Amendments to the SEBI (Disclosure and Investor Protection){DIP} Guidelines,2000 - SEBI - SEBI/CFD/DIL/DIP/13/2004/28/5

Chief General Manager Corporation Finance Department Division of Issues and Listing (Board) : 22850451- 56 , 22880962 - 70 (Extn. : 249) (Direct) : 22882946 Fax : 22045633 SEBI/CFD/DIL/DIP/13/2004/28/5 May 28, 2004 To All Registered Merchant Bankers Dear Sirs, Sub: Amendments to the SEBI (Disclosure and Investor Protection){DIP} Guidelines,2000 1. As a part of its constant endeavor to ensure transparency and efficiency in the market and also to streamline and simplify the existing procedures, SEBI has been reviewing the guidelines on an ongoing basis. In this regard, the feedback received from market participants as well as policy recommendations made by the committees set up by SEBI are taken into consideration. 2. The SEBI Board, after considering the above, has approved certain modifications to be incorporated in the captioned Guidelines. 3. Accordingly, SEBI, under the provision of Section 11(1) of SEBI Act, is hereby issuing the amendments to SEBI (DIP) Guidelines, 2000; (hereinafter referred as the guidelines ) incorporating the modifications approved by the SEBI Board. The amendments are detailed in Annexure I and are categorized and summarized as follows 4. Restriction on splitting of shares 4.1 At present, the guidelines permit the issuer to determine the denomination of shares for public / rights issue and to change the standard denomination. It was observed that many issuers were going in for share splits just before the IPOs. Based on recommendation of advisory committee, the guidelines have been amended to restrict pre IPO splitting of shares. The amendments inter alia provide for a floor face value of Re.1 per share, the face value to necessarily be ₹ 10 per share for issue price below ₹ 500/- per share, and permit issuer companies to fix the face value below ₹ 10/- per share only in cases where the issue price is ₹ 500/- or more. 5. Terms of the issue 5.1 The existing provisions in the guidelines define minimum tradable/ application lot in terms of number of shares based on the offer price per share. Further, the minimum application money is stipulated at not less than ₹ 2000/-. The above provisions are to be viewed in the background of the original definition of the retail individual investor, viz., an investor who has applied for 1000 shares or less. 5.2 Subsequently, vide circular dated August 14, 2003, SEBI revised the definition of retail individual investor as an investor who applies or bids for securities of or for a value of not more than ₹ 50,000/-. This amendment necessitated review of the existing provisions pertaining to minimum application size in terms of number of shares. 5.3 Accordingly, it has been decided to replace provision relating to minimum application size / tradeable lot in terms of number of shares based on offer price, by the minimum application value, which shall fall within the range of ₹ 5000- ₹ 7000. The applications can be made in multiples of such value. The same has been explained along with an illustration in the guidelines. 6. Post Issue Obligations 6.1 As per the existing guidelines, in the event of oversubscription in an issue, the allotment is to be made in terms of the proportionate allotment procedure, subject to determination of successful applicants by drawal of lots and allotting a minimum of 100 shares/ minimum tradeable lot to successful applicants. 6.2 The said provisions necessitated a review in view of the altered ground realities where trading in demat form is the norm, flexibility given to issuer for determining the minimum application lot and also in view of the new definition of retail individual investors. 6.3 Accordingly it has been decided to introduce allotment on proportionate basis within the specified categories, rounded off to the nearest integer subject to a minimum allotment being equal to the minimum application size as fixed and disclosed by the issuer. The same has been explained alongwith an illustration in the guidelines. 7. Public issue of Bonds by Designated Financial Institutions under a shelf prospectus. 7.1 It has been observed that financial institutions regularly come out with a public issue of unsecured redeemable bonds. These institutions file a shelf prospectus which states the total amount to be raised during the year along with the oversubscription option. Each time the institution comes out with the issue in terms of the shelf prospectus, it files an Information Memorandum / prospectus, which states the total amount to be raised through the tranche alongwith over subscription option. 7.2 As per clause 12.10.4(b) of the guidelines, the maximum target amount raised, shall not exceed twice the minimum target. It has been observed that the public issue of bonds, where tax savings bonds / infrastructure bonds are offered, have received heavy oversubscription (which exceed the maximum target amount mentioned in the prospectus). In such a scenario, returning of the excess subscription would adversely affect the investors whose tax planning measures normally take into account such investments. 