Merchant Banking Regulations in India
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
CONTENTS
CHAPTER III
GENERAL OBLIGATIONS AND RESPONSIBILITIES
Code of Conduct
13. Every merchant banker shall abide by the Code of Conduct as specified in Schedule III.
19*[Merchant banker not to associate with any business other than that of the securities market
13A ? No merchant banker, other than a bank or a 20*[public financial institution], who has been granted a certificate of registration under these regulations shall 21*[after June 30th, 1998] carry on any business other than that in the securities market.
Notwithstanding anything contained above, a merchant banker who prior to the date of notification of the securities and exchange board of India (Merchant Bankers) Amendment Regulations, 1997, has entered into a contract in respect of a business other than that of the securities market, may, if he so desires, discharge his obligations under such contract.
Explanation - for the purposes of this regulation:
(i) A "bank" shall mean a banking company as defined under section 5 of the Banking Regulation Act, 1949 (10 of 1949) and the corresponding new bank set up under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 (5 of 1970) and Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980 (40 of 1980), State Bank of India Act, 1955 (23 of 1955) and State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959)
(ii) A "public financial institution" shall have the same meaning as assigned to the term under Section 4A of the Companies Act, 1956 (1 of 1956) and shall include Industrial Development Corporations and Financial Corporations established by the Central Government or State Governments as the case may be]
22*[Provided that a merchant banker who has been granted certificate of registration to act as primary or satellite dealer by Reserve Bank of India, may carry on such business as may be permitted by Reserve Bank of India]
Maintenance of books of accounts, records etc.
14. (1) Every merchant banker shall keep and maintain the following books of accounts, records and documents namely:-
(a) a copy of balance sheet as at the end of each accounting period;
(b) a copy of profit and loss account for that period;
(c) a copy of the auditor's report on the accounts for that period; and
(d) a statement of financial position.
(2) Every merchant banker shall intimate to the Board the place where the books of accounts, records and documents are maintained.
(3) Without prejudice to sub- regulation (1), every merchant banker shall, after the end of each accounting period furnish to the Board copies of the balance sheet, profit and loss account and such other documents for any other preceding five accounting years when required by the Board.
Submission of Half-yearly results
15. Every merchant banker shall furnish to the Board half-yearly unaudited financial results when required by the Board with a view to monitor the capital adequacy of the merchant banker.
Maintenance of books of account, records and other documents
16. The merchant banker shall preserve the books of accounts and other records and documents maintained under regulation 14 for a minimum period of five years.
Report on steps taken on Auditor's report
17. Every merchant banker shall within two months from the date of the auditors' report take steps to rectify the deficiencies, made out in the auditor's report.
Appointment of lead merchant bankers
18. (1) All issues should be managed by atleast one merchant banker functioning as the lead merchant banker:
Provided that, in an issue of offer of rights to the existing members with or without the right of renunciation the amount of the issue of the body corporate does not exceed rupees fifty lakhs, the appointment of a lead merchant banker shall not be essential.
(2) Every lead merchant banker shall before taking up the assignment relating to an issue, enter into an agreement with such body corporate setting out their mutual rights, liabilities and obligations relating to such issue and in particular to disclosures, allotment and refund.
Restriction on appointment of lead managers
19. The number of lead merchant bankers may not, exceed in case of any issue of Size of issue No. of Merchant Bankers
(a) Less than rupees fifty crores Two
(b) Rupees fifty crores but lessthan rupees one hundred crores Three
(c) Rupees one hundred crores but less than rupees two hundred crores Four
(d) Rupees two hundred crores but less than rupees four hundred crores Five
(e) Above Rupees four hundred crores five or more as may be agreed by the board
Responsibilities of lead managers
20. (1) No lead manager shall agree to manage or be associated with any issue unless his responsibilities relating to the issue mainly, those of disclosures, allotment and refund are clearly defined, allocated and determined and a statement specifying such responsibilities is furnished to the Board at least one month before the opening of the issue for subscription:
Provided that, where there are more than one lead merchant bankers to the issue the responsibilities of each of such lead merchant banker shall clearly be demarcated and a statement specifying such responsibilities shall be furnished to the Board at least one month before the opening of the issue for subscription.
(2) No lead merchant banker shall, agree to manage the issue made by any body corporate, if such body corporate is an associate of the lead merchant banker.
Lead merchant banker not to associate with a merchant banker without registration
21. A lead merchant banker shall not be associated with any issue if a merchant banker who is not holding a certificate is associated with the issue.
Underwriting obligations
22. (1) In respect of every issue to be managed, the lead merchant banker holding a certificate under Category I shall accept a minimum Underwriting obligation of five percent of the total underwriting commitment or rupees twenty-five lacs, whichever is less:
Provided that, if the lead merchant banker is unable to accept the minimum underwriting obligation, that lead merchant banker shall make arrangement for having the issue underwritten to that extent by a merchant banker associated with the issue and shall keep the Board informed of such arrangement.
Submission of due diligence certificate
23. The lead merchant banker, who is responsible for verification of the contents of a prospectus or the Letter of Offer in respect of an issue and the reasonableness of the views expressed therein, shall submit to the Board at least two weeks prior to the opening of the issue for subscription, a due diligence certificate in Form C.
Documents to be furnished to the Board
24. (1) The lead manager responsible for the issue shall furnish to the Board, the following documents, namely: -
(i) particulars of the issue;
(ii) draft prospectus or where there is an offer to the existing shareholders, the draft letter of offer;
(iii) any other literature intended to be circulated to the investors, including the shareholders; and
(iv) such other documents relating to prospectus or letter of offer as the case may be.
(2) The documents referred to in sub-regulation (1) shall be furnished at least two weeks prior to date of filing of the draft prospectus or the letter of offer, as the case may be, with the Registrar of Companies or with the Regional Stock Exchanges, or with both.
(3) The lead manager shall ensure that the modifications and suggestions, if any, made by the Board on the draft prospectus or the Letter of Offer as the case may be, with respect to information to be given to the investors are incorporated therein.
23*[Payment of fees to the Board
24A. The draft prospectus or draft letter of offer referred to in regulation 24 shall be submitted along with such fees and in such manner as may be specified in Schedule IV]
Continuance of association of lead manager with an issue
25. The lead manager undertaking the responsibility for refunds or allotment of securities in respect of any issue shall continue to be associated with the issue till the subscribers have received the share or debenture certificates or refund of excess application money;
Provided that where a person other than the lead manager is entrusted with the refund or allotment of securities in respect of any issue, the lead manager shall continue to be responsible for ensuring that such other person discharges the requisite responsibilities in accordance with the provisions of the Companies Act and the listing agreement entered into by the body corporate with the stock- exchange.
Acquisition of shares prohibited
26. No merchant banker or any of its directors, partner or manager or principal officer shall either on their respective accounts or through their associates or relatives enter into any transaction in securities of bodies corporate on the basis of unpublished price sensitive information obtained by them during the course of any professional assignment either from the clients or otherwise.
Information to the Board
27. Every merchant banker shall submit to the Board complete particulars of any transaction for acquisition of securities of any body corporate whose issue is being managed by that merchant banker within fifteen days from the date of entering into such transaction.
Disclosures to the Board
28. A merchant banker shall disclose to the Board as and when required, the following information, namely: -
(i) his responsibilities with regard to the management of the issue;
(ii) any change in the information or particulars previously furnished, which have a bearing on the certificate granted to it;
(iii) the names of the body corporate whose issues he has managed or has been associated with;
(iv) the particulars relating to breach of the capital adequacy requirement as specified in regulation 7;
(v) relating to his activities as a manager, underwriter, consultant or adviser to an issue as the case may be.
24*[Appointment of compliance officer
28A. (1) Every merchant banker shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions etc., issued by the Board or the Central Government and for redressal of investors? grievances.
(2) The compliance officer shall immediately and independently report to the Board any non-compliance observed by him and ensure that the observations made or deficiencies pointed out by the Board on \ in the draft prospectus or the Letter of offer as the case may be, do not recur.]
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Foot notes
19. Regulation 13A was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.
20. Substituted for the words "Financial Institution" by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.
21. "after June 30th, 1998" inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.
22. Proviso to regulation 13A was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 17.11.1999.
23. Regulation 24A inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.
24. Regulation 28A was inserted by SEBI (Investment advice by intermediaries) (Amendment) Regulations, 2001 published in the Official Gazette of India dated 29.05.2001.
CHAPTER IV
PROCEDURE FOR INSPECTION
Board's right to inspect
29. (1) The Board may appoint one or more persons as inspecting authority to undertake inspection of the books of accounts, records and documents of the merchant banker for any of the purposes specified in sub-regulation (2).
(2) The purposes referred to in sub-regulation (1) may be as follows namely: -
(a) to ensure that the books of account are being maintained in the manner required;
(b) that the provisions of the Act, rules, regulations are being complied with;
(c) to investigate into the complaints received from investors, other merchant bankers or any other person on any matter having a bearing on the activities of the merchant banker; and
(d) to investigate suo-moto in the interest of securities business or investors interest into the affairs of the merchant banker.
Notice before inspection
30. (1) Before undertaking an inspection under regulation 29 the Board shall give a reasonable notice to the merchant banker for that purpose.
(2) Notwithstanding anything contained in sub-regulation (1), where the Board is satisfied that in the interest of the investors no such notice should be given, it may by an order in writing direct that the inspection of the affairs of the merchant banker be taken up without such notice.
(3) During the course of inspection, the merchant banker against whom an inspection is being carried out shall be bound to discharge his obligations as provided under regulation 31.
Obligations of merchant banker on inspection by the Board
31. (1) It shall be the duty of every director, proprietor, partner, officer and employee of the merchant banker, who is being inspected, to produce to the inspecting authority such books, accounts and other documents in his custody or control and furnish him with the statements and information relating to his activities as a merchant banker within such time as the inspecting authority may require.
(2) The merchant banker shall allow the inspecting authority to have reasonable access to the premises occupied by such merchant banker or by any other person on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the merchant banker or any such other person and also provide copies of documents or other materials which, in the opinion of the inspecting authority are relevant for the purposes of the inspection.
(3) The inspecting authority, in the course of inspection, shall be entitled to examine or record statements of any principal officer, director, partner, proprietor and employee of the merchant banker.
(4) It shall be the duty of every director, proprietor, partner, officer or employee of the merchant banker to give to the inspecting authority all assistance in connection with the inspection which the merchant banker may reasonably be expected to give.
Submission of Report to the Board
32. The inspecting authority shall, as soon as may be possible submit, an inspection report to the Board.
25*[Action on inspection or investigation report
33. The Board or the Chairman shall after consideration of inspection or investigation report take such action as the Board or Chairman may deem fit and appropriate including action under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002."
Appointment of Auditor
34. The Board may appoint a qualified auditor to investigate into the books of account or the affairs of the merchant banker:
Provided that the auditor so appointed shall have the same powers of the inspecting authority as are mentioned in regulation 29 and the obligations of the merchant banker in regulation 31 shall be applicable to the investigation under this regulation.
Explanation: For the purposes of this regulation the expression "qualified auditor" shall have the same meaning as given in Section 226 of the Companies Act, 1956 (1 of 1956).
Foot notes
25. Following regulation 33 was substituted by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 published in the official Gazette of India dated 27.09.2002
Communication of findings etc. to the merchant banker
33. (1) The Board shall after consideration of the inspection report communicate the findings to the merchant banker to give him an opportunity of being heard before any action is taken by the Board on the findings of the inspecting authority.
