq cap or 5cr which ever is high
 Lock in for a period of 3 yr
 No of shares ,CMP,consideration,same classes which are issued
 One year should have elapsed from commencement of business
 Listed on recog stk ex then sebi if not co act is to be followed

Red of pref shares

 No irredeemable pref share
 Should be mentioned in AOA & redeem within a exceeding 20yrs(but 30yrs-infra co ) from
date of issue
Infra co are all co mentioned in sch VI of the act, Redemption of 10% of such preference shares per year
from 21st year onwards.)
 Out of profits
 Out of proceeds of fresh issue of shares
 Fully pd up
 Profit should be trf to CRR a/c (CRR is to be used only for Bonus shares if used for any other
purpose it will be treated as reduction of Cap)

Rt issue
 Existing eq shareholders
 Letter of offer to be sent by any means but a proof of delivery should be there as per co act
and should be sent before 3 days of issue
 Min 15 max 30 days if offer not accepted within this time it is deemed as declined
 Renounce the share to any other person
 If not accepted or renounced can be disposed of by the Board of Directors in a manner which
is not disadvantageous to the shareholders and the Company
 Listed issuer decides the record date ,cannot withdraw rt issue after record date
 If withdrawn cannot issue ss for 12 months
 In case the issuer has outstanding convertible ss floating in the market then it has to reserve
the required shares which will be available for them at the time of conversion at the same
price offered at the time of the right issue.
 issue price should be decided before record date, in consultation with designated stock
exchange
 payment option full or part
Bonus shares
 out of a) Free reserves
b)the Securities Premium Account and
c)the Capital Redemption Reserve Account
 reserves created out of revaluation of assets cannot be used
 authorized by aoa
 ordinary resolution with recommendation of Bod
 has not defaulted in int or principle
 has not defaulted in payment of statutory payments
 partly pd up should be fully pd up
 cannot be issued at discount
 can be issued without adj losses
 cannot withdraw the decision with recommendation of board
 THE BONUS SHARES SHALL NOT BE ISSUED IN LIEU OF DIVIDEND
 Bonus issue should be implemented within 2 months within the board meeting subject to
shareholders approval

Buyback
 Authorized by AOA
 By – free reserves , spa ,and capital r res, and proceeds of other issue of an other class
 Special resolution should be passed but if its below 10 % of (equity share cap + free reserve )
then the BOD can take a call
 Max limit to buy back is 25 % ( paid up share cap + free reserve ) at the time of buy back and in
general not more than 25 % of the total Paid up share cap
 The companys debt should not exceed 2 X of ( paid up share cap + free reserve ) AFTER the
BUY BACK , the central govt will give different ratios for different classes of company s
 Fully pd up
 Buy back from existing shareholder, open market & ESOPs