7.3 In view of above, the guidelines have been amended to provide that once the issue size and over subscription limits are disclosed in the shelf prospectus, issuers can raise and retain any amount through the tranche issues subject to the same being within the respective limits specified in shelf prospectus and also subject to the condition that the issuer has to disclose the minimum amount proposed to be raised and the maximum over subscription proposed to be retained in the information memorandum / prospectus filed in respect of issues under a shelf prospectus. 8. Definition of Employees 8.1 Clause 8.3.4 of the guidelines permits an issuer company to make reservations / firm allotments to various categories of persons. Among the various categories provided for in the said clause, one category is mentioned as Permanent employees (including working directors) of the company and in case of a new company, the permanent employees of the promoting companies . However the term employee has not been defined in the guidelines. 8.2 In view of the above, the guidelines have been amended to define the term employee SEBI, on the lines of the definition of the said term in the SEBI (Employee Stock Option Scheme and Employee Stock Purchase) Guidelines 1999 9. Reservation for shareholders Clause 8.3.4 of the guidelines has been amended to permit reservation on competitive basis, in further public issue by a listed company, for the retail shareholders i.e those shareholders who are holding shares worth ₹ 50,000/- subject to the allotment being on proportionate basis as is the case while allotting shares in public category. 10.Green Shoe Option (GSO) facility As GSO is essentially a device to ensure post issue price stability, the guidelines have been amended to clarify that this facility is available in all public issues, viz. Initial public offers ( including fresh issue or offer for sale) , follow on offerings, public issues either through book building or fixed price route. Further, the guidelines have also been amended to permit all pre IPO shareholders ( including promoters) in case of IPOs and pre issue share holders holding more than 5% shares, (including promoters) in case of follow on offerings, to lend their shares for the purpose of GSO as per the conditions specified in the Chapter VIII A.of the guidelines. 11.Applicability 11.1 The amendments shall come into force with immediate effect. You are directed to ensure compliance with the provisions of SEBI (DIP) guidelines 2000 and amendments thereof. This circular along with the annexure is available in SEBI website at www.sebi.gov.in. Full text of SEBI (DIP) guidelines 2000 including the amendments issued vide this circular is also available in SEBI s web site under Primary Market Section. Yours faithfully, DULAL CHANDA Encl.: a/a AMENDMENTS TO SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES, 2000 I. Chapter I Preliminary In clause 1.2.1, after sub-clause (xiia), the following sub-clause (xxvi-a) shall be inserted, namely: - (xiib) employee means a) a permanent employee of the company working in India or out of India; or b) a director of the company, whether a whole time director, part time director or otherwise; c) an employee as defined in sub-clauses (a) or (b) of a subsidiary, in India or out of India, or of a holding company of the company. II. Chapter III PRICING BY COMPANIES ISSUING SECURITIES 1. Clause 3.7.1 shall be substituted by the following, namely : - 3.7.1 An eligible company shall be free to make public or rights issue of equity shares in any denomination determined by it in accordance with sub-section (4) of section 13 of the Companies Act, 1956 and in compliance with the following and other norms as may be specified by SEBI from time to time. i. In case of initial public offer by an unlisted company, a. if the issue price is ₹ 500/- or more, the issuer company shall have a discretion to fix the face value below ₹ 10/- per share subject to the condition that the face value shall in no case be less than ₹ 1 per share. b. if issue price is less than ₹ 500 per share, the face value shall be ₹ 10/- per share. ii. The disclosure about the face value of shares (including the statement about the issue price being X times of the face value) shall be made in the advertisement, offer documents and in application forms in identical font size as that of issue price or price band. III. Chapter VI CONTENTS OF OFFER DOCUMENTS (1). In clause 6.2.1.2, in sub-cluase (iv) para (a) shall be substituted by the following :- (a) The Risks in relation to the first issue (wherever applicable) shall be incorporated in a box format in case of a initial public issue: This being the first issue of the company, there has been no formal market for the securities of the company. The face value of the shares is (-----) and the issue price is X-times of the face value . The issue price (has been determined and