Transcript Preferential Issues of Capital

Preferential Issues of Capital
ICAI, Bangalore
CA. Pratap G. Subramanyam
B.Com., FCA, ACS
1
Concepts
• Preferential issues of capital classify as non-public offerings
or issue of capital under the Companies Act. Such offerings
are covered under the provisions of Section 67(3) read with
first proviso which refers to ‘issues made to investors
numbering less than 50’ .
• All preferential issues of capital are executed through
‘preferential allotments’.
• A preferential allotment is made pursuant to the provisions
of Section 81(1A) under which members give up their preemptive right in public companies contained in Section
81(1). The act of allotting shares in a preferential issue is
known as ‘Preferential Allotment’.
• A preferential issue can also be made to outside investors
with a fund raising objective in which case it is known as a
‘private placement’.
2
Types of Preferential Issues
Preferential Issues
Preferential Issues of equity made
with a fund raising objective
 Early Stage Venture Capital
 Later Stage Private Equity
 Institutional Placements
 Non-institutional Placements
 International Capital Markets
Preferential Issues of equity made
with a strategic objective
 Promoters and promoter group
 Employees and senior management
 Bonus issues
 Induction of strategic investors
 Induction of JV partners
3
Uses, Advantages and Pitfalls
• Preferential Issues are primarily used for strategic purposes such
as consolidation of promoters’ stakes, induction of strategic
partners and issue of shares under ESOP / Sweat Equity plans. In
such issues, the allottees are already identified prior to the
transaction since they are mostly insiders or business partners.
• Preferential Issues in the nature of Private Placements require a
‘placement’ process to be completed before the preferential
allotment takes place, i.e. the identification and finalisation of
terms with the potential investors.
• Private Placements are time and cost-effective for the issuer. The
placement requires less amount of paper work, approvals and
clearances and can be placed with a closed community of
investors.
• As long as a company raises equity through preferential
placements and postpones a public offering, there would be a
significant growth prospect in its IPO pricing.
4
Uses, Advantages and Pitfalls
• A listed company raising equity through preferential placement
(PIPE) would mean equity expansion without corresponding
increase in floating stock. This is beneficial from the point of view
of prevention of stock volatality and threat of hostile takeover.
• In listed companies, a preferential issue to promoter group may
serve as a cost effective mechanism rather than alternative routes
such as creeping acquisition. It also sends a positive signal to the
market.
• On the flip side, private placements are meant only for informed
investors since the level of scrutiny and disclosures are not on par
with public offers.
• Private placements may not be based on issue related market
factors but more on fundamentals and long term factors.
5
Regulatory Framework
• Preferential Issues can be made both by unlisted and
listed companies.
• Preferential Issues by unlisted companies are governed by
the provisions of the Companies Act read with the
Unlisted Companies (Preferential Allotment) Rules 2003.
• Preferential Issues by listed companies are governed by
the Companies Act read with the relevant provisions of the
ICDR Regulations issued by SEBI.
• Preferential Issues to foreign investors are also governed
by FEMA Regulations and extant FDI policy.
• Preferential Issues by listed companies (known as PIPEs)
are also governed by the SEBI Takeover Code 2011.
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Regulatory Overview
Preferential Issues
 All preferential issues of equity tantamount to
‘preferential allotments’ and are governed by
Section 81(1A) of the Companies Act.
 Private Placements of debt securities are
governed by the provisions of sections 292(1)(b)
and 293(1)(d) of the Companies Act.
 Subject to overall FDI policy.
Unlisted Companies
 Subject to preferential allotment
regulations under the Companies Act.
 No specific valuation regulation for
preferential allotments to domestic
investors.
 Preferential allotments to non-resident
investors are also governed by FEMA
regulations.




Listed companies
Subject to preferential allotment
regulations under SEBI law.
Valuation subject to regulation for all
types of investors under SEBI law.
Preferential allotments to non-residents
are also subject to FEMA regulations.
Placements to Institutional Investors
(known as QIPs and IPPs) are governed
by separate regulations under SEBI law.
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PIPE Placements
Private Investment in Public Equity
Preferential Issues
 Subject to the provisions
of Chapter VII of the
ICDR Regulations.
Applies to all
preferential allotments
made in a listed
company that do not
qualify as QIPs or IPPs.
Qualified Institutional
Placements
 Subject to the provisions
of Chapter VIII of the
ICDR Regulations.
Applies to issues made
to institutional investors
only.
Institutional Placement
Programme
 Subject to the provisions of
Chapter VIIIA of the ICDR
Regulations. Applies to
issues made by a listed
company to comply with
minimum public
shareholding norm.
8
PIPE Placements
• PIPE issues that do not classify as preferential issues –
– All Public Offers (IPO and FPOs)offer of specified securities made
through a public issue, rights issue,
– Bonus Issue
– ESOP or ESPS shares
– Sweat Equity Shares
– ADR / GDR issues
– QIP / IPP which are regulated separately.
– Schemes of arrangements under section 391-394
– BIFR Schemes / Loan conversions by banks / DRT orders
• All other PIPEs to any select person or group of persons on a
private placement basis are classified as preferential issues.
