Roll no: 2011203
Div: Finance B
Law assignment: IPO Promoters Role
The Securities and Exchange Board of India (Sebi) has tightened rules governing promoter contributions in initial public offerings by mandating a one-year lock-in period on such holdings from the date of allotment of shares to other shareholders of the company. Presently only 20% of the promoters’ share in the IPO is subject to such lock-in. Sebi has introduced this and a slew of other changes in its Disclosures and Investment Protection guidelines that have come into force with immediate effect. “It is clarified that lock-in period of one year shall be reckoned from the date of allotment of shares issued in a public issue,” the markets regulator said in a circular issued Friday night. It said, the entire pre-issue capital, other than that locked in as minimum promoters’ contribution, cannot be sold for a period of one year from the date of allotment. However, it clarified that where shares held by promoters are lent to the stabilising agent, these shall be exempted from the one-year lock-in starting from the date of such lending and ending on the date on which they are returned to the same lenders. The minimum promoter holding, however, will continue to attract the lock-in period of three years. Sebi has also decided to rationalise disclosure requirements for rights and public issues by listed companies. These benefits will also be made available to those companies which are regular in filing periodic returns with stock exchanges and have a comprehensive investor grievance mechanism in place. In order to bring uniformity, Sebi has decided to permit an issuer company making a rights issue to dispatch an abridged letter of offer containing disclosures as required in an abridged prospectus. Currently, a company is prohibited from making a further issue of capital after filing a draft offer document with Sebi till the listing of the shares referred to in the offer document. It has now been decided to permit a company to issue further shares, provided full disclosures in regard to the total capital to be raised from such further issues is given in the draft offer document.
PROMOTERS’ CONTRIBUTION AND LOCK-IN REQUIREMENTS
PART I – PROMOTERS’ CONTRIBUTION
4.0 73(Promoters’ contribution in any issue shall be in accordance with the following provisions as on –
(i) the date of filing red herring prospectus (in case of a book built issue) or prospectus (in case of a fixed price issue) with ROC or letter of offer with Designated Stock Exchange, as the case may be, in case of a fast track issue; and (ii) the date of filing draft offer document with the Board, in any other case.) 4.1 Promoters’ Contribution in a Public Issue by Unlisted Companies 4.1.1 In a public issue by an unlisted company, the promoters shall contribute not less than 20% of the post issue capital. 4.2 Promoters’ Shareholding in Case of Offers for Sale
4.2.1 The promoters’ shareholding after offer for sale shall not be less than 20% of the post issue capital. 4.3 Promoters’ Contribution in Case of Public Issues by Listed Companies
4.3.1 In case of public issues by listed companies, the promoters shall participate either to the extent of 20% of the proposed issue or ensure post-issue share holding to the extent of 20% of the post-issue capital. 4.4 Promoters’ Contribution in Case of Composite Issues
4.4.1 In case of composite issues of a listed company, the promoters’ contribution shall at the option of the promoter(s) be either 20% of the proposed public issue or 20% of the post-issue capital. 4.4.2 Rights issue component of the composite issue shall be excluded while calculating the post-issue capital.
4.6 Securities Ineligible for Computation of Promoters’ Contribution 4.6.1 Where the promoters of any company making an issue of securities have acquired equity during the preceding three years, before filing the offer documents...