Friday, August 15, 2008

Public Issue

Any company or a listed company making a public issue or a rights issue of value of more than Rs 50 lakhs is required to file a draft offer document with SEBI for its observations. The company can proceed further only after getting observations from SEBI. The company has to open its issue within three months from the date of SEBI's observation letter.

Through public issues, SEBI has laid down eligibility norms for entities accessing the primary market. The entry norms are only for companies making a public issue (IPO or FPO) and not for listed company making a rights issue.

The entry norms are as follows Entry Norm I (EN I): The company shall meet the following requirements
  • Net Tangible Assets of at least Rs. 3 crores for 3 full years.
  • Distributable profits in atleast three years.
  • Net worth of at least Rs. 1 crore in three years.
  • If change in name, atleast 50% revenue for preceding 1 year should be from the new activity.
  • The issue size does not exceed 5 times the pre- issue net worth.
SEBI has provided two other alternative routes to company not satisfying any of the above conditions to provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the parameters, for accessing the primary Market. They are as under

Entry Norm II (EN II)
  • Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs).
  • The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years.
Entry Norm III (EN III)
  • The "project" is appraised and participated to the extent of 15% by FIs/Scheduled Commercial Banks of which at least 10% comes from the appraiser(s).
  • The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years.
    Note :- The company should also satisfy the criteria of having at least 1000 prospective allotees.
The following are exempted from the ENs
  • Private Sector Banks
  • Public sector banks
  • An infrastructure company whose project has been appraised by a PFI or IDFC or IL&FS or a bank which was earlier a PFI and not less than 5% of the project cost is financed by any of these institutions.
  • Rights issue by a listed company


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