(2) On receipt of the explanation if any, from the merchant banker, the Board may call upon the merchant banker to take such measures as the Board may deem fit in the interest of the securities market and for due compliance with the provisions of the Act, rules and regulations.
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CHAPTER V
PROCEDURE FOR ACTION IN CASE OF DEFAULT
26*[Liability for action in case of default
35. A merchant banker who ?
(a) fails to comply with any conditions subject to which certificate has been granted;
(b) contravenes any of the provisions of the Act, rules or regulations, shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002."
27*[******]
Foot notes
26. Following regulation 35 was substituted by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 published in the official Gazette of India dated 27.09.2002
Liability for action in case of default
35. (1) A merchant banker who ?
(a) fails to comply with any conditions subject to which certificate has been granted;
(b) contravenes any of the provisions of the Act, rules or regulations;
shall be liable to any of the penalties specified in sub-regulation (2).
(2) The penalties referred to in sub-regulation (1) may be either:-
(a) suspension of registration; or
(b) cancellation of registration.
27. Following regulations 36 to 43 were omitted by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 published in the official Gazette of India dated 27.09.2002
Suspension of registration
36. (1) A penalty of suspension of registration of a merchant banker may be imposed where ?
(i) the merchant banker violates the provisions of the Act, rules or regulations;
(ii) the merchant banker ?
(a) fails to furnish any information relating to his activity as merchant banker as required by the Board;
(b) furnishes wrong or false information;
(c) does not submit periodical returns as required by the Board;
(d) does not co-operate in any enquiry conducted by the Board;
(iii) the merchant banker fails to resolve the complaints of the investors or fails to give a satisfactory reply to the Board in this behalf;
(iv) the merchant banker indulges in manipulating or price rigging or cornering activities;
(v) the merchant banker is guilty of misconduct or improper or unbusinesslike or unprofessional conduct which is not in accordance with the Code of Conduct specified in Schedule III;
(vi) the merchant banker fails to maintain the capital adequacy requirement in accordance with the provisions of regulation 7;
(vii) the merchant banker fails to pay the fees;
(viii) the merchant banker violates the conditions of registration;
(ix) the merchant banker does not carry out his obligations as specified in the regulation.
Cancellation of registration
37. A penalty of cancellation of registration of a merchant banker may be imposed where
(i) the merchant banker indulges in deliberate manipulation or price rigging or cornering activities affecting the securities market and the investors interest;
(ii) the financial position of the merchant banker deteriorates to such an extent that the Board is of the opinion that his continuance as merchant banker is not in the interest of investors;
(iii) the merchant banker is guilty of fraud, or is convicted of a criminal offence;
(iv) in case of repeated defaults of the nature mentioned in regulation 36 provided that the Board furnishes reasons for cancellation in writing.
Manner of making order of suspension an cancellation
38. No order of penalty of suspension or cancellation as the case may be, shall be imposed except after holding an enquiry in accordance with the procedure specified in regulation
39.
Manner of holding enquiry before suspension or cancellation
39. (1) For the purpose of holding an enquiry under regulation 38, the Board may appoint an enquiry officer.
(2) The enquiry officer shall issue to the merchant banker a notice the registered office or the principal place of business of the merchant banker.
(3) The merchant banker may, within thirty days from the date of receipt of such notice, furnish to the enquiry officer a reply together with copies of documentary or other evidence relied on by him or sought by the Board from the merchant banker.
(4) The enquiry officer shall, give a reasonable opportunity of hearing to the merchant banker to enable him to make submissions in support of his reply made under sub-regulation (3).
(5) Before the enquiry officer, the merchant banker may either appear in person or through any person duly authorised by the merchant banker:
Provided that no lawyer or advocate shall be permitted to represent the merchant banker at the enquiry:
Provided further that where a lawyer or an advocate has been appointed by the Board as a presenting officer under sub- regulation (6), it shall be lawful for the merchant banker to present its case through a lawyer or advocate.
(6) If it is considered necessary, the enquiry officer may ask the Board to appoint a presenting officer to present its case.
(7) The enquiry officer shall, after taking into account all relevant facts and submissions made by the merchant banker, submit a report to the Board and recommend the penalty to be imposed as also the grounds on the basis of which the proposed penalty is justified.
Show-cause notice and order
40. (1) On receipt of the report from the enquiry officer, the Board shall consider the same and issue a show-cause notice as to why the penalty as proposed by the enquiry officer should not be imposed.
(2) The merchant banker shall within twenty-one days of the date of the receipt of the show- cause send a reply to the Board.
(3) The Board after considering the reply to the show-cause notice, if received, shall as soon as possible but not later than thirty days from the receipt of the reply, if any, pass such order as it deems fit.
(4) Every order passed under sub- regulation (3) shall be self- contained and give reasons for the conclusions stated therein including justification of the penalty imposed by that order.
(5) The Board shall send a copy of the order under sub- regulation (3) to the merchant banker.
Effect of suspension and cancellation of registration of merchant banker
41. (1) On and from the date of the suspension of the merchant banker he shall cease to carry on any activity as a merchant banker during the period of suspension.
(2) On and from the date of cancellation the merchant banker shall with immediate effect cease to carry on any activity as a merchant banker.
Publication of order of suspension
42. The order of suspension or cancellation of certificate passed under sub-regulation (3) of regulation 40 shall be published in at least two daily newspapers by the Board.
a*[Appeal to the Securities Appellate Tribunal
43. Any person aggrieved by an order of the Board made, on and after the commencement of the Securities Laws (Second amendment) Act, 1999, (i.e., after 16th December 1999), under these regulations may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter]
a. Substituted for the following provision by SEBI (Appeal to the Securities Appellate Tribunal) (Amendment) Regulations, 2000 published in the official Gazette of India dated 28.03.2000
"Any person aggrieved by an order of the Board may prefer an appeal to the Central Government"
Sunday, December 23, 2007
Investment Banking Regulations - India - Part 4
Merchant Banking Regulations in India
SCHEDULE I - FORMS
FORM A
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
(REGULATION 3)
APPLICATION FOR GRANT OF CERTIFICATE /
RENEWAL OF CERTIFICATE
ADDITIONAL INFORMATION FOR FRESH REGISTRATION
NAME OF APPLICANT
CATEGORY:
CONTACT NAME ______________________
TELEPHONE NO: _____________________
INSTRUCTIONS FOR FILLING UP FORM
1. It is important that this application form should be filled in accordance with the regulations.
2. Applicants must submit a completed application form together with appropriate supporting documents to the Board.
3. Application for registration will be considered provided it is complete in all respects.
4. Answers must be typed.
5.All signatures must be original.
6.Information which needs to be supplied in more details may be given on separate sheets which should be attached to the application form.
1. PARTICULARS OF THE APPLICANT
1.1 Name of the Applicant:
1.2 (A) Address - Principal Place of business / Registered Office of the Company.
Pin code: ______________________ Telephone No:________________
Telex No:______________________Fax No:______________________
(B) Address for Correspondence:
Pin code:______________________Telephone No:________________
Telex No:______________________Fax No:______________________
(C) Address of Branch Offices:
2. ORGANISATION STRUCTURE
(Organisation Chart separately showing functional responsibilities of Merchant Banking activities to be enclosed).
2.1 Objectives:-
(To be given in brief along with copy of Memorandum and Articles of Association).
2.2 Date and Place of Incorporation:
Day Month Year Place
2.3 Status of the Applicant:
(e.g. limited company - Private/Public, unlimited company, partnership, proprietary, others. If listed, names of Stock Exchanges and latest share price to be given).
2.4 Particulars of all Directors/Partners/Proprietors:-
Name
Qualification
Experience in Merchant Banking &
Financial Services related areas
Share in applicants firm company
Directorship in other companies
2.5 Particulars of Key Management Personnel: (Particulars of merchant banking division)
Name
Qualification
Experience with particular
reference to merchant banking
Date of appointment
Functional areas
2.6 Name and activities of associate companies/concerns
Name of Company
Address/firm
Type of activity handled
Nature of Interest of Promoter/Director
Nature and interest of applicant company
3. BUSINESS INFORMATION
3.1 History, major events and present activities:
3.2 Details of Experience in Merchant Banking activities.
3.3 Experience in other financial services rendered:-
3.4 Business handled during the last three years:
a) Issue Management
Name of client
Type of Issue
Size of Issue
Year of Issue
Times subscribed
Name of lead merchant banker
Functional responsibilities
b) Investment Adviser: -
Name of Client Year for which services are rendered
Nature of services rendered
c) Underwriting
Name of client Type and size
Amount underwritten of Issue
% age of issue under Year of Issue
Whether there was any devolvement written
d) Portfolio Management
Name of Scheme
Features of the Scheme
Number of Clients
Total Volume of Funds managed
Average Returns
e) Consultants/Advisors to the Issue
Name of the Client
Year of Issue
Type and Size of Issue
Nature of services rendered
Name of Lead Merchant Banker(s)
4. CLIENT INFORMATION
4.1 List of major clients with address
Name
Services Rendered
4.2 If the applicant is proposing to engage in Merchant Banking activities for the first time, the experience of key management personnel to be indicated.
Name of Key management personnel
Qualification
Previous positions held
Experience particularly in respect of merchant banking activities
4.2 (a) If the applicant is proposing to engage in Merchant Banking activities for the first time, business plan of the company with projected volume of activities and income for which registration is sought to be specifically given.
4.3 Details of infrastructure including computing facilities, equity research and database available with the applicant.
4.4 Any other information considered relevant to the nature of services rendered by the applicant.
5. FINANCIAL INFORMATION
5.1 Capital Structure (Rs. in lakhs)
Year prior to the preceding year of current year Preceding year Current year
a) Paid-up capital
b) Free reserves
(excluding re- valuation reserves)
c) Total (a) + (b)
Note: - 1. In case of partnership or proprietary concerns, please indicate capital minus drawings.
2. In case of partnership or proprietary concerns, please indicate the financial position, means and networth of the partners.
5.2 Deployment of Resources (Rs. in lakhs)
Year prior to the preceding year of current year Preceding year Current year
(a) Fixed Assets
(b) Plant & Machinery and
Office Equipment
(c) Quoted Investments
(d) Unquoted Investments
(e) Details of Liquid Assets
(f) Others
(Details of Investments, Loans & Advances made to Associate Companies/ firms where Promoters/ Directors have an interest be separately given).
5.3 Major Sources of Income: (Rs. in lakhs)
Year prior to the preceding year of current year Preceding year Current year *Fees charged as % of issue
(a) Issue Management
(b) Underwriting
(c) Portfolio Management
(d) Consultant/ Advisor to Issue
(e) Investment Adviser
(f) Others
*As fees charged by the merchant banker may vary from issue to issue, please indicate range within which fees have been charged.
5.4 Net Profit
Year prior to the preceding year of current year Preceding year Current year
5. 5 Dividend
Year prior to the preceding year of current year Preceding year Current year
Amount
Percentage
Note: Please enclose three years of audited annual accounts. Where unaudited reports are submitted, give reasons. If minimum networth requirement has been met after last audited annual accounts, audited statement of accounts of a later date also be submitted.