SEBI does not differentiate strategic preferential issues from
private placements.
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PIPE Preferential Issue
• PIPE Preferential Issues require to be made within 15 days
of the members’ resolution under section 81(1A), except for
shares to be allotted under a CDR scheme.
• No allotment to investors who have sold shares within the
preceding 6 months.
• Convertible instruments shall not have a currency of more
than 18 months.
• Full consideration shall be paid on allotment. In case of
warrants, at least 25% to be paid. The balance shall be paid
on allotment of shares. Warrant consideration is forfeited in
case option is not exercised.
• Shares allotted under this issue shall be locked in for 1 year
including the holding period of the convertible. Shares held
by allottees prior to the issue will be locked in for 6 months.
10
PIPE Preferential Issue
• Where warrants are issued on a preferential basis with an
option to apply for and get the shares allotted, the issuing
company shall determine before hand the price of the
resultant shares.
• The relevant date for determining the price at which the
convertible would be converted into equity would be the date
falling 30 days prior to the date of the shareholders’ meeting
or 30 days prior to the date of conversion of the warrants, at
the option of the issuer company.
• It may be noted that the option is only with respect to that
date. All other provisions apply mutatis mutandis straight
equity allotments.
11
QIP
• Qualified Institutional Placements are exclusively for institutional
investors by listed companies. Promoters, non-institutional and retail
investors cannot participate.
• The company should have listing record for at least 1 year.
• The issue should be only for pure equity or non-convertible debt with
warrants and convertible instruments except warrants.
• In a QIP of a non-convertible debt instrument along with warrants, an
investor can subscribe to the combined offering of non- convertible debt
instruments with warrants or to the individual securities at his option.
• The minimum number of allottees for each QIP shall not be less than
two for an issue size upto Rs. 250 crore and five for issues beyond that
amount. No single allottee shall be allotted more than 50% of the issue
size.
• The total amount raised under the QIP shall not exceed five times the
networth of the company prior to the placement.
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QIP
• The reference date for pricing of a convertible in a QIP shall be
determined in the same way as in a PIPE preferential issue.
• Convertible issued under QIP should have a maximum currency of 60
months from the date of allotment.
• The currency of the special resolution passed under section 81(1A) shall
be for a period of twelve months from the date of the EGM.
• The shares allotted under QIP can be sold in the secondary market
without any lock-in but not in off-market deals upto a period of one year.
• Appointment of a merchant banker for the QIP is mandatory. The
merchant banker shall conduct due diligence and issue necessary
certificate to stock exchange on the compliance of the QIP guidelines
and apply for listing of the QIP shares.
• Mutual funds have a reservation of 10%. Unsubscribed amount can be
added to other QIBs.
• There should be a cooling off period of at least 6 months between two
successive QIPs.
13
IPP
• IPP is similar to QIP insofar as it concerns preferential allotment by the
company.
• However, the IPP issue will be reckoned as an issue under a prospectus
under section 60 instead of a private placement. So the offer document
should be registered with ROC.
• The minimum number of allottees for an IPP shall not be less than ten.
In addition, no single allottee shall be allotted more than 25% of the offer
size.
• An IPP shall not result in increase in public shareholding by more than
10% .
• Minimum of 25% of eligible securities shall be allotted to mutual funds
and insurance companies.
• The issue shall be kept open for a minimum of 1 day and a maximum of
2 days. The bids made by the applicants shall not be revised downwards
or withdrawn. The offer may be withdrawn by the issuer if it is not fully
subscribed.
• Lock-in applies as in a QIP.
14
Instruments used
• In Preferential Issues to promoter group – Straight Equity,
Warrants and DVRs.
• In Preferential Issues to strategic investors – Straight
Equity.
• In JV companies – Straight Equity and Convertible Debt
Structure.
• In VC – Convertible Preference Shares (CCPS),
Convertible Debt Structure.
• In PE – Straight Equity, CCPS
• In PIPE Placements – Straight Equity
• In QIPs – Mostly Straight Equity
• In IPPs – Straight Equity
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Issue Pricing
• The pricing of shares for a private placement / preferential offer is
governed by the provisions of the Companies Act, ICDR Regulations
and FEMA Regulations insofar as it concerns non-resident investors.
• The pricing cannot be less than the par value of the share (section 79
of the Companies Act).
• ESOP shares and Sweat Equity can be priced freely by both unlisted
and listed companies. ESOP shares should have a minimum
consideration of the par value. Sweat equity is entirely in non-cash
consideration.
• Other preferential issues by unlisted companies have no price
restrictions whatsoever, whether the company is public or private,
except under the provisions of FEMA.
• Under FEMA, fair market value for unlisted shares shall be as per the
DCF method certified by a merchant banker or a CA. The issue
pricing shall not be less than the FMV.
16
Issue Pricing
• However, keeping in view regulatory procedures, it is essential to
arrive at the fair value of the shares initially through an independent
valuation. The ‘price’ at which the shares are being issued has to be
justified in the context of the independent valuation.