justified by the Lead Merchant Banker and the issuer company as stated under Justification of Premium paragraph - in case of premium issue) should not be taken to be indicative of the market price of the equity shares after the shares are listed. No assurance can be given regarding an active or sustained trading in the shares of the company nor regarding the price at which the equity shares will be traded after listing. (2). In clause 6.13.1 after sub-clause (h) the following shall be added, namely: - (i) the face value of shares (including the statement about the issue price being X times of the face value) (3). In clause 6.27, in clause (i) after sub-clause (g) the following shall be added, namely: - (h) the face value of shares (including the statement about the issue price being X times of the face value) IV. Chapter VII POST ISSUE OBLIGATIONS 1. Clause 7.6.1.1 stands substituted by the following Allotment shall be on proportionate basis within the specified categories, rounded off to the nearest integer subject to a minimum allotment being equal to the minimum application size as fixed and disclosed by the issuer Explanation : For the purposes of the aforesaid clause, the illustration given in schedule XVIII may be referred. V. Chapter VIII OTHER ISSUE REQUIREMENTS In clause 8.3.4, (1). in Explanation 2, the category of persons at serial No. (i) shall be substituted by the following (i) Employees of the company (2). after Explanation 2, the following shall be inserted, namely: - 2A. In a public issue (not being a composite issue) by a listed company, the reservation on competitive basis can be made for the shareholders who, on the record date ( date fixed for the purpose of determining the eligible shareholders) , are holding shares worth up to ₹ 50,000/- determined on the basis of closing price as on the previous day. Provided that the allotment to such shareholders shall be on proportionate basis as in case of allotment in public category. (3) Clause 8.6.1, Clause 8.6.1(i), Clause 8.6.1(ii) and Clause 8.6.1(iii) shall be substituted by the following : 8.6.1.1. Minimum application value i) The minimum application value shall be within the range of ₹ 5,000 to Rs, 7,000. The issuer company, in consultation with the merchant banker, shall stipulate the minimum application size (in terms of number of shares) falling within the aforesaid range of minimum application value and make upfront disclosures in this regard, in the offer document. Explanation :For the purpose of this clause, the minimum application value shall be with reference to the issue price of the shares and not with reference to the amount payable on application. Illustration : For the purpose of sub clause (i), the following may be taken as illustration The issue price of shares is ₹ 500. Out of the same, ₹ 100/- is payable on application and the balance on allotment and calls. In this instance, the application value of ₹ 5000-7000 shall be arrived at with reference to the issue price of ₹ 500/-. As such, the minimum application size, to be stipulated in the offer document, would range from 10 shares to 14 shares and not 50 shares to 70 shares. ii) Applications can be made in multiples of the minimum size /value so stipulated in the offer document by the issuer and merchant banker as at (i) and within the range of ₹ 5000-7000, as stipulated at (i). iii) Schedule XVIIIA may be referred for illustration on sub clause (ii) above. (4) Clause 8.6.1(iv) and Clause 8.6.1.(vi) stands deleted. (5) Sub-clause (v) of Clause 8.6..1 shall be renumbered as sub clause (iv) and sub clause (vii) shall be renumbered as sub-clause (v). VI. CHAPTER VIII-A -GREEN SHOE OPTION (1) In clause 8A.1, sub-clause (a) shall be substituted by the following, namely- (a) An issuer company making a public offer of equity shares can avail of the Green Shoe Option (GSO) for stabilizing the post listing price of its shares, subject to the provisions of this Chapter. (2) In clause 8A.2, the words Lead book runners, amongst shall be substituted by the words merchant bankers or Book Runners, as the case may be, from amongst ; (3) Clause 8A.3 shall be substituted by the following, namely- 8A.3 (a).The SA shall also enter into an agreement with the promoter(s) or pre-issue shareholders who will lend their shares under the provisions of this Chapter, specifying the maximum number of shares that may be borrowed from the promoters or the shareholders, which shall not be in excess of 15% of the total issue size. (4) In sub-clause 8A.4, after the words shall be disclosed in and before the words the draft Red Herring prospectus , the words and comma the draft prospectus, shall be inserted; (5) in sub-clause 8A.5, before the words Lead Book Runner the words lead merchant banker or the shall be inserted; (6) in sub-clause 8A.6, after the words shall be disclosed in and before the words the draft Red Herring prospectus , the words and comma the draft prospectus, shall be inserted; (7) Clause 8A.7 shall be substituted by the following, namely- 8A.7(a) In case of