5.6 List of major shareholders (holding 5% and above of applicant directly or along with associates - applicable only to limited companies)
Shareholding as on: ______________________________
Name of shareholder
No. of Shares held
% age of total paid up capital of the company
5.7 Name and Address of the Principal bankers of the applicant.
5.8 Name and address of the Auditors.
6. OTHER INFORMATION
6.1 Details of all settled and pending disputes:
Nature of dispute Name of the party Pending/settled.
6.2 Indictment of involvement in any economic offences by the applicant or any of the Directors, or key managerial Personnel in the last three years.
DECLARATION
THIS DECLARATION MUST BE SIGNED BY TWO DIRECTORS, TWO PARTNERS OR THE SOLE PROPRIETOR AS THE CASE MAY BE
I/We hereby apply for registration. I/We warrant that I/We have truthfully and fully answered the questions above and provided all the information which might reasonably be considered relevant for the purposes of my registration. I/We declare that the information supplied in the application form is complete and correct.
For and on behalf of ------------------------------------------ (Name of Applicant)
Director/Partner or Sole Proprietor Director/Partner ___________________
(Name in Block Letters) (Name in Block Letters) _______________________
Date
FORM B
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
(REGULATION 8
CERTIFICATE OF REGISTRATION
In exercise of the powers conferred by sub-section (1) of section 12 of the Securities and Exchange Board of India Act, 1992, read with the rules and regulations made thereunder the Board hereby grants a certificate of registration to ______________________________ as a merchant banker in Category I 28*[***] subject to the conditions in the rules and in accordance with the regulations to carry out the following activities: -
1. Management of any issue, including preparation of prospectus, gathering information relating to the Issue, determining financing structure, tie up of financiers, final allotment and refund of excess application money.
2. Investment Advisor.
29*[******]
[******]
5. Managers, Consultant or Adviser to any issue including corporate advisory services.
6. Consultant or Advisor.
(*Delete whichever are not applicable)
II. Registration Code for the merchant banker is MB / / /
III. This certificate shall be valid from _____________ to _________ and may be renewed as specified in regulation 9 of Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992.
Place
Date
By Order
Sd/-
For and on behalf of Securities and Exchange Board of India
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FORM C
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
(REGULATION 23)
DUE DILIGENCE CERTIFICATE
To,
SECURITIES AND EXCHANGE BOARD OF INDIA
Dear Sirs,
SUB: ISSUE OF ____________________ BY _______________________ LTD.
We, the undernoted Lead Manager(s) to the above mentioned forthcoming issue state as follows:
1. We have while finalising the draft prospectus/letter of offer pertaining to the said issue have examined various documents and other material as for adequate disclosures to the investor;
2. On the basis of such examination and the discussions with the company, its directors and other officers, other agencies, independent verification of the statements concerning objects of the issue the contents of the documents and other material furnished by the company, WE CONFIRM that:
(a) the draft prospectus/letter of offer forwarded to SEBI is in conformity with the documents, materials and papers relevant to the issue;
(b) all the legal requirements connected with the said issue have been duly complied with; and
(c) the disclosures made in the draft prospectus/letter of offer are true, fair and adequate to enable the investors to make a well informed decision as to the investment in the proposed issue.
PLACE:
DATE:
LEAD MANAGER (S) TO THE ISSUE
N. B. A list of documents and materials examined may be forwarded along with this certificate.
Foot notes
28. The figures "II/III/IV" after the word "Category I" and before the words "subject to the conditions" in paragraph 1 in Form A of Schedule I were deleted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.
29. The words "3. Underwriting of Issue" and "4. Portfolio Manager Service" after the words "1. Investment Adviser" in paragraph 1 in Form B of Schedule I were deleted by the SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.
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SCHEDULE II
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
(REGULATION 12)
FEES
30*1. Every merchant banker shall pay a sum of Rupees five lacs as registration fees at the time of the grant of certificate by the Board.
2. A merchant banker to keep registration in force shall pay renewal fee of Rs 2. 5 lacs every three years from the fourth year from the date of initial registration.
3. (a) The fee referred to in PARAGRAPH 1 shall be paid by the merchant banker within fifteen days from the date of receipt of the intimation from the Board under sub-regulation (1) of regulation 8
(b) The fee referred to in paragraph 2 shall be paid by the merchant banker within fifteen days from the date of receipt of intimation from the Board under sub-regulation (3) of regulation 9.
4. The fees specified in paragraphs1 and 2 shall be payable by merchant banker by a demand draft in favour of ?Securities and Exchange Board of India? payable at Mumbai or at the respective regional office."]
Foot notes
30. Following paragraphs 1, 2, 3 and 4 were substituted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 30.09.1999.
"1. Every Merchant bankers shall subject to paragraphs 3 and 4 of this Schedule pay registration fees as set out below:
(a) Category I merchant banker.
A sum of Rs 2.5 lakhs to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 1 lakh to keep his registration in force;
(b) Category II Merchant banker
A sum of Rs 1.5 lakhs to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 50,000 to keep his registration in force;
(c) Category III Merchant bankers
A sum of Rs 1 lakh to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 25,000 to keep his registration in force;
(d) Category IV Merchant bankers
A sum of Rs 5,000/- to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 1000/- to keep his registration in force.
(2) Renewal fees to be paid by the Merchant banker.
(a) Category I merchant bankers
A sum of Rs 1 lakh to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 20,000 to keep his registration in force;
(b) Category II Merchant bankers
A sum of Rs 75,000/- to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 10,000 to keep his registration in force;
(c) Category III Merchant bankers
A sum of Rs 50,000/- to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 5,000 to keep his registration in force;
(d) Category IV Merchant bankers
A sum of Rs 5,000/- to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 2, 500 to keep his registration in force;
a*(3) The fees specified in paragraphs 1 and 2 above shall be paid in the following manner namely: -
(a) First installment is to be paid within 15 days from the date of intimation from the Board under regulation 8.
(b) Subsequent installments including the renewal fee to be paid on or before expiry of 12 months of each year of registration beginning from date of grant of such registration.
a. Following para 3 was substituted
The Fees specified in paragraphs 1 and 2 above, shall be payable by draft in favour of "Securities and Exchange Board of India " at Bombay or at the respective regional office.
The above para 3 originally read as follows which was substituted by SEBI (Payment of Fees) Amendment Regulations, 1995 by notification no S.O. 939 (E) dated 28.11.95.
The Fees specified in paragraphs 1 and 2 above, shall be payable by a cheque or draft in favour of "Securities and Exchange Board of India " at Bombay or at the respective regional office.
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31*[Schedule III
Securities and Exchange Board of India
(Merchant Bankers) Regulations, 1992
[Regulation 13]
CODE OF CONDUCT FOR MERCHANT BANKERS
A Merchant Banker shall make all efforts to protect the interests of investors.
A Merchant Banker shall maintain high standards of integrity, dignity and fairness in the conduct of its business.
A Merchant Banker shall fulfill its obligations in a prompt, ethical, and professional manner.
A Merchant Banker shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment.
A Merchant Banker shall endeavor to ensure that-
inquiries from investors are adequately dealt with;
grievances of investors are redressed in a timely and appropriate manner;
where a complaint is not remedied promptly, the investor is advised of any further steps which may be available to the investor under the regulatory system.
A Merchant Banker shall ensure that adequate disclosures are made to the investors in a timely manner in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed decision.
A Merchant Banker shall endeavor to ensure that the investors are provided with true and adequate information without making any misleading or exaggerated claims or any misrepresentation and are made aware of the attendant risks before taking any investment decision.
A Merchant Banker shall endeavor to ensure that copies of the prospectus, offer document, letter of offer or any other related literature is made available to the investors at the time of issue or the offer.
A Merchant Banker shall not discriminate amongst its clients, save and except on ethical and commercial considerations.
A Merchant Banker shall not make any statement, either oral or written, which would misrepresent the services that the Merchant Banker is capable of performing for any client or has rendered to any client.
A Merchant Banker shall avoid conflict of interest and make adequate disclosure of its interest.
A Merchant Banker shall put in place a mechanism to resolve any conflict of interest situation that may arise in the conduct of its business or where any conflict of interest arises, shall take reasonable steps to resolve the same in an equitable manner.
A Merchant Banker shall make appropriate disclosure to the client of its possible source or potential areas of conflict of duties and interest while acting as Merchant Banker which would impair its ability to render fair, objective and unbiased services.
A Merchant Banker shall always endeavor to render the best possible advice to the clients having regard to their needs.
A Merchant Banker shall not divulge to anybody either orally or in writing, directly or indirectly, any confidential information about its clients which has come to its knowledge, without taking prior permission of its clients, except where such disclosures are required to be made in compliance with any law for the time being in force.
A Merchant Banker shall ensure that any change in registration status / any penal action taken by the Board or any material change in the Merchant Banker?s financial status, which may adversely affect the interests of clients / investors is promptly informed to the clients and any business remaining outstanding is transferred to another registered intermediary in accordance with any instructions of the affected clients.
A Merchant Banker shall not indulge in any unfair competition, such as weaning away the clients on assurance of higher premium or advantageous offer price or which is likely to harm the interests of other Merchant Bankers or investors or is likely to place such other Merchant Bankers in a disadvantageous position while competing for or executing any assignment.
A Merchant Banker shall maintain arms length relationship between its merchant banking activity and any other activity.
A Merchant Banker shall have internal control procedures and financial and operational capabilities which can be reasonably expected to protect its operations, its clients, investors and other registered entities from financial loss arising from theft, fraud, and other dishonest acts, professional misconduct or omissions.
A Merchant Banker shall not make untrue statement or suppress any material fact in any documents, reports or information furnished to the Board.
A Merchant Banker shall maintain an appropriate level of knowledge and competence and abide by the provisions of the Act, regulations made thereunder, circulars and guidelines, which may be applicable and relevant to the activities carried on by it. The merchant banker shall also comply with the award of the Ombudsman passed under Securities and Exchange Board of India (Ombudsman) Regulations, 2003.
A Merchant Banker shall ensure that the Board is promptly informed about any action, legal proceedings etc., initiated against it in respect of material breach or non compliance by it, of any law, rules, regulations, directions of the Board or of any other regulatory body.
(a) A Merchant Banker or any of its employees shall not render, directly or indirectly, any investment advice about any security in any publicly accessible media, whether real-time or non real-time, unless a disclosure of his interest including a long or short position, in the said security has been made, while rendering such advice.
(b) In the event of an employee of the Merchant Banker rendering such advice, the merchant banker shall ensure that such employee shall also disclose the interests, if any, of himself, his dependent family members and the employer merchant banker, including their long or short position in the said security, while rendering such advice.
A Merchant Banker shall demarcate the responsibilities of the various intermediaries appointed by it clearly so as to avoid any conflict or confusion in their job description.
A Merchant Banker shall provide adequate freedom and powers to its compliance officer for the effective discharge of the compliance officer?s duties.
A Merchant Banker shall develop its own internal code of conduct for governing its internal operations and laying down its standards of appropriate conduct for its employees and officers in carrying out their duties. Such a code may extend to the maintenance of professional excellence and standards, integrity, confidentiality, objectivity, avoidance or resolution of conflict of interests, disclosure of shareholdings and interests etc.
A Merchant Banker shall ensure that good corporate policies and corporate governance are in place.
A Merchant Banker shall ensure that any person it employs or appoints to conduct business is fit and proper and otherwise qualified to act in the capacity so employed or appointed (including having relevant professional training or experience)
A Merchant Banker shall ensure that it has adequate resources to supervise diligently and does supervise diligently persons employed or appointed by it in the conduct of its business, in respect of dealings in securities market.
