Chp5 Prospectus

Prospectus What you should know : 5.1 Prospectus: What it is and why it is issued? 5.2 Various methods of raising of share capital 5.3 What are the statutory requirements for the issue of prospectus? 5.4 Contents of prospectus 5.5 Statement in lieu of prospectus 5.6 Shelf prospectus 5.7 Information memorandum (book building) 5.8 Is there any liability f or mis-statement in prospectus?. 5.9 What is the requirement to be satisfied for listing of shares with SEBI?

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5.1 What it is and why it is issued? Means any document, described or issued as a prospectus and includes any notice, circular advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares, or debentures of, a body corporate. Prospectus

 Invitation to offer

Application for shares  Offer Allotment of shares offer,

 Acceptance of the resulting in a binding

contract.

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A document would be considered a prospectus only if it meets the following requirements, viz. - it should be in writing - it should be issued by or on behalf of a body corporate - it should be issued to public - it should contain invitation to public for making deposits or for subscription of shares in or debentures of a body corporate.

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5.1a. Is the issue of prospectus compulsory? The issue of a prospectus by a company is not compulsory in the following cases - shares/debentures not offered to the public - private channels fundings

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5.1b. SEBI’s powers under new section 55A in respect of listed companies (i) Investor protection, (ii) Promotion, development and regulation of securities market. 5

ISSUES Public

Rights

Preferential

Initial Public Offering Further Public Offering (IPO) (FPO)

Fresh Issue Offer for Sale Fresh Issue

Offer o f r Sale

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5.2 Apart from the issue of prospectus, what are the other ways of raising of capital?

R a is in g o f C a p ita l

P r iv a te P la c e m e n t

B o u g h t- o u t D e a l ( O ffe r fo r S a le )

Is s u e o f P r o s p e c tu s

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5.3 What are the statutory requirements for the issue of prospectus? 1. Contents of Prospectus: 2. Dating and signing of Prospectus: 3. Vetting/approval of prospectus 4. Registration of prospectus with ROC: 5. Issue within 90 days of registration 6. Terms of contract cannot be varied: 7. The expert's consent to the issue of prospectus. 8. Abridged prospectus must accompany application forms

9. Offer for sale by Issuing Houses is ‘deemed prospectus’

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5.4 CONTENTS OF PROSPECTUS Contents as per sec 56 - General information - Capital Structure - Terms of the issue - Particulars of issue - Company, Management and project - Stock market data - Outstanding litigation’s - Risk factors

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Disclosure as per SEBI guidelines mandatory in addition to the requirement of schedule to the 9 Companies Act.

5.5 Statement in lieu of prospectus - where company does not issue a prospectus - failure to raise the minimum subscription - must be filed at least three days before any allotment of shares or debentures is made. Consequences of non-filing SLP –

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5.6 Shelf prospectus (Section 60A) a) Need. b) Shelf prospectus, meaning. c) Who shall file a shelf prospectus. d) Registration of Shelf Prospectus. e) Requirement of filing information memorandum.

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Presentation on BookBuilding and Listing of Securities

Presentation By

Dr. V.K.Jain M.Com, LL.M., M.Phil, Ph.D.(Tax), ACS

PVS CORPORATE AND ALLIED SERVICES e-mail:[email protected] S-13, “SABURI”, Bharat Nagar, NAGPUR-400 010.

Book Building Overview – SEBI Guidelines 1. Preliminary

2. Eligibility Norms

3. Pricing

4. Promoters Cont. & Lock

in 5. Pre Issue Obligations

6. Draft of Prospectus

7. Post Issue Obligation

8. Other Issue Reqment

9. Advertisement.

10. Debt Instrument

11.Book Building

12. Issue by DFI

13.Preferential Issue

14. OTCEI Issue

15.Bonus Issue

16. Operational Guide.

17.Miscellaneous

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Book - Building A New Route of Capital Issue Chapter XI of the SEBI Guidelines, 2000 Object of Book- Building:  To decide the fair price of shares.  To garner the Investors Confidence.  To provide Issuer and LM, the flexibility of the price & demand discovery. 14

Pro cess o f Bo o k-b u i l d i n g 75 % Bo o k-Bu i l d i n g Pro cess 10 0 % Bo o k-b u i l d i n g Pro cess

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BOOK – BUILDING 100% Book Building QIBs MFs, Banks, FIIs, VCF, Pension Fund

Upto 50% of Net Offer to Public Discretionary Allotment

Non-institutional Bidders > 1000 shares Minimum 15%

Proportionate Allotment

Retail Bidders < 1000 shares Minimum 35% Proportionate Allotment 16

BOOK – BUILDING 75% Book Building QIBs MFs, Banks, FIIs, VCF, Pension Fund

Upto 50% of Net Offer to Public Discretionary Allotment

Non-institutional Bidders > 1000 shares Minimum 15%

Proportionate Allotment

Retail Bidders < 1000 shares Minimum 35% at fixed price BB Proportionate Allotment 17

Eligibility Norms and Rules for 75% Book- Building Process The option is available to the Issuer Company subject to the followingI)

Company should be eligible for the Public Issue under the SEBI Guidelines.