an initial public offer by a unlisted company, the promoters and pre-issue shareholders and in case of public issue by a listed company, the promoters and pre- issue shareholders holding more than 5% shares ,may lend the shares subject to the provisions of this Chapter. (b) The SA shall borrow shares from the promoters or the pre-issue shareholders of the issuer company or both, to the extent of the proposed over-allotment. Provided that the shares referred to in this clause shall be in dematerialized form only. (8) Clause 8A.21 shall be substituted by the following, namely- 8A.21 For the purpose of the Chapter VIII-A, (a) promoter means a promoter as defined in Explanation I to clause 6.4.2.1of these guidelines. (b) Over allotment shall mean as an allotment or allocation of shares in excess of the size of a public issue, made by the SA out of shares borrowed from the promoters or the pre-issue shareholders or both, in pursuance of a green shoe option exercised by the company in accordance with the provisions of this Chapter. VII. Chapter IX -GUIDELINES ON ADVERTISEMENTS In clause 9.1.12, after sub-clause (c), the following shall be inserted, namely: (d) It shall contain the disclosure about the face value of shares (including the statement about the issue price being X times of the face value). VIII. CHAPTER XII GUIDELINES FOR ISSUE OF CAPITAL BY DESIGNATED FINANCIAL INSTITUTIONS. In clause 12.10.4, after sub-clause (b) the following proviso shall be inserted, namely- Provided that the aforesaid clause shall not be applicable to the information memorandum / prospectus in respect of issues made under the shelf prospectus. Provided further that the issue size and over subscription limits disclosed in the information memorandum / prospectus (in respect of issues made under a shelf prospectus) shall not exceed the respective limits disclosed in the shelf prospectus. (c) After disclosing the issue size and over subscription limits in the shelf prospectus, the DFI can raise and retain any amount through tranche issues subject to the limits specified in shelf prospectus. Provided that DFI has disclosed the minimum amount proposed to be raised and the maximum over subscription proposed to be retained in the information memorandum / prospectus. issued in respect of issues under shelf prospectus (e) The aggregate amount collected through one or more tranches shall not exceed the maximum target amount specified in the shelf prospectus. IX. SCHEDULE XVIII shall be substituted as under Schedule XVIII (Clause 7.6.1.1 and Clause 11.3.5(iii)) Illustration explaining the procedure of allotment 1. Total shares on offer@ ₹ 600 per share: 10 crore shares 2. Shares on offer for retail category: 2.5 crore shares 3. The total issue is over subscribed 4 times whereas the retail category is over subscribed 8.25 times 4. Issuer decides to fix the minimum application / bid size as 9 shares (falling within the range of ₹ 5000- 7000). Application can be made for a minimum of 9 shares and in multiples thereof. Assume three retail investors A, B C. A has applied for 81 shares. B has applied for 72 shares and C has applied for 45 shares. As per allotment procedure, the allotment to retail individual investors would be on proportionate basis i.e at 1/8.25th of the total number of shares applied for. The actual entitlement shall be as follows: Sr. No. Name of Investor Total Number of shares applied for Total number of shares eligible to be allotted ( No. of shares applied for / 8.25) 1 A 81 81 /8.25 = 9.82 shares rounded off to 10 shares 2 B 72 72/8.25 = 8.73 shares rounded off to 9 shares (i.e. minimum application size). 3 C 45 shares 45/8.25=5.45 shares. Application liable to be rejected. (as the entitlement is less than the minimum application size). However, the successful applicants out of the total applicants shall be determined by drawal of lots X. After Schedule XVIII, the following Schedule shall be added Schedule XVIIIA (Clause 8.6.1(iii)) Illustration explaining the minimum application size An issue is being made at a price of ₹ 390 per share. In this case, the issuer in consultation with the merchant banker can determine the minimum application lot within the range of 13 17 shares ( in value terms between ₹ 5000- ₹ 7000), as detailed hereunder : Options I II III IV V Lot Size @ ₹ 390/- per share 13 shares 14 shares 15 shares 16 shares 17 shares Application /Bid amount for 1 lots 5070 5469 5850 6240 6630 Application /Bid amount for 2 lots 10140 10920 11700 12480 13260 Application /Bid amount for 4 lots 20280 21840 23400 24960 26520 Application / Bid amount for 8 lots 40560 43680 46800 49920 --- Application / Bid amount for 9 lots 45630 49140 --- --- -- The options given above are only illustrative and not exhaustive Where the issuer company in consultation with merchant banker decides to fix the minimum application / bid size as 14 (Option II), necessary disclosures to the effect that the applicant can make an application for 14 shares and in multiples thereof shall be made in the offer document.