A Merchant Banker shall be responsible for the acts or omissions of its employees and agents in respect of the conduct of its business.
A Merchant Banker shall ensure that the senior management, particularly decision makers have access to all relevant information about the business on a timely basis.
A Merchant Banker shall not be a party to or instrumental for -
creation of false market;
price rigging or manipulation or;
passing of unpublished price sensitive information in respect of securities which are listed and proposed to be listed in any stock exchange to any person or intermediary in the securities market.
Foot notes
31. Following Schedule III was substituted by SEBI (Merchant Banker) (Amendment) Regulations, 2003 published in the Official Gazette of India dated 01.10.2003.
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SCHEDULE III
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
CODE OF CONDUCT FOR MERCHANT BANKERS
(REGULATION 13)
1. A merchant banker in the conduct of his business shall observe high standards of integrity and fairness in all his dealings with his clients and other merchant bankers.
2. A merchant banker shall render at all times high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgement.
He shall wherever necessary, disclose to the clients, possible sources of conflict of duties and interests, while providing unbiased services.
3. A merchant banker shall not make any statement or become privy to any act, practice or unfair competition, which is likely to be harmful to the interests of other merchant bankers or is likely to place such other merchant bankers in a disadvantageous position in relation to the merchant banker, while competing for or executing any assignment.
4. A merchant banker shall not make any exaggerated statement, whether oral or written, to the client either about the qualification or the capability to render certain services or his achievements in regard to services rendered to other clients.
5. A merchant banker shall always endeavour to -
a. render the best possible advice to the clients having regard to the clients' needs and the environments and his own professional skill; and
b. ensure that all professional dealings are effected in a prompt, efficient and cost effective manner.
6.A merchant banker shall not -
a. divulge to other clients, press or any other party any confidential information about his client, which has come to his knowledge; and
b. deal in securities of any client company without making disclosure to the Board as required under the regulations and also to the Board of Directors of the client company.
7.A merchant banker shall endeavour to ensure that -
a. the investors are provided with true and adequate information without making any misguiding or exaggerated claims and are made aware of attendant risks before any investment decision is taken by them;
b. copies of prospectus, memorandum and related literature are made to the investors;
c. adequate steps are taken for fair allotment of securities and refund of application money without delay; and
d. complaints from investors are adequately dealt with.
8.The merchant bankers shall not generally and particularly in respect of issue of any securities be party to -
a. creation of false market;
b. price rigging or manipulation;
c. passing of price sensitive information to brokers, members of the stock exchanges and other players in the capital market or take any other action which is unethical or unfair to the investors.
a*[8A (a) A merchant banker or any of his employees shall not render, directly or indirectly, any investment advice about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of his interest including long or short position in the said security has been made, while rendering such advice.
(b) In case, an employee of the merchant banker is rendering such advice, he shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice.]
9. A merchant banker shall abide by the provisions of the Act, rules and regulations and which may be applicable and relevant to the activities carried on by the merchant banker.
a. Paragraph 8A in Schedule III was inserted by SEBI (Investment advice by Intermediaries) (Amendment) Regulations, 2001 published in the Official Gazette of India dated 29.05.2001.
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32*[SCHEDULE IV
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) (AMENDMENT) REGULATIONS, 1996
(SEE REGULAITON 24A)
1. Every merchant banker shall pay fees as set out below:
Size of the issue including premium and intended retention of over subscription
(Rs.) Proposed Fee per document (Rs.)
Upto 5 crores 10, 000
More than 5 crores and upto 10 crores 15, 000
More than 10 crores and upto 50 crores 25, 000
More than 50 crores and upto 100 crores 50, 000
More than 100 crores and upto 500 crores 2, 50, 000
More than 500 crores 5, 00, 000
2. Fees referred to in clause (1) above, shall be paid in the following manner:
a. The fees shall be paid along with the draft of the offer document submitted to the Board under regulation 24
b. The fees shall be payable by a draft in favour of `Securities and Exchange Board of India' at Mumbai or at the respective regional offices where the draft offer document under regulation 24 is submitted.
Foot notes
32. Schedule IV was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.
For any clarification and latest updated versions visit http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5
SCHEDULE I - FORMS
FORM A
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
(REGULATION 3)
APPLICATION FOR GRANT OF CERTIFICATE /
RENEWAL OF CERTIFICATE
ADDITIONAL INFORMATION FOR FRESH REGISTRATION
NAME OF APPLICANT
CATEGORY:
CONTACT NAME ______________________
TELEPHONE NO: _____________________
INSTRUCTIONS FOR FILLING UP FORM
1. It is important that this application form should be filled in accordance with the regulations.
2. Applicants must submit a completed application form together with appropriate supporting documents to the Board.
3. Application for registration will be considered provided it is complete in all respects.
4. Answers must be typed.
5.All signatures must be original.
6.Information which needs to be supplied in more details may be given on separate sheets which should be attached to the application form.
1. PARTICULARS OF THE APPLICANT
1.1 Name of the Applicant:
1.2 (A) Address - Principal Place of business / Registered Office of the Company.
Pin code: ______________________ Telephone No:________________
Telex No:______________________Fax No:______________________
(B) Address for Correspondence:
Pin code:______________________Telephone No:________________
Telex No:______________________Fax No:______________________
(C) Address of Branch Offices:
2. ORGANISATION STRUCTURE
(Organisation Chart separately showing functional responsibilities of Merchant Banking activities to be enclosed).
2.1 Objectives:-
(To be given in brief along with copy of Memorandum and Articles of Association).
2.2 Date and Place of Incorporation:
Day Month Year Place
2.3 Status of the Applicant:
(e.g. limited company - Private/Public, unlimited company, partnership, proprietary, others. If listed, names of Stock Exchanges and latest share price to be given).
2.4 Particulars of all Directors/Partners/Proprietors:-
Name
Qualification
Experience in Merchant Banking &
Financial Services related areas
Share in applicants firm company
Directorship in other companies
2.5 Particulars of Key Management Personnel: (Particulars of merchant banking division)
Name
Qualification
Experience with particular
reference to merchant banking
Date of appointment
Functional areas
2.6 Name and activities of associate companies/concerns
Name of Company
Address/firm
Type of activity handled
Nature of Interest of Promoter/Director
Nature and interest of applicant company
3. BUSINESS INFORMATION
3.1 History, major events and present activities:
3.2 Details of Experience in Merchant Banking activities.
3.3 Experience in other financial services rendered:-
3.4 Business handled during the last three years:
a) Issue Management
Name of client
Type of Issue
Size of Issue
Year of Issue
Times subscribed
Name of lead merchant banker
Functional responsibilities
b) Investment Adviser: -
Name of Client Year for which services are rendered
Nature of services rendered
c) Underwriting
Name of client Type and size
Amount underwritten of Issue
% age of issue under Year of Issue
Whether there was any devolvement written
d) Portfolio Management
Name of Scheme
Features of the Scheme
Number of Clients
Total Volume of Funds managed
Average Returns
e) Consultants/Advisors to the Issue
Name of the Client
Year of Issue
Type and Size of Issue
Nature of services rendered
Name of Lead Merchant Banker(s)
4. CLIENT INFORMATION
4.1 List of major clients with address
Name
Services Rendered
4.2 If the applicant is proposing to engage in Merchant Banking activities for the first time, the experience of key management personnel to be indicated.
Name of Key management personnel
Qualification
Previous positions held
Experience particularly in respect of merchant banking activities
4.2 (a) If the applicant is proposing to engage in Merchant Banking activities for the first time, business plan of the company with projected volume of activities and income for which registration is sought to be specifically given.
4.3 Details of infrastructure including computing facilities, equity research and database available with the applicant.
4.4 Any other information considered relevant to the nature of services rendered by the applicant.
5. FINANCIAL INFORMATION
5.1 Capital Structure (Rs. in lakhs)
Year prior to the preceding year of current year Preceding year Current year
a) Paid-up capital
b) Free reserves
(excluding re- valuation reserves)
c) Total (a) + (b)
Note: - 1. In case of partnership or proprietary concerns, please indicate capital minus drawings.
2. In case of partnership or proprietary concerns, please indicate the financial position, means and networth of the partners.
5.2 Deployment of Resources (Rs. in lakhs)
Year prior to the preceding year of current year Preceding year Current year
(a) Fixed Assets
(b) Plant & Machinery and
Office Equipment
(c) Quoted Investments
(d) Unquoted Investments
(e) Details of Liquid Assets
(f) Others
(Details of Investments, Loans & Advances made to Associate Companies/ firms where Promoters/ Directors have an interest be separately given).
5.3 Major Sources of Income: (Rs. in lakhs)
Year prior to the preceding year of current year Preceding year Current year *Fees charged as % of issue
(a) Issue Management
(b) Underwriting
(c) Portfolio Management
(d) Consultant/ Advisor to Issue
(e) Investment Adviser
(f) Others
*As fees charged by the merchant banker may vary from issue to issue, please indicate range within which fees have been charged.
5.4 Net Profit
Year prior to the preceding year of current year Preceding year Current year
5. 5 Dividend
Year prior to the preceding year of current year Preceding year Current year
Amount
Percentage
Note: Please enclose three years of audited annual accounts. Where unaudited reports are submitted, give reasons. If minimum networth requirement has been met after last audited annual accounts, audited statement of accounts of a later date also be submitted.
5.6 List of major shareholders (holding 5% and above of applicant directly or along with associates - applicable only to limited companies)
Shareholding as on: ______________________________
Name of shareholder
No. of Shares held
% age of total paid up capital of the company
5.7 Name and Address of the Principal bankers of the applicant.
5.8 Name and address of the Auditors.
6. OTHER INFORMATION
6.1 Details of all settled and pending disputes:
Nature of dispute Name of the party Pending/settled.
6.2 Indictment of involvement in any economic offences by the applicant or any of the Directors, or key managerial Personnel in the last three years.
DECLARATION
THIS DECLARATION MUST BE SIGNED BY TWO DIRECTORS, TWO PARTNERS OR THE SOLE PROPRIETOR AS THE CASE MAY BE
I/We hereby apply for registration. I/We warrant that I/We have truthfully and fully answered the questions above and provided all the information which might reasonably be considered relevant for the purposes of my registration. I/We declare that the information supplied in the application form is complete and correct.
For and on behalf of ------------------------------------------ (Name of Applicant)
Director/Partner or Sole Proprietor Director/Partner ___________________
(Name in Block Letters) (Name in Block Letters) _______________________
Date
FORM B
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
(REGULATION 8
CERTIFICATE OF REGISTRATION
In exercise of the powers conferred by sub-section (1) of section 12 of the Securities and Exchange Board of India Act, 1992, read with the rules and regulations made thereunder the Board hereby grants a certificate of registration to ______________________________ as a merchant banker in Category I 28*[***] subject to the conditions in the rules and in accordance with the regulations to carry out the following activities: -
1. Management of any issue, including preparation of prospectus, gathering information relating to the Issue, determining financing structure, tie up of financiers, final allotment and refund of excess application money.
2. Investment Advisor.
29*[******]
[******]
5. Managers, Consultant or Adviser to any issue including corporate advisory services.
6. Consultant or Advisor.
(*Delete whichever are not applicable)
II. Registration Code for the merchant banker is MB / / /
III. This certificate shall be valid from _____________ to _________ and may be renewed as specified in regulation 9 of Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992.
