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TMI BlogAmendment to SEBI (DIP) Guidelines, 2000 – Rights Issue Process/ ProcedureX X X X Extracts X X X X X X X X Extracts X X X X ..... .1 Rights issues are further issuances of capital made by listed entities to existing shareholders. These shareholders are generally in possession of basic information about the issuer company and are generally updated on major developments in the company on a continuous basis. 2.1.2 In order to encourage listed companies to look at rights issues as a viable form of capital raising by reducing the overall cost of such issuances and also to make the process of such issues faster, it has been decided to rationalise the disclosure requirements for rights issues. 2.2 Applications Supported by Blocked Amount (ASBA) in rights issues: 2.2.1 SEBI, vide circular dated September 25, 2008, had enabled the facility of applying in rights issue through ASBA on a pilot basis. 2.2.2 It has now been decided to make ASBA applicable to all rights issues. ASBA will co-exist with the current process, wherein cheque/demand draft is used as a mode of payment. Since the web enabled interface of stock exchanges is now operational for the purpose of acceptance of the rights issue applications, self certified syndicate banks shall upload the application data in to the aforesaid interface of stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the designated stock exchanges. 3. All registered merchant bankers are advised to ensure compliance with this circular including the amendments contained in Annexure I of this circular. 4. This circular and the entire text of the SEBI (DIP) Guidelines, including the amendments contained in Annexure I of this circular, are available on SEBI website at www.sebi.gov.in under the categories Legal Framework and Issues and Listing . Yours faithfully, Parag Basu Annexure I Amendments to SEBI (DIP) Guidelines, 2000 CHAPTER I PRELIMINARY 1. For clause 1.2.1 (iii-b), the following clause shall be substituted, namely:- (iii-b) ASBA Investor means an investor who intends to apply through ASBA process and (A) in case of public issue: (a) is a Resident Retail Individual Investor ; (b) is bidding at cut-off, with single option as to the number of shares bid for; (c) is applying through blocking of funds in a bank account with the SCSB; (d) has agreed not to revise his/her bid; (e) is not bidding under any of the reserved categories. (B) in case of rights issue , an applicant, who; (a) holds the shares of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uidelines shall be substituted as under:- SECTION III CONTENTS OF THE LETTER OF OFFER 6.39 A listed issuer company making a rights issue shall make disclosures, as specified in clause 6.42, in the letter of offer, if it satisfies the following conditions: (a) the issuer company has been filing periodic reports, statements and information in compliance with the listing agreement for the last three years immediately preceding the date of filing of the letter of offer with the designated stock exchange, in case of a fast track issue and in any other case, the date of filing of the draft letter of offer with the Board; (b) the reports, statements and information referred to in sub-clause (a) above are available on the website of any recognised stock exchange with nationwide trading terminals or on a common e-filing platform specified by the Board; (c) the issuer company has investor grievance-handling mechanism which includes meeting of the Shareholders or Investors Grievance Committee at frequent intervals, appropriate delegation of power by the board of directors of the issuer company as regards share transfer and clearly laid down systems and procedures for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion, investors must rely on their own examination of the issuer company and the offer including the risks involved. The securities being offered in the issue have not been recommended or approved by Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of this document. Specific attention of investors shall be invited to the statement of Risk factors given on page number(s) .. under the section General Risks . e. The following clause on Issuer s Absolute Responsibility shall be incorporated in a box format: The issuer company, having made all reasonable inquiries, accepts responsibility for and confirms that this letter of offer contains all information with regard to the issuer company and the issue, which is material in the context of the issue, that the information contained in the letter of offer is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which make this document as a whole or any of such information or the expression of any such opinions or intentions mislea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e statement on the positive outcome to any litigation, etc. 6.42.4.6 The proposals to address risks shall not be given for any matter that is sub-judice before any Court or Tribunal. 6.42.4.7 The risk factors shall be disclosed in the descending order of materiality. Wherever risks about material impact are stated, the financial and other implications of the same shall be disclosed. If it cannot be quantified, a distinct statement about the fact that the implications cannot be quantified shall be made. 6.42.5 Prominent notes 6.42.5.1 This section shall contain notes which are required to be given prominence and shall also include the following: (a) The net worth before the issue (as per latest audited financial statement disclosed in the letter of offer) and issue size. (b) The details of transactions by the issuer company with group or subsidiary companies during the last one year immediately preceding the date of filing the letter of offer with the designated stock exchange, in case of a fast track issue and in any other case, the date of filing draft letter of offer with the Board, the nature of transactions and the cumulative value of transactions. (c) T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers, fax numbers and e-mail address of the underwriters and the amount underwritten by them. (ii) A declaration by the board of directors of the issuer company that the underwriters have sufficient resources to discharge their respective obligations. (iii) In case of partial underwriting of the issue, the extent of underwriting. (iv) The details of final underwriting arrangement, indicating actual number of securities underwritten, in the letter of offer before it is filed with the designated stock exchange. (j) The principal terms of loan and assets charged as security. 