M.F.S.

Chapter – 13
M. Y. Khan

Issue Management:
Pre – Issue and Post – Issue Obligations
and
Other Requirements
 Chapter Objectives:

• Introduction to IPO/Public Issue

• Pre - issue obligations
• Post - issue obligations
• Other Requirements relating to public issue/IPO
 PUBLIC ISSUES

• Filing of offer documents

1. Public issue prospectus to be filed with ROC after 21 days

of filing draft prospectus with SEBI.

2. Changes specified by SEBI to be incorporated.

3. Lead Merchant Banker to do the filing.

 Public Issues: Eligibility Criterias

• Eligibility:
 The co’ has NET TANGIBLE ASSETS of at least Rs. 3 crore in
each of the preceding 3 full years.
 The co’ has a track record of distributable profits for at least
3 out of immediately preceding 5 years.
 The company has the net worth of at least Rs. 1 crore in
each of the preceding 3 full years.
 In case of change of name within the last one year, at least
50% of the revenue for the preceding one full year from the
new company.
 PUBLIC ISSUES

• Pricing of Securities:

- Free

- Differential pricing allowed in firm allotment provided

that such price is higher than that offered to public.
 PUBLIC ISSUES

• Promoters Contribution and Lock-in Requirements:

• Public Issue/IPO by Unlisted Companies: Not less than

20% of the post issue capital.
• Public Issue by Unlisted Companies: Either to the extent
of 20% of the proposed issue or ensure post-issue share
holding to the extent of 20% of the post-issue capital.
 PUBLIC ISSUES

• Lock in Requirements for Promoters:

• In case of any issue of capital to the public the

promoters contribution shall be locked in for a
period of 3 years from the date of commencement of
commercial production or the date of allotment of
shares in the public issue whichever is later.
 PUBLIC ISSUES: Pre Issue Obligations
• The pre-issue obligations are detailed below:

• The Lead Merchant Banker shall exercise “Due Diligence”.

• The standard of due diligence shall be such that the merchant
banker shall satisfy himself about all the aspects of offering,
authenticity and adequacy of disclosure in the offer documents.
• The liability of the merchant banker shall continue even after
the completion of issue process.
• MB requires Payment of Requisite fees with a copy of
Prospectus to SEBI.
 PUBLIC ISSUES: Pre Issue Obligations
• Documents to be Submitted along with the Offer Document
by the Lead Manager:
1. Memorandum of Understanding (MOU) between a lead
merchant banker and the issuer company specifying their
mutual rights, liabilities and obligations relating to the
issue.
2. Inter-se Allocation of Responsibilities- In case a public or
rights issue is managed by more than one merchant
bankers the rights, obligations and responsibilities of each
merchant banker shall be SEPARATELY MENTIONED.
3. Procedure in case of Under-Subscription of the cap Issue.
4. Due Diligence Certificate
 PUBLIC ISSUES: Pre Issue Obligations

• APPOINTMENT OF INTERMEDIARIES:
• Merchant Bankers/Lead Managers viz.
- Underwriters/Sub-Underwriters
- Banker to an Issue
- Broker to an Issue
- Registrar to an Issue
 PUBLIC ISSUES: Pre Issue Obligations
- Offer Document to be Made Public
- The draft offer document filed with the SEBI shall be made
public for a period of 21 days from the date of filing the
offer document with the SEBI.