Place
Date
By Order
Sd/-
For and on behalf of Securities and Exchange Board of India
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FORM C
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
(REGULATION 23)
DUE DILIGENCE CERTIFICATE
To,
SECURITIES AND EXCHANGE BOARD OF INDIA
Dear Sirs,
SUB: ISSUE OF ____________________ BY _______________________ LTD.
We, the undernoted Lead Manager(s) to the above mentioned forthcoming issue state as follows:
1. We have while finalising the draft prospectus/letter of offer pertaining to the said issue have examined various documents and other material as for adequate disclosures to the investor;
2. On the basis of such examination and the discussions with the company, its directors and other officers, other agencies, independent verification of the statements concerning objects of the issue the contents of the documents and other material furnished by the company, WE CONFIRM that:
(a) the draft prospectus/letter of offer forwarded to SEBI is in conformity with the documents, materials and papers relevant to the issue;
(b) all the legal requirements connected with the said issue have been duly complied with; and
(c) the disclosures made in the draft prospectus/letter of offer are true, fair and adequate to enable the investors to make a well informed decision as to the investment in the proposed issue.
PLACE:
DATE:
LEAD MANAGER (S) TO THE ISSUE
N. B. A list of documents and materials examined may be forwarded along with this certificate.
Foot notes
28. The figures "II/III/IV" after the word "Category I" and before the words "subject to the conditions" in paragraph 1 in Form A of Schedule I were deleted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.
29. The words "3. Underwriting of Issue" and "4. Portfolio Manager Service" after the words "1. Investment Adviser" in paragraph 1 in Form B of Schedule I were deleted by the SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.
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SCHEDULE II
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
(REGULATION 12)
FEES
30*1. Every merchant banker shall pay a sum of Rupees five lacs as registration fees at the time of the grant of certificate by the Board.
2. A merchant banker to keep registration in force shall pay renewal fee of Rs 2. 5 lacs every three years from the fourth year from the date of initial registration.
3. (a) The fee referred to in PARAGRAPH 1 shall be paid by the merchant banker within fifteen days from the date of receipt of the intimation from the Board under sub-regulation (1) of regulation 8
(b) The fee referred to in paragraph 2 shall be paid by the merchant banker within fifteen days from the date of receipt of intimation from the Board under sub-regulation (3) of regulation 9.
4. The fees specified in paragraphs1 and 2 shall be payable by merchant banker by a demand draft in favour of ?Securities and Exchange Board of India? payable at Mumbai or at the respective regional office."]
Foot notes
30. Following paragraphs 1, 2, 3 and 4 were substituted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 30.09.1999.
"1. Every Merchant bankers shall subject to paragraphs 3 and 4 of this Schedule pay registration fees as set out below:
(a) Category I merchant banker.
A sum of Rs 2.5 lakhs to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 1 lakh to keep his registration in force;
(b) Category II Merchant banker
A sum of Rs 1.5 lakhs to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 50,000 to keep his registration in force;
(c) Category III Merchant bankers
A sum of Rs 1 lakh to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 25,000 to keep his registration in force;
(d) Category IV Merchant bankers
A sum of Rs 5,000/- to be paid annually for the first two years commencing from the date of initial registration and thereafter for the third year a sum of Rs 1000/- to keep his registration in force.
(2) Renewal fees to be paid by the Merchant banker.
(a) Category I merchant bankers
A sum of Rs 1 lakh to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 20,000 to keep his registration in force;
(b) Category II Merchant bankers
A sum of Rs 75,000/- to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 10,000 to keep his registration in force;
(c) Category III Merchant bankers
A sum of Rs 50,000/- to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 5,000 to keep his registration in force;
(d) Category IV Merchant bankers
A sum of Rs 5,000/- to be paid annually for the first two years commencing from the date of each renewal and thereafter for the third year a sum of Rs 2, 500 to keep his registration in force;
a*(3) The fees specified in paragraphs 1 and 2 above shall be paid in the following manner namely: -
(a) First installment is to be paid within 15 days from the date of intimation from the Board under regulation 8.
(b) Subsequent installments including the renewal fee to be paid on or before expiry of 12 months of each year of registration beginning from date of grant of such registration.
a. Following para 3 was substituted
The Fees specified in paragraphs 1 and 2 above, shall be payable by draft in favour of "Securities and Exchange Board of India " at Bombay or at the respective regional office.
The above para 3 originally read as follows which was substituted by SEBI (Payment of Fees) Amendment Regulations, 1995 by notification no S.O. 939 (E) dated 28.11.95.
The Fees specified in paragraphs 1 and 2 above, shall be payable by a cheque or draft in favour of "Securities and Exchange Board of India " at Bombay or at the respective regional office.
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31*[Schedule III
Securities and Exchange Board of India
(Merchant Bankers) Regulations, 1992
[Regulation 13]
CODE OF CONDUCT FOR MERCHANT BANKERS
A Merchant Banker shall make all efforts to protect the interests of investors.
A Merchant Banker shall maintain high standards of integrity, dignity and fairness in the conduct of its business.
A Merchant Banker shall fulfill its obligations in a prompt, ethical, and professional manner.
A Merchant Banker shall at all times exercise due diligence, ensure proper care and exercise independent professional judgment.
A Merchant Banker shall endeavor to ensure that-
inquiries from investors are adequately dealt with;
grievances of investors are redressed in a timely and appropriate manner;
where a complaint is not remedied promptly, the investor is advised of any further steps which may be available to the investor under the regulatory system.
A Merchant Banker shall ensure that adequate disclosures are made to the investors in a timely manner in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed decision.
A Merchant Banker shall endeavor to ensure that the investors are provided with true and adequate information without making any misleading or exaggerated claims or any misrepresentation and are made aware of the attendant risks before taking any investment decision.
A Merchant Banker shall endeavor to ensure that copies of the prospectus, offer document, letter of offer or any other related literature is made available to the investors at the time of issue or the offer.
A Merchant Banker shall not discriminate amongst its clients, save and except on ethical and commercial considerations.
A Merchant Banker shall not make any statement, either oral or written, which would misrepresent the services that the Merchant Banker is capable of performing for any client or has rendered to any client.
A Merchant Banker shall avoid conflict of interest and make adequate disclosure of its interest.
A Merchant Banker shall put in place a mechanism to resolve any conflict of interest situation that may arise in the conduct of its business or where any conflict of interest arises, shall take reasonable steps to resolve the same in an equitable manner.
A Merchant Banker shall make appropriate disclosure to the client of its possible source or potential areas of conflict of duties and interest while acting as Merchant Banker which would impair its ability to render fair, objective and unbiased services.
A Merchant Banker shall always endeavor to render the best possible advice to the clients having regard to their needs.
A Merchant Banker shall not divulge to anybody either orally or in writing, directly or indirectly, any confidential information about its clients which has come to its knowledge, without taking prior permission of its clients, except where such disclosures are required to be made in compliance with any law for the time being in force.
A Merchant Banker shall ensure that any change in registration status / any penal action taken by the Board or any material change in the Merchant Banker?s financial status, which may adversely affect the interests of clients / investors is promptly informed to the clients and any business remaining outstanding is transferred to another registered intermediary in accordance with any instructions of the affected clients.
A Merchant Banker shall not indulge in any unfair competition, such as weaning away the clients on assurance of higher premium or advantageous offer price or which is likely to harm the interests of other Merchant Bankers or investors or is likely to place such other Merchant Bankers in a disadvantageous position while competing for or executing any assignment.
A Merchant Banker shall maintain arms length relationship between its merchant banking activity and any other activity.
A Merchant Banker shall have internal control procedures and financial and operational capabilities which can be reasonably expected to protect its operations, its clients, investors and other registered entities from financial loss arising from theft, fraud, and other dishonest acts, professional misconduct or omissions.
A Merchant Banker shall not make untrue statement or suppress any material fact in any documents, reports or information furnished to the Board.
A Merchant Banker shall maintain an appropriate level of knowledge and competence and abide by the provisions of the Act, regulations made thereunder, circulars and guidelines, which may be applicable and relevant to the activities carried on by it. The merchant banker shall also comply with the award of the Ombudsman passed under Securities and Exchange Board of India (Ombudsman) Regulations, 2003.
A Merchant Banker shall ensure that the Board is promptly informed about any action, legal proceedings etc., initiated against it in respect of material breach or non compliance by it, of any law, rules, regulations, directions of the Board or of any other regulatory body.
(a) A Merchant Banker or any of its employees shall not render, directly or indirectly, any investment advice about any security in any publicly accessible media, whether real-time or non real-time, unless a disclosure of his interest including a long or short position, in the said security has been made, while rendering such advice.
(b) In the event of an employee of the Merchant Banker rendering such advice, the merchant banker shall ensure that such employee shall also disclose the interests, if any, of himself, his dependent family members and the employer merchant banker, including their long or short position in the said security, while rendering such advice.
A Merchant Banker shall demarcate the responsibilities of the various intermediaries appointed by it clearly so as to avoid any conflict or confusion in their job description.
A Merchant Banker shall provide adequate freedom and powers to its compliance officer for the effective discharge of the compliance officer?s duties.
A Merchant Banker shall develop its own internal code of conduct for governing its internal operations and laying down its standards of appropriate conduct for its employees and officers in carrying out their duties. Such a code may extend to the maintenance of professional excellence and standards, integrity, confidentiality, objectivity, avoidance or resolution of conflict of interests, disclosure of shareholdings and interests etc.
A Merchant Banker shall ensure that good corporate policies and corporate governance are in place.
A Merchant Banker shall ensure that any person it employs or appoints to conduct business is fit and proper and otherwise qualified to act in the capacity so employed or appointed (including having relevant professional training or experience)
A Merchant Banker shall ensure that it has adequate resources to supervise diligently and does supervise diligently persons employed or appointed by it in the conduct of its business, in respect of dealings in securities market.
A Merchant Banker shall be responsible for the acts or omissions of its employees and agents in respect of the conduct of its business.
A Merchant Banker shall ensure that the senior management, particularly decision makers have access to all relevant information about the business on a timely basis.
A Merchant Banker shall not be a party to or instrumental for -
creation of false market;
price rigging or manipulation or;
passing of unpublished price sensitive information in respect of securities which are listed and proposed to be listed in any stock exchange to any person or intermediary in the securities market.
Foot notes
31. Following Schedule III was substituted by SEBI (Merchant Banker) (Amendment) Regulations, 2003 published in the Official Gazette of India dated 01.10.2003.
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SCHEDULE III
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) REGULATIONS, 1992
CODE OF CONDUCT FOR MERCHANT BANKERS
(REGULATION 13)
1. A merchant banker in the conduct of his business shall observe high standards of integrity and fairness in all his dealings with his clients and other merchant bankers.
2. A merchant banker shall render at all times high standards of service, exercise due diligence, ensure proper care and exercise independent professional judgement.
He shall wherever necessary, disclose to the clients, possible sources of conflict of duties and interests, while providing unbiased services.
3. A merchant banker shall not make any statement or become privy to any act, practice or unfair competition, which is likely to be harmful to the interests of other merchant bankers or is likely to place such other merchant bankers in a disadvantageous position in relation to the merchant banker, while competing for or executing any assignment.
4. A merchant banker shall not make any exaggerated statement, whether oral or written, to the client either about the qualification or the capability to render certain services or his achievements in regard to services rendered to other clients.