6.42.6.3 Capital Structure (a) The authorised, issued and subscribed capital after suitable incorporation of the outstanding convertible securities (number of securities, description and aggregate nominal value). (b) Paid-up capital. (c) The following details of outstanding instruments: (i) Details of options, if any. (ii) Details of convertible securities, if any. (d) The details of securities held by promoter and promoter group including the details of lock-in, pledge of and encumbrance on such securities. (e) The details of shares acquired by promoters and promoter group in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w materials, finished goods, work in progress, sundry debtors etc., along with the assumption about the holding norms for each type of current asset, total current liabilities, net current assets and envisaged sources of finance for net current assets, i.e., bank finance, institutional finance, own funds, etc. (iv) The total envisaged working capital requirement in a tabular form, the margin money thereof and the portion to be financed by any bank(s) or otherwise. (v) A complete perspective on the present working capital position vis- -vis the projected working capital position based on which the money is proposed to be raised in the public issue. (vi) Details of the existing working capital available with the issuer company, along with a break-up of total current assets into raw materials, finished goods, work in progress, sundry debtors, etc., total current liabilities, net current assets and sources of finance for net current assets, i.e., bank finance, institutional finance, own funds, etc. (vii) If no working capital is shown as part of the project for which issue is being made, the reasons therefor. 6.42.7.2 Requirement of Funds (a) The requirement fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that acquisition or anything to be done in consequence thereof or in connection therewith, that body corporate will become a subsidiary of the issuer company; a report made by accountants (who shall be named in the letter of offer) upon: a. the profits or losses of the other body corporate for each of the five financial years immediately preceding the issue of the Letter of Offer; and b. the assets and liabilities of the other body corporate at the last date to which its accounts were made up. (h) Strategic partners, if applicable, to the project / objects of the issue. (i) Financial partners, if applicable to the project / objects of the issue. 6.42.7.3 Funding Plan (Means of Finance) (a) An undertaking shall be given in the letter of offer by the issuer company confirming that firm arrangements of finance through verifiable means towards seventy five per cent. of the stated means of finance, excluding the amount to be raised through proposed issue and existing identifiable internal accruals, have been made. (b) The balance portion of the means of finance for which no firm arrangement has been made shall be mentioned without specification. (c) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporate Structure about the Issuer company 6.42.8.1 In case the issuer company has not come out with any issue in the past ten years or more, a brief statement about the history and corporate structure of the issuer company, the main objects of the issuer company and major events in the past. 6.42.9 Management (Board of Directors) 6.42.9.1 Name, age, qualifications, Director Identification Number, experience, address, occupation and date of expiration of the current term of office of manager, managing director, and other directors (including nominee directors, whole-time directors), giving their directorships in other companies. 6.42.9.2 The nature of any family relationship between any of the directors. 6.42.9.3 Any arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which of the directors was selected as a director or member of senior management. 6.42.9.4 Details of service contracts entered into by the directors with the issuer company providing for benefits upon termination of employment and a distinct negative statement in the absence of any such contract. 6.42.10 Financial Information of the Issuer company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares/ convertible instruments of the company (high/ low price in each of the last three years and monthly high/low price during the last six months). 6.42.10.4 Accounting and other ratios: (a) The following accounting ratios shall be given for each of the accounting periods for which financial information is given: (i) Earnings per share: This ratio shall be calculated after excluding extra ordinary items. (ii) Return on Networth: This ratio shall be calculated excluding revaluation reserves. (iii) Net Asset Value per share: This ratio shall be calculated excluding revaluation reserves. (b) Accounting and other ratios shall be based on the financial statements prepared on the basis of Indian Accounting Standards. 6.42.10.5 Capitalisation Statement: (a) A Capitalisation Statement showing total debt, net worth, and the debt/ equity ratios before and after the issue is made shall be incorporated. (b) In case of any change in the share capital since the date as of which the financial information has been disclosed in the Letter of Offer, a note explaining the nature of the change shall be given. (c) An illustrative format of the Capitalisation Statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar cases, even though the amount involved in single case individually may not exceed one per cent. of the net worth of the issuer company as per the last completed financial year. (ii) For the outstanding litigations which may have any impact on the future revenues, the disclosure is required: a. Where the aggregate amount involved in such individual litigation is likely to exceed one per cent. of the total revenue of the issuer company as per last completed financial year; or b. Where the decision in one case is likely to affect the decision in similar cases, even though the amount involved in single case individually may not exceed one per cent of the total revenue of the issuer company, if similar cases put together collectively exceed one per cent. of total revenue of the issuer company as per last completed financial year. (d) These disclosures shall be made