- No Complaints Certificate
- After a period of 21 days from the date the draft offer
document was made public, the Lead Merchant Banker
shall file a statement with the SEBI :
1. Giving a list of complaints received by it,
2. A statement by it whether it is proposed to amend the
draft offer document or not, and;
3. Highlight those amendments.
 PUBLIC ISSUES: Pre Issue Obligations

• Mandatory Collection Centres:

• The minimum number of collection centres for an issue
of capital shall be -
A. The four metropolitan centres situated at Mumbai,
Delhi, Calcutta and Chennai.
B. All such centres where the stock exchanges are located
in the region in which the registered office of the
company is situated and,
C. The issuer company shall be free to appoint as many
collection centres as it may deem fit in addition to the
above minimum requirement.
 PUBLIC ISSUES: Pre Issue Obligations

• Authorized Collection Agents:

- The issuer company can also appoint authorized collection
agents in consultation with the Lead Merchant Banker subject
to necessary disclosures, including their names and
addresses, included in the offer document.
• Appointment of Compliance Officer:
A. An issuer company shall appoint a compliance officer who
shall directly link/interact with the SEBI with regard to
compliance with various laws, rules, regulations and other
directives issued by the SEBI and investors complaints
related matter.
B. The name of the compliance officer so appointed shall be
intimated to the SEBI.
 PUBLIC ISSUES: Pre Issue Obligations

• Agreement with Depositories:

- The lead manager (MB) should ensure that,
A. The issuer company has entered into an agreement
with depository(ies) for Dematerialisation (demat) of
securities,
B. An option to be given to the investors to receive
allotment of securities in demat form.
 PUBLIC ISSUES: Post Issue Obligations
 Post Issue Monitoring Reports
A. In case of Public Issue:
 3 - Day Post Issue Monitoring Reports: The due date for
this report would be the 3RD day from the date of closure of
subscription of the issue.
 Final Post Issue Monitoring Report: The due date for this
report would be the 78TH day from the date of closure of
subscription of the issue.

B. In case of Right Issue:

 3 - Day Post Issue Monitoring Reports: The due date for
this report would be the 3RD day from the date of closure of
subscription of the issue.
 50 – Day Post Issue Monitoring Report: The due date for
this report would be the 50TH day from the date of closure of
subscription of the issue.
Cont.
 PUBLIC ISSUES: Post Issue Obligations

 Redressal of Investors’ Grievances

 Co-ordination with Intermediaries:
 Underwriters
 Banker to an Issue
 Post Issue Advertisements
 Basis of Allotment
 Proportionate Allotment Procedure
 Reservation for Small Individual Applicants:
 A minimum of 50% of net offer of securities to the public
should be made available for allotment to Retail Individual
Investors means investors applying for securities up to Rs.
50,000.
 PUBLIC ISSUES: Other Issue Requirements

• To decide the Face Value of Share inter se’ Rs. 10, Rs. 1
and likewise (depends on issuer company) with clear
mentioning of Share Premium/Discounts, if any.

• The minimum application moneys to be paid by an

applicant along with the application money shall not be
less than 25% of the issue price.

• To decide and mention Minimum Tradable Lot for public

issue/IPO.
 PUBLIC ISSUES: Other Issue Requirements

• Securities Issued to be Made Fully Paid Up:

A. If the subscription money is proposed to be received in
calls, the calls shall be structured in such a manner that
the entire subscription money is called-up within 12
months from the date of allotment.
B. If the investor fails to pay call money within 12 months the
subscription money already paid may be forfeited.
C. Clearly mention the procedure for share forfeiture /
surrender.
 PUBLIC ISSUES: Other Issue Requirements
• Period of Subscription:
A. Public Issues:
(a) Subscription list for public issues shall be kept open for at
least 3 working days and not more than 10 working days.
(b) The public issue made by an infrastructure company, may
be kept open for a maximum period of 21 working days.

B. Rights Issues:
- Rights issues shall be kept open for at least 30 days and not
more than 60 days.
 PUBLIC ISSUES: Other Issue Requirements
• Safety Net or Buy Back Arrangement:

• Any safety net scheme or buy-back arrangements of the shares

proposed in any public issue shall be finalized by issuer company
with the lead merchant banker in advance and disclosed in the
prospectus.

• Such buy back or safety net arrangements shall be made

available only to all original resident individual allottees.

• Such buy back or safety net facility shall be limited upto a

maximum of 1000 shares per allottee and the offer shall be valid at
least for a period of 6 months from the last date of dispatch of
securities.