5. A merchant banker shall always endeavour to -
a. render the best possible advice to the clients having regard to the clients' needs and the environments and his own professional skill; and
b. ensure that all professional dealings are effected in a prompt, efficient and cost effective manner.
6.A merchant banker shall not -
a. divulge to other clients, press or any other party any confidential information about his client, which has come to his knowledge; and
b. deal in securities of any client company without making disclosure to the Board as required under the regulations and also to the Board of Directors of the client company.
7.A merchant banker shall endeavour to ensure that -
a. the investors are provided with true and adequate information without making any misguiding or exaggerated claims and are made aware of attendant risks before any investment decision is taken by them;
b. copies of prospectus, memorandum and related literature are made to the investors;
c. adequate steps are taken for fair allotment of securities and refund of application money without delay; and
d. complaints from investors are adequately dealt with.
8.The merchant bankers shall not generally and particularly in respect of issue of any securities be party to -
a. creation of false market;
b. price rigging or manipulation;
c. passing of price sensitive information to brokers, members of the stock exchanges and other players in the capital market or take any other action which is unethical or unfair to the investors.
a*[8A (a) A merchant banker or any of his employees shall not render, directly or indirectly, any investment advice about any security in the publicly accessible media, whether real-time or non-real-time, unless a disclosure of his interest including long or short position in the said security has been made, while rendering such advice.
(b) In case, an employee of the merchant banker is rendering such advice, he shall also disclose the interest of his dependent family members and the employer including their long or short position in the said security, while rendering such advice.]
9. A merchant banker shall abide by the provisions of the Act, rules and regulations and which may be applicable and relevant to the activities carried on by the merchant banker.
a. Paragraph 8A in Schedule III was inserted by SEBI (Investment advice by Intermediaries) (Amendment) Regulations, 2001 published in the Official Gazette of India dated 29.05.2001.
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32*[SCHEDULE IV
SECURITIES AND EXCHANGE BOARD OF INDIA
(MERCHANT BANKERS) (AMENDMENT) REGULATIONS, 1996
(SEE REGULAITON 24A)
1. Every merchant banker shall pay fees as set out below:
Size of the issue including premium and intended retention of over subscription
(Rs.) Proposed Fee per document (Rs.)
Upto 5 crores 10, 000
More than 5 crores and upto 10 crores 15, 000
More than 10 crores and upto 50 crores 25, 000
More than 50 crores and upto 100 crores 50, 000
More than 100 crores and upto 500 crores 2, 50, 000
More than 500 crores 5, 00, 000
2. Fees referred to in clause (1) above, shall be paid in the following manner:
a. The fees shall be paid along with the draft of the offer document submitted to the Board under regulation 24
b. The fees shall be payable by a draft in favour of `Securities and Exchange Board of India' at Mumbai or at the respective regional offices where the draft offer document under regulation 24 is submitted.
Foot notes
32. Schedule IV was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.
For any clarification and latest updated versions visit http://www.sebi.gov.in/Index.jsp?contentDisp=SubSection&sec_id=5&sub_sec_id=5
Monday, December 17, 2007
IB-PS Introduction
I use the text book by Pratap Subrahmaniam for the course on Investment Banking. This online basic support material for students and aspiring professionals is structured on the basis of chapter scheme of this book. Basic steps and rules are provided in various chapters. For details, the text book and the relevant regulations issued by SEBI are to be studied.
Ib-Ps Ch. 5 IPOs
Important Regulatory Provisions for an IPO
The minimum post nominal value of equity capital of the company shall be Rs. 10 crore.
OR
Compulsory market making for at least 2 years from date of listing of of share subject to following condition
Market Makers should offer to buy or sell quotes for a minimum of 300 shares.
Market maker to ensure bid-ask spread for their quotes shall not exceed 10% any time.
Inventory of market makers on each of stock exchange as on the date of allotment of securities, shall be atleast 5% of the proposed issue of the company.
Additional Conditions
IPOs shall not be deemed successful and company shall not make allotment pursuant to IPO unless prospective allottees under the IPO are not less than 1000 in number.
No unlisted company shall make a public issue or equity shares or convertibles if there are any outstanding financial instruments or rights that would entitle existing shareholders to additional equity shares after IPO. Similarly no partly paid shares shall be subsisting as on the date of IPO.
IPOs shall not be deemed successful and company shall not make allotment pursuant to IPO unless prospective allottees under the IPO are not less than 1000 in number.
No unlisted company shall make a public issue or equity shares or convertibles if there are any outstanding financial instruments or rights that would entitle existing shareholders to additional equity shares after IPO. Similarly no partly paid shares shall be subsisting as on the date of IPO.
An infrastructure company may go public even if it does not satisfy the above criteria if it has been appraised and / or funded by one or more of a public financial institution or IDFC or IL&FS or a bank which was formerly a public financial institution to the extent of at least 5% of the project cost either as a loan or equity or both.
NO company shall make an IPO unless firm arrangements of finance through verifiable means towards 75% of stated means of finance excluding the amount to be raised through proposed issue, have been made.
There is a cap on companies making retail issue with high premia. Under free pricing regime, there is a tendency on the part of the issuers to make high priced issue. If such issue are allowed to go through 100% retail route, there wouldn’t be any price validation. Share price of such issue will come down after listing due to lack of buyer support.
Additional Conditions for Issue of Convertibles
An unlisted company may make an IPO through a convertible instrument even without having to make a pure equity offer and getting shares listed initially. Other than satisfying above criteria, it has to comply with additional conditions.
Promoters Contribution
SEBI has also introduced the concept of minimum promoters’ contribution to be present in the companies going public so that they become interested parties in preserving the interest of the shareholders. In terms of DIP Guidelines, the following are the main provisions that apply to promoters’ contribution in case of IPOs.
Firm Allotments and Reservations
Allotment and Reservation are tools for pre-marketing a sizable part of issue thereby bringing down the risk of the issue.
Allotment – Investor or category of investor are approached by lead manager or the issuer company to subscribe the issue on a firm basis. ‘FIRM’ - ability to get same quantity as subscribed for in full. Investors have to make commitment to bring in their firm subscription even before issue is floated. This indicates the offer document showing certain amount of share being set aside for such investors, balance available for public subscription.
Reservation - It’s a modification of allotment, where allotment is done on competitive basis among certain category of investors. Reservation is without any prior commitments. If there is an over-subscription, then allotment happens on pro-rata basis.
Permanent Employees (not exceeding 10% of issue size), shareholders of group companies (not exceeding 10%, no firm allotments), mutual funds, Foreign Institutional Investors, Banks and Financial Institution and Multilateral Institution are category of person which are eligible for allotment or reservation.
Provisions of allotment and reservation for public issue Refer Page 233
Lock-in of Shares
Concept of Lock-in of promoters’ share and other share capital is for purpose of preventing such shareholders in making an unfair gains or exits from company and also for providing stabilization period for company’s post-script issue.
Provisions of lock-in of promoters’ share and other share capital are provided in
Differential Pricing and Price Band
Any unlisted company making an IPO of equity shares or convertibles may issue such securities to applicants in the firm allotment category at a price different from price at which net offer to the public is made provided that the price at which the security is being offered to the applicants in firm allotment category is higher than the price at which net offer is being made to Indian Public.
A justification has to be furnished in offer document on the price differential for the firm allotment category
The issuer company can mention a price band of 20% (the cap should not be more than the floor by 20%) in the offer documents filed by SEBI and the actual price can be determined at a later date before filing of offer document with ROC (Registrar of Companies)
Other Important Issue Requirements
All new issues shall be in dematerialized form and can also be made through online interface following the necessary guidelines.
The minimum application size shall be worth Rs. 2000 and maximum can be equal to the net public offer. Minimum tradable lot of shares priced up to Rs. 100 for Rs. 100 shares and minimum application money shall be 2.5% of the total amount.
In offer for sale, entire subscription amount shall be bought in at the time of application.
If there are calls on shares , they should be complicated within 12 months of the issue.
Over-subscription of a max number of 10% of the net offer to the public can be retained
Underwriting is optional. Lead Manager makes of 5% or Rs. 25 lakhs, whichever less. Underwriting commission and brokerage on shares should not be exceeded 2.5% and 1.5% respectively as per the guidelines issued by Ministry of Finance.
Safety Net or buy back arrangements can be made with a minimum period of 6 months and for maximum of 1000 shares per allottee.
Issue should be opened within 365 days from the date of SEBI approval or after 21 days of filing with SEBI if no observations are made
Additional Requirements under the Companies Act
Under the provision of Companies Act, no public issue shall be made without the issue of a prospectus or offer document. Section 56 specifies the prospectus contain matter specified in Parts I and II of Schedule II of the Act.
Other section which are applicable are Section 60, 73, 69, 72 to name a few. Every application form inviting subscription from prospective investors shall be accompanied by a Memorandum in Form 2A of the Companies (Central Government’s) General Rules and Forms, 1956. This has been discussed in detail in Page 235, 236
5.5.8 Statutory Requirements under Other Laws
Besides DIP guidelines and Companies Act 1956, the other important statutes that govern public issues are:
SCRA (Securities Contract and Regulation Act)
FEMA (Foreign Exchange Management Act)
Stock Exchange Listing Agreement (BSE, NSE and other Regional Stock Exchanges)
Role of Merchant Banker in issue management
Accepting appointment, MoU and Inter- se allocation of Responsibilities
Issue structuring and pricing
Due Diligence
Preparation of Offer Document
Pre-Issue Compliance
Liaison with SEBI and Stock Exchange
Co-ordination with other functionaries
Issue Marketing
Functions during the Issue
Post Issue Compliance
The minimum post nominal value of equity capital of the company shall be Rs. 10 crore.
OR
Compulsory market making for at least 2 years from date of listing of of share subject to following condition
Market Makers should offer to buy or sell quotes for a minimum of 300 shares.
Market maker to ensure bid-ask spread for their quotes shall not exceed 10% any time.
Inventory of market makers on each of stock exchange as on the date of allotment of securities, shall be atleast 5% of the proposed issue of the company.
Additional Conditions
IPOs shall not be deemed successful and company shall not make allotment pursuant to IPO unless prospective allottees under the IPO are not less than 1000 in number.
No unlisted company shall make a public issue or equity shares or convertibles if there are any outstanding financial instruments or rights that would entitle existing shareholders to additional equity shares after IPO. Similarly no partly paid shares shall be subsisting as on the date of IPO.
IPOs shall not be deemed successful and company shall not make allotment pursuant to IPO unless prospective allottees under the IPO are not less than 1000 in number.
No unlisted company shall make a public issue or equity shares or convertibles if there are any outstanding financial instruments or rights that would entitle existing shareholders to additional equity shares after IPO. Similarly no partly paid shares shall be subsisting as on the date of IPO.
An infrastructure company may go public even if it does not satisfy the above criteria if it has been appraised and / or funded by one or more of a public financial institution or IDFC or IL&FS or a bank which was formerly a public financial institution to the extent of at least 5% of the project cost either as a loan or equity or both.
NO company shall make an IPO unless firm arrangements of finance through verifiable means towards 75% of stated means of finance excluding the amount to be raised through proposed issue, have been made.
There is a cap on companies making retail issue with high premia. Under free pricing regime, there is a tendency on the part of the issuers to make high priced issue. If such issue are allowed to go through 100% retail route, there wouldn’t be any price validation. Share price of such issue will come down after listing due to lack of buyer support.