in respect of the issuer company and the subsidiary companies of the issuer company whose financial statements are included in the offer document, either separately or in consolidated form. 6.42.13 Government Approvals or Licensing Arrangements 6.42.13.1 In case of a new line of activity/project, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d decision for making investment in the proposed issue. It should also be clearly understood that while the issuer company is primarily responsible for the correctness, adequacy and disclosure of all relevant information in the letter of offer, the lead merchant banker is expected to exercise due diligence to ensure that the issuer company discharges its responsibility adequately in this behalf and towards this purpose, the lead merchant banker _______________________ has furnished to the Securities and Exchange Board of India (SEBI) a due diligence certificate dated ________________ (which reads as follows: (due diligence certificate submitted to the Board to be reproduced here) The filing of the letter of offer does not, however, absolve the issuer company from any liabilities under section 63 or section 68 of the Companies Act, 1956 or from the requirement of obtaining such statutory or other clearances as may be required for the purpose of the proposed issue. SEBI further reserves the right to take up, at any point of time, with the lead merchant banker any irregularities or lapses in letter of offer. (b) Disclaimer Statement from the issuer company and lead merc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ications by mutual funds and Multiple Applications shall be incorporated to indicate that a separate application can be made in respect of each scheme of an Indian mutual fund registered with the Board and that such applications shall not be treated as multiple applications. (ii) A disclosure that the applications made by asset management companies or custodians of a mutual fund shall clearly indicate the name of the concerned scheme for which application is being made. (b) Applications by non-resident Indians: The following disclosures shall be made: (i) The name and address of at least one place in India from where individual non-resident Indian applicants can obtain the application forms. (ii) A statement that: non-resident Indian applicants may please note that only such applications as are accompanied by payment in free foreign exchange shall be considered for allotment under the reserved category. The non-resident Indians who intend to make payment through NonResident Ordinary (NRO) accounts shall use the form meant for Resident Indians and shall not use the forms meant for reserved category. (c) Application by ASBA investors: Disclosures regarding deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (National Electronic Funds Transfer), as is for the time being permitted by the Reserve Bank of India; (b) In case of other applicants: by despatch of refund orders by registered post, where the value is ₹ 1500/- or more, or under certificate of posting in other cases, (subject however to postal rules); and (c) In case of any category of applicants specified by the Board: crediting of refunds to the applicants in any other electronic manner permissible under the banking laws for the time being in force which is permitted by the Board from time to time. 6.42.17 Undertakings by the issuer company in connection with the issue 6.42.17.1 The issuer company shall undertake that: (a) the complaints received in respect of the Issue shall be attended to by the issuer company expeditiously and satisfactorily. (b) that steps for completion of the necessary formalities for listing and commencement of trading at all stock exchanges where the securities are to be listed are taken within seven working days of finalisation of basis of allotment. (c) funds required for making refunds to unsuccessful applicants as per the mode(s) disclosed shall be made available to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) details of all unutilised monies out of the issue of shares referred to in subclause (a) shall be disclosed under an appropriate separate head in the balance sheet of the issuer company indicating the form in which such unutilised monies have been invested. 6.42.19 Restrictions on foreign ownership of Indian securities, if any 6.42.19.1 Investment by NRIs. 6.42.19.2 Investment by FIIs. 6.42.20 Statement regarding minimum subscription clause 6.42.20.1 The following statements shall appear in the letter of offer: (a) If the issuer company does not receive the minimum subscription of ninety per cent. of the issue (including devolvement of underwriters where applicable), the entire subscription shall be refunded to the applicants within fifteen days from the date of closure of the issue. (b) If there is delay in the refund of subscription by more than 8 days after the company becomes liable to pay the subscription amount (i.e. fifteen days after closure of the issue), the issuer company will pay interest for the delayed period, at rates prescribed under sub-sections (2) and (2A) of Section 73 of the Companies Act, 1956. 6.42.21 Statutory and other inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) are satisfied, clauses 6.18.2, 6.19.3, 6.21, 6.22, 6.23, 6.26, 6.27, 6.30, 6.31 and 6.32, specified under Section II of this Chapter shall not apply to the abridged letter of offer. 6.45 The order in which items shall appear in the abridged letter of offer shall correspond, wherever applicable, to the order in which items appear in the letter of offer. 6.46 The abridged letter of offer shall also include the following disclosures: (a) Provisions pertaining to applications referred to in clause 5.11; (b) Rights entitlement ratio; (c) Fractional entitlements; (d) Renunciation; (e) Application for Additional equity shares; (f) Intention of promoters to subscribe to their rights entitlement; (g) Statement that a copy of the offer document of the immediately preceding public or rights issue is made available to the public as specified under clause 5.6.2(ii) and also as a document for public inspection. Chapter VIII OTHER ISSUE REQUIREMENTS 11. for clause 8.19.1, the following clause shall be substituted, namely:- The issuer company may utilise the funds collected in the rights issue only after the basis of allotment is finalized. - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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