(II) Available for reserved portion of the Issue. Eligibility Norms and Rules for 75% Book- Building Process (III)

Underwriting shall be mandatory to the extent of net offer to the

Public. (IV)

25% Securities to be offered to the Public.

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Principal Parties/Intermediaries involved in Book- Building Process 1. The Issuer Company. 2. Book Running Lead Manager. 3. Lead Manager. 4. Syndicate Member (Underwriter)

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BOOK BUILT ISSUES How It’s Done Price band and other issues decided Issues opens for subscription at least 3 working days Issue closes for subscription 15 days of the closure of the issue Allotment made to the investors 7 days from the finalization of allotment Shares come to investor's demat account Trading in shares starts

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Other requirements of Book Building – - Trading shall commence within 6 days of the closure of the issue. - Issuer to provide indicative floor price and no ceiling price. - Bids to remain open for atleast 5 days. - Bids are submitted through syndicate members. - Investors can bid at any price, retails investor have option to bid at cut off price.

- Only electronic bidding is permitted. - Bidding demand is displayed at the end of every day. - The lead manager analyses the demand generated and determines the issue price in consultation with the issuer etc. 21

Green Shoe Option in an IPO •The Green Shoe Option is a clause in the underwriting agreement of an IPO,which allows to sell additional shares, usually 15%, to the public if the demand exceeds expectations and the stock trades above its offering price. •This option also known ALLOTMENT provision.

as

the

OVER

• It gets its name from the GREEN SHOE COMPANY, which was the first company to allow such an option. 22

5.7 Information Memorandum (Section 60B) a) Meaning of Information Memorandum b) Who may circulate Information Memorandum c) Red-herring prospectus d. Final prospectus to be filed after closing of the offer of securities 23

Information memorandum

Red herring Prospectus (at least 3 days before the opening of the offer)

Filing of Complete Prospectus (on closing of the offer)

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A Red Herring Is Variously Defined:

• dried, smoked, •Herring The curing process turns the fish red. •in finance, a preliminary prospectus for an offering of stock, so called for the notice in red type required by law at the top of the front page

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  WHY RED HERRING  (it is an IDIOM­METAPHOR) There  is  no  price  or  issue size  stated  in  the  red  herring,  and  it  is sometimes  updated  several  times before being called the final prospectus.  It is known as a red herring because it contains  a  passage  in  red  that  states  the  company  is  not  attempting  to  sell  their  shares  before  the  registration is approved by the SEC.  26

5.8 IS THERE ANY LIABILITY FOR MISSTATEMENT IN PROSPECTUS? A. Civil Liabilities for mis-statements in prospectus a. Remedies against the company. - Rescission of contract - Suit for damages b. Remedies against directors. - damages for fraudulent misrepresentation, - compensation under section 62 of the Act, - damages for non-compliance with the requirements of section 56 of the Act. 27

B. Criminal Liabilities for mis-statements in prospectus

a) Section 63 provides for criminal liability for misstatement in the prospectus. b) Penalty for Fraudulently Inducing Persons to Invest Money. c) Prohibition of allotment of shares in 28

5.9 What is the requirement to be satisfied for listing of shares with SEBI? 1. Compliance with the SEBI Guidelines 2. Holding of general meeting 3. Intimation of stock exchange 4. Appointment of managers to the issue 5. Appointment of various other agencies 6. Drafting of prospectus 7. Approval of prospectus 8. Vetting of prospectus 9. Filing of draft prospectus with Stock Exchanges 10. Approval of board of directors to prospectus and other documents 11. Registration of prospectus with ROC

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12. Making application to Stock Exchange(s) for Permission to enlist shares 13. Printing and distribution of prospectus and application forms 14. Certificate relating to promoters’ contribution 15. Announcement and advertisement 16. Co-ordination with the bankers to the issue 17. Allotment of shares 18. Filing of other Forms with Registrar of Companies 19. Over-subscription not to be retained 20. Refund orders 21. Compliance report 22. Issuance of share certificates

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