Additional Conditions for Issue of Convertibles
An unlisted company may make an IPO through a convertible instrument even without having to make a pure equity offer and getting shares listed initially. Other than satisfying above criteria, it has to comply with additional conditions.
Promoters Contribution
SEBI has also introduced the concept of minimum promoters’ contribution to be present in the companies going public so that they become interested parties in preserving the interest of the shareholders. In terms of DIP Guidelines, the following are the main provisions that apply to promoters’ contribution in case of IPOs.
Firm Allotments and Reservations
Allotment and Reservation are tools for pre-marketing a sizable part of issue thereby bringing down the risk of the issue.
Allotment – Investor or category of investor are approached by lead manager or the issuer company to subscribe the issue on a firm basis. ‘FIRM’ - ability to get same quantity as subscribed for in full. Investors have to make commitment to bring in their firm subscription even before issue is floated. This indicates the offer document showing certain amount of share being set aside for such investors, balance available for public subscription.
Reservation - It’s a modification of allotment, where allotment is done on competitive basis among certain category of investors. Reservation is without any prior commitments. If there is an over-subscription, then allotment happens on pro-rata basis.
Permanent Employees (not exceeding 10% of issue size), shareholders of group companies (not exceeding 10%, no firm allotments), mutual funds, Foreign Institutional Investors, Banks and Financial Institution and Multilateral Institution are category of person which are eligible for allotment or reservation.
Provisions of allotment and reservation for public issue Refer Page 233
Lock-in of Shares
Concept of Lock-in of promoters’ share and other share capital is for purpose of preventing such shareholders in making an unfair gains or exits from company and also for providing stabilization period for company’s post-script issue.
Provisions of lock-in of promoters’ share and other share capital are provided in
Differential Pricing and Price Band
Any unlisted company making an IPO of equity shares or convertibles may issue such securities to applicants in the firm allotment category at a price different from price at which net offer to the public is made provided that the price at which the security is being offered to the applicants in firm allotment category is higher than the price at which net offer is being made to Indian Public.
A justification has to be furnished in offer document on the price differential for the firm allotment category
The issuer company can mention a price band of 20% (the cap should not be more than the floor by 20%) in the offer documents filed by SEBI and the actual price can be determined at a later date before filing of offer document with ROC (Registrar of Companies)
Other Important Issue Requirements
All new issues shall be in dematerialized form and can also be made through online interface following the necessary guidelines.
The minimum application size shall be worth Rs. 2000 and maximum can be equal to the net public offer. Minimum tradable lot of shares priced up to Rs. 100 for Rs. 100 shares and minimum application money shall be 2.5% of the total amount.
In offer for sale, entire subscription amount shall be bought in at the time of application.
If there are calls on shares , they should be complicated within 12 months of the issue.
Over-subscription of a max number of 10% of the net offer to the public can be retained
Underwriting is optional. Lead Manager makes of 5% or Rs. 25 lakhs, whichever less. Underwriting commission and brokerage on shares should not be exceeded 2.5% and 1.5% respectively as per the guidelines issued by Ministry of Finance.
Safety Net or buy back arrangements can be made with a minimum period of 6 months and for maximum of 1000 shares per allottee.
Issue should be opened within 365 days from the date of SEBI approval or after 21 days of filing with SEBI if no observations are made
Additional Requirements under the Companies Act
Under the provision of Companies Act, no public issue shall be made without the issue of a prospectus or offer document. Section 56 specifies the prospectus contain matter specified in Parts I and II of Schedule II of the Act.
Other section which are applicable are Section 60, 73, 69, 72 to name a few. Every application form inviting subscription from prospective investors shall be accompanied by a Memorandum in Form 2A of the Companies (Central Government’s) General Rules and Forms, 1956. This has been discussed in detail in Page 235, 236
5.5.8 Statutory Requirements under Other Laws
Besides DIP guidelines and Companies Act 1956, the other important statutes that govern public issues are:
SCRA (Securities Contract and Regulation Act)
FEMA (Foreign Exchange Management Act)
Stock Exchange Listing Agreement (BSE, NSE and other Regional Stock Exchanges)
Role of Merchant Banker in issue management
Accepting appointment, MoU and Inter- se allocation of Responsibilities
Issue structuring and pricing
Due Diligence
Preparation of Offer Document
Pre-Issue Compliance
Liaison with SEBI and Stock Exchange
Co-ordination with other functionaries
Issue Marketing
Functions during the Issue
Post Issue Compliance
Ib-Ps Ch. 6 Rights Issues and Secondary Public Offers - PTR
Made to existing share holders only.
Entitlement to apply for and receive additional shares.
It’s a RIGHT, not an OBLIGATION.
For ascertaining the right, record date is fixed.
Entitlement ratio is fixed e.g. 1:2
- Thus if a shareholder has 200 shares he is entitled for 100 shares.
Shareholder can exercise or renounce his right to a third party.
Renouncee is entitled to subscribe & receive rights shares.
If the right is neither exercised nor renounced, it lapses and the issue is undersubscribed to that extent.
Promoters can seek to apply for those shares. The impact is change in shareholding pattern.
Oversubscription can occur if shareholders apply for additional shares. The letter of offer should specify the right to apply for more shares.
Considerations for Issuer
Objective of the Issue: Fund raising, consolidation or shareholder reward.
Is this an adequate source of financing?
If seeking shareholder loyalty, compare vis-à-vis bonus issue & higher dividend payout.
Overall condition of the primary markets.
Likelihood of poor response and its effect on market price of share.
Analysis of alternate sources of funding such as private placement.
Regulatory provisions
Companies Act.
Shares will be offered in proportion to their existing holding.
Minimum notice of 15 days.
If offer not exercised within time frame, it shall be presumed to be declined.
Right of renunciation given unless the articles of company provides otherwise.
If shareholder declines to accept offer, it can be disposed off by the board of directors.
The shareholder may be allowed to exercise the power of renunciation only once and not again under the pretext that the first renouncee has declined to accept the offer.
SEBI Guidelines
If aggregate value of issue is greater than Rs 50 Lakh, a letter of offer has to be filed with SEBI through an eligible merchant banker at least 21 days before filing the letter with the stock exchange.
If aggregate value of issue is less than Rs 50 Lakh, company prepares and files the letter of offer with SEBI. The issue shall be open within a year from the 22nd day of filing the letter provided no observations are made by SEBI.
All rights issues shall be made by offering the shares in dematerialized form.
Any listed company may freely price further offerings through a rights issue or any security convertible into equity.
The letter of offer to SEBI may have a price band of 20% and the actual price can be determined at a later date. The final letter of offer sent to shareholders shall contain a single fixed price.
The minimum contribution provision of promoters is not applicable to rights issues so long as they disclose their shareholding and extent of participation in the offer letter.
No company shall make a rights issue unless firm verifiable arrangements towards 75% of the stated means of finance, excluding the amount raised by rights issue is made.
No company shall make a further issue of capital by any means from the time the letter of offer is submitted to SEBI until either the money is refunded or the securities are listed.
A company cannot withdraw the rights issue after announcing the record date.
In exceptional circumstances if it needs to be done, then the company cannot make any listing application to any stock exchange for a period of 12 months from the announced record date.
A rights issue is kept open for a minimum period of 30 days and a maximum period of 60 days.
The quantum of issue cannot exceed the amount specified in the letter of offer.
Rights issue need not be underwritten. However if they are, underwriting requirements are the same as for a public issue.
No firm allotments and reservations can be made in a rights issue.
Minimum subscription of 90% is required for the company to be permitted to utilize the funds.
Entitlement to apply for and receive additional shares.
It’s a RIGHT, not an OBLIGATION.
For ascertaining the right, record date is fixed.
Entitlement ratio is fixed e.g. 1:2
- Thus if a shareholder has 200 shares he is entitled for 100 shares.
Shareholder can exercise or renounce his right to a third party.
Renouncee is entitled to subscribe & receive rights shares.
If the right is neither exercised nor renounced, it lapses and the issue is undersubscribed to that extent.
Promoters can seek to apply for those shares. The impact is change in shareholding pattern.
Oversubscription can occur if shareholders apply for additional shares. The letter of offer should specify the right to apply for more shares.
Considerations for Issuer
Objective of the Issue: Fund raising, consolidation or shareholder reward.
Is this an adequate source of financing?
If seeking shareholder loyalty, compare vis-à-vis bonus issue & higher dividend payout.
Overall condition of the primary markets.
Likelihood of poor response and its effect on market price of share.
Analysis of alternate sources of funding such as private placement.
Regulatory provisions
Companies Act.
Shares will be offered in proportion to their existing holding.
Minimum notice of 15 days.
If offer not exercised within time frame, it shall be presumed to be declined.
Right of renunciation given unless the articles of company provides otherwise.
If shareholder declines to accept offer, it can be disposed off by the board of directors.
The shareholder may be allowed to exercise the power of renunciation only once and not again under the pretext that the first renouncee has declined to accept the offer.
SEBI Guidelines
If aggregate value of issue is greater than Rs 50 Lakh, a letter of offer has to be filed with SEBI through an eligible merchant banker at least 21 days before filing the letter with the stock exchange.
If aggregate value of issue is less than Rs 50 Lakh, company prepares and files the letter of offer with SEBI. The issue shall be open within a year from the 22nd day of filing the letter provided no observations are made by SEBI.
All rights issues shall be made by offering the shares in dematerialized form.
Any listed company may freely price further offerings through a rights issue or any security convertible into equity.
The letter of offer to SEBI may have a price band of 20% and the actual price can be determined at a later date. The final letter of offer sent to shareholders shall contain a single fixed price.
The minimum contribution provision of promoters is not applicable to rights issues so long as they disclose their shareholding and extent of participation in the offer letter.
No company shall make a rights issue unless firm verifiable arrangements towards 75% of the stated means of finance, excluding the amount raised by rights issue is made.
No company shall make a further issue of capital by any means from the time the letter of offer is submitted to SEBI until either the money is refunded or the securities are listed.
A company cannot withdraw the rights issue after announcing the record date.
In exceptional circumstances if it needs to be done, then the company cannot make any listing application to any stock exchange for a period of 12 months from the announced record date.
A rights issue is kept open for a minimum period of 30 days and a maximum period of 60 days.
The quantum of issue cannot exceed the amount specified in the letter of offer.
Rights issue need not be underwritten. However if they are, underwriting requirements are the same as for a public issue.
No firm allotments and reservations can be made in a rights issue.
Minimum subscription of 90% is required for the company to be permitted to utilize the funds.
Sunday, December 16, 2007
IB - PS Ch. 7 Public Offer - Debt Securities - PTR
Pre-requisites for Issue of Debt Instruments
Creation of Debenture Trust
Under section 117B of the Companies Act, any company whether listed or unlisted cannot make an issue of debenture to the public without constituting a trustee mechanism. The Debenture trustee is constituted by the registration of a private trust under the Indian Trusts act 1881 and a trust deed is prepared. The trust deed points out the following:
Time limit for creation of security for issue of debentures.
Any change in the trust property would require approval of the trustee.
Rights of the debenture holders in the event of default by the issuer company.
Terms of redemption of the securities.
Debt-Equity ratios and Debt service coverage ratio.
Obligation to inform the company about the change in the nature and conduct of the business of the company.
Quarterly updates to the trustee about the servicing of the debenture holders and asset-liability profile of the company.
Functions of the Debenture Trustee
To ensure that the assets of the company and each of the guarantors are sufficient to discharge the principal amount of the debentures at all times.
To verify that the prospectus or the offer letter is consistent with the terms of the debentures or the trust deed.
To ensure that the company does not commit any breach of the terms of the issue of debentures and take remedy steps in case of any breach.
To take all steps to call for a meeting of debenture holder as and when required.
To petition the NCLT at any time when the trustee concludes that the assets of the company are insufficient to discharge the principal amount of the debentures as and when it falls due.
Credit Rating
Under DIP guidelines, no public or rights issue of debt instruments, including convertibles irrespective of their maturity or conversion period shall be made unless credit rating from a credit rating agency ha already been obtained and disclosed in the offer document.
If the issue size exceeds Rs 100 Cr two credit ratings need to be obtained.
Where there are multiple ratings all the ratings need to be disclosed.
All the ratings obtained for public or rights issues of debt instruments and convertibles during the three years preceding the current issue should also be disclosed.
It would enhance the investor confidence
It would help in fine pricing as well.
Creation of Debenture Redemption Reserve (DRR)
Under section 117c of the Companies Act, every company that issues debentures has to create a DRR to which adequate amounts will be credited out of the company’s profits every year until such debentures are redeemed and it cannot be used for any other purpose.
This reserve shall form a part of the general reserve and it enables a company to conserve that much of cash resources after distribution of dividends.
The amount of reserve is normally the face value of the debentures to be redeemed which is built progressively y-0-y.
DRR requirement does not apply to infrastructure companies.
The trustee shall supervise the implementations of conditions regarding creation of DRR.
Creation of Security
Debentures to be issued by companies have to be secured against the assets of the company.
Hence according to DIP guidelines security shall be created within six months of the close of issue of debentures. However if the company does not create any security within 12 months it will have to pay a penalty of 2% interest on the debentures.
If the security is not created within 18 months then a meeting for within 21 days to explain the reasons regarding the non creation of the security and the completion date for the same.
The debenture trustee shall supervise the implementation of the conditions regarding the creation of the security for the debenture holders.
It is necessary for the company to secure the debt securities by way of mortgage of fixed assets or by any other means which needs the approval of the shareholders.
Disclosures in the offer Document
Apart from the normal disclosures to be made in the offer document which has been discussed in the previous lectures additional requirements have to be met with:
The terms of conversion of a convertible into an equity such as the conversion price and time of conversion shall be disclosed.
In case of non-convertible debt the redemption amount, period of maturity and yield to maturity shall be disclosed.
The existing and future equity and long term debt ratio.
The offer document should specifically state the assets on which security shall be created and the security cover to be maintained.
Additional Statutory requirement for Debt Offers
Requirements under the Companies Act
The power to issue debentures can be exercised only at a board meeting.
Issue of debt instruments by a company adds to the borrowings of the company, hence these must be made within the limits approved by the company shareholders. Requirements under the DIP Guidelines
Debenture issues by companies belonging to the same group shall not be permitted if the proceeds thereof are used for replenishment of funds (i.e. to provide loans) or for acquiring shareholding of other companies belonging to same group.
No debt instrument including convertibles can be issued either through public or rights issue unless it is rated by a rating agency.
No convertibles with a conversion period of more than 36 months can be issued unless the conversion is made optional with “put” and “call” options
Conversion price and period of conversion shall be determined at the time of issue and shall be disclosed in the offer document.
The interest rate for the debt instruments can be freely determined by the issuer company.
Creation of Debenture Trust
Under section 117B of the Companies Act, any company whether listed or unlisted cannot make an issue of debenture to the public without constituting a trustee mechanism. The Debenture trustee is constituted by the registration of a private trust under the Indian Trusts act 1881 and a trust deed is prepared. The trust deed points out the following:
Time limit for creation of security for issue of debentures.
Any change in the trust property would require approval of the trustee.
Rights of the debenture holders in the event of default by the issuer company.
Terms of redemption of the securities.
Debt-Equity ratios and Debt service coverage ratio.
Obligation to inform the company about the change in the nature and conduct of the business of the company.
Quarterly updates to the trustee about the servicing of the debenture holders and asset-liability profile of the company.
Functions of the Debenture Trustee
To ensure that the assets of the company and each of the guarantors are sufficient to discharge the principal amount of the debentures at all times.
To verify that the prospectus or the offer letter is consistent with the terms of the debentures or the trust deed.
To ensure that the company does not commit any breach of the terms of the issue of debentures and take remedy steps in case of any breach.
To take all steps to call for a meeting of debenture holder as and when required.
To petition the NCLT at any time when the trustee concludes that the assets of the company are insufficient to discharge the principal amount of the debentures as and when it falls due.
Credit Rating
Under DIP guidelines, no public or rights issue of debt instruments, including convertibles irrespective of their maturity or conversion period shall be made unless credit rating from a credit rating agency ha already been obtained and disclosed in the offer document.
If the issue size exceeds Rs 100 Cr two credit ratings need to be obtained.
Where there are multiple ratings all the ratings need to be disclosed.
All the ratings obtained for public or rights issues of debt instruments and convertibles during the three years preceding the current issue should also be disclosed.
It would enhance the investor confidence
It would help in fine pricing as well.
Creation of Debenture Redemption Reserve (DRR)
Under section 117c of the Companies Act, every company that issues debentures has to create a DRR to which adequate amounts will be credited out of the company’s profits every year until such debentures are redeemed and it cannot be used for any other purpose.
This reserve shall form a part of the general reserve and it enables a company to conserve that much of cash resources after distribution of dividends.
The amount of reserve is normally the face value of the debentures to be redeemed which is built progressively y-0-y.
DRR requirement does not apply to infrastructure companies.
The trustee shall supervise the implementations of conditions regarding creation of DRR.
Creation of Security
Debentures to be issued by companies have to be secured against the assets of the company.
Hence according to DIP guidelines security shall be created within six months of the close of issue of debentures. However if the company does not create any security within 12 months it will have to pay a penalty of 2% interest on the debentures.
If the security is not created within 18 months then a meeting for within 21 days to explain the reasons regarding the non creation of the security and the completion date for the same.
The debenture trustee shall supervise the implementation of the conditions regarding the creation of the security for the debenture holders.
It is necessary for the company to secure the debt securities by way of mortgage of fixed assets or by any other means which needs the approval of the shareholders.
Disclosures in the offer Document
Apart from the normal disclosures to be made in the offer document which has been discussed in the previous lectures additional requirements have to be met with:
The terms of conversion of a convertible into an equity such as the conversion price and time of conversion shall be disclosed.
In case of non-convertible debt the redemption amount, period of maturity and yield to maturity shall be disclosed.
The existing and future equity and long term debt ratio.
The offer document should specifically state the assets on which security shall be created and the security cover to be maintained.
Additional Statutory requirement for Debt Offers
Requirements under the Companies Act
The power to issue debentures can be exercised only at a board meeting.
Issue of debt instruments by a company adds to the borrowings of the company, hence these must be made within the limits approved by the company shareholders. Requirements under the DIP Guidelines
Debenture issues by companies belonging to the same group shall not be permitted if the proceeds thereof are used for replenishment of funds (i.e. to provide loans) or for acquiring shareholding of other companies belonging to same group.
No debt instrument including convertibles can be issued either through public or rights issue unless it is rated by a rating agency.
No convertibles with a conversion period of more than 36 months can be issued unless the conversion is made optional with “put” and “call” options
Conversion price and period of conversion shall be determined at the time of issue and shall be disclosed in the offer document.
The interest rate for the debt instruments can be freely determined by the issuer company.
IB - Ps Ch.9 Exit Offers
Reulatory Requirements for delisting
Has to be listed for 3 years
Approval from shareholders
Merchant banker
Public announcement – floor price, trading centers, trading members, time table of bidding process, Stock exchanges, material facts etc.
Floor price – average of 26 weeks traded price
No maximum price for the offer
Infrequently traded shares – As per Takeover Code
Escrow account - deposit 100% of amount required (at the floor price)
Bidding atleast 3 days
Option to revise bids before bidding closes
Final price – Reverse book building – price at which maximum shares have been offered for sale
Option to accept or reject
Second public announcement to me made within two days
De-listing application and seek approval from stock exchange(s)
If quantity of outstanding shares after the buy back does not fall below minimum requirements, then company remains listed
The promoter shall not acquire any shares and the offer should be cancelled
The public shareholding has to be brought up to required minimum within 6 months
Offer for sale
New issue
Sale in the secondary market
Outstanding convertibles – conversion process has to be completed or exercise period of conversion option should have lapsed
De-listing offer need not be given in cases where securities continue to be traded in stock exchange having nationwide trading terminals
Buyback Rules in India
This was not permitted under Indian law until 1999
In October 1998, the law was amended that introduced 4 types of buy backs
We discuss in brief the below methods:
Buy back by unlisted public and private companies
Buy back by listed companies
Open market purchase through stock exchange mechanism
Provisions shall apply to all types including ESOP shares and other securities as may be specified from time to time
Buy back may be approved by a special regulation in a general meeting
Buy back has to be financed out of free reserves or securities account or form proceeds of earlier issue of dissimilar share
Under SEBI buy back regulations, it is mandatory to engage a merchant banker to prepare a L of O (Letter of Offer) and manage buy back offer
Pricing mechanism fixed by the board of companies
Requirement of an escrow account to be opened under the Tender Offer and the book building methods to the extent specified under regulations
The offer shall not open before 7 days and not after 30 days from the specified date and shall be kept open for a minimum of 15 days and a maximum of 30 days
Has to be listed for 3 years
Approval from shareholders
Merchant banker
Public announcement – floor price, trading centers, trading members, time table of bidding process, Stock exchanges, material facts etc.
Floor price – average of 26 weeks traded price
No maximum price for the offer
Infrequently traded shares – As per Takeover Code
Escrow account - deposit 100% of amount required (at the floor price)
Bidding atleast 3 days
Option to revise bids before bidding closes
Final price – Reverse book building – price at which maximum shares have been offered for sale
Option to accept or reject
Second public announcement to me made within two days
De-listing application and seek approval from stock exchange(s)
If quantity of outstanding shares after the buy back does not fall below minimum requirements, then company remains listed
The promoter shall not acquire any shares and the offer should be cancelled
The public shareholding has to be brought up to required minimum within 6 months
Offer for sale
New issue
Sale in the secondary market
Outstanding convertibles – conversion process has to be completed or exercise period of conversion option should have lapsed
De-listing offer need not be given in cases where securities continue to be traded in stock exchange having nationwide trading terminals
Buyback Rules in India
This was not permitted under Indian law until 1999
In October 1998, the law was amended that introduced 4 types of buy backs
We discuss in brief the below methods:
Buy back by unlisted public and private companies
Buy back by listed companies
Open market purchase through stock exchange mechanism
Provisions shall apply to all types including ESOP shares and other securities as may be specified from time to time
Buy back may be approved by a special regulation in a general meeting
Buy back has to be financed out of free reserves or securities account or form proceeds of earlier issue of dissimilar share
Under SEBI buy back regulations, it is mandatory to engage a merchant banker to prepare a L of O (Letter of Offer) and manage buy back offer
Pricing mechanism fixed by the board of companies
Requirement of an escrow account to be opened under the Tender Offer and the book building methods to the extent specified under regulations
The offer shall not open before 7 days and not after 30 days from the specified date and shall be kept open for a minimum of 15 days and a maximum of 30 days
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