• In the case of issue of shares to non-residents, the price should not
be less than the price arrived at under the independent valuation.
RBI also does not prefer the pricing to be too high as compared to
the independent valuation.
• Unlisted companies should consider the provisions of Section
56(viib) of the IT Act which prescribe the BV method or the certified
DCF value of a CA or a merchant banker as the fair market value at
the option of the assessee.
• The excess of the issue price over the FMV would become income
from other sources for the issuer company.
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Valuation and Pricing
Value in Rupees
Company A
Company B
10,000
20,000
25,000
25,000
Current EPS
25
12.5
Amount being raised
500,000
500,000
Equity Valuation
1,000,000
1,000,000
Number of new shares
500
1000
Equity dilution
50%
50%
Price per share
1000
500
Pre-issue Capital
Shares with face value Rs. 10/Fully are paid up
Current Earnings
18
Regulatory Pricing – PIPEs
• Both strategic preferential issues and private placements have
to conform to the same pricing formula in listed companies.
• The pricing of the shares for a PIPE preferential issue by a
listed company shall not be less than the higher of the
following –
– (a) the average of the weekly high and low of the closing prices of
the share during the six months preceding the date which is thirty
days prior to the date of the shareholders’ meeting or
– (b) the average of the weekly high and low of the closing prices
during the two weeks preceding the date of the shareholders’
meeting or
– (c) the IPO price
• FEMA pricing for PIPE preferential issues is identical to the
SEBI pricing formula.
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Regulatory Pricing – QIP
• The QIP shall be made at a price not less than the average of the weekly
high and low of the closing prices of the equity shares of the same class
quoted on the stock exchange during the two weeks preceding the
relevant date.
• The issuer may however offer a discount of not more than 5% on the
price so calculated for the QIP, subject to approval of shareholders.
• Where convertible instruments are issued, the issuer shall determine the
price at which the conversion shall take place into equity shares by
taking the relevant date as decided and disclosed by it while passing the
special resolution.
• The normal practice in QIP transactions is that a floor price is fixed by
the book running issue manager based on the statutory minimum price
and investors are asked to bid at their offer price.
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QIP Pricing Analysis
Company
Year
Placement
Floor Price
` per share
Minimum
Statutory
Price ` per
share
Prevailing
Market
Price ` per
share
India Cements
Exide Industries
Shriram Transport Finance
Yes Bank
Gammon India
Bajaj Electricals
Hindalco
Pantaloon Retail
Aban Offshore
HCL Infosystems
Larsen & Toubro
Educomp Solutions
Hindustan Construction Co.
Emami
Simplex Infrastructure
Suzlon Energy
Godrej Industries
GMR Infrastructure
United Phosphorus
Escorts
2010
2010
2010
2010
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2008
2007
2007
2007
2007
2007
120.20
107.90
500.80
269.50
237.45
785
130.90
316
1224.30
154.69
1659.30
3745
102.15
310
625
1917
215
240
350
112
120.20
107.86
NA
NA
237.45
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
140
110
393
261
196
798
136
308
1102
125
1497
3158
106
348
587
1937
174
221
359
119
Floor
Price
Premium
over
Market
Price %
(14%)
(2%)
27%
(3%)
21%
(1.7%)
(3.7%)
2.6%
11%
23%
11%
18.5%
(3%)
(11%)
6.4%
(1%)
23.5%
8.6%
(2.50%)
(6%)
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Regulatory Pricing – IPP
• There is no regulatory pricing for IPP as it is considered an issue
under an offer document registered with the ROC.
• The company can invite bids with a floor price and allot shares
under any of the methods below –
– The ‘proportionate basis method’ (Dutch Auction) whereby all
successful allottees will be allotted shares at the same price
discovered thorugh book building and the amount of shares allotted
would be based on the bids received.
– The ‘price priority method’ (French Auction) wherein the company
allots shares to successful bidders based on the highest price offered.
– The company may devise its own method of allotment and pricing
which shall be disclosed in the offer document.
• ONGC IPP – Floor Price Rs. 295, Ruling market price – Rs. 290.
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Summary Deal Process for a Preferential
Issue
• No placement process is involved if it is a strategic transaction.
Partner search may be involved.
• Board meeting for passing requisite resolution for preferential
allotment.
• The first task is to prepare an Information Memorandum detailing
the complete status of the company, financial history, business
perspective, financial requirements and present investment proposal.
The Infomemo is prepared on behalf of the issuer by an investment
banker retained for this purpose.
• Based on the type of private placement being contemplated, the
investment banker begins the search. In case of strategic equity, a
partner search is done. In the case of venture capital or private
equity, the funds that are likely to be interested are short-listed and
approached. In case of a QIP proposal, the investment banker may
arrange a private investor meet for the issuer.
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Summary Deal Process for a Preferential
Issue
•
•
•
•
•
•
The company makes necessary presentations, answers queries on the
Infomemo and the interested investors engage in detailed dialogue on
various aspects of the deal including the proposed deal structure.
The investors and the company agree on the valuation and the broad
parameters of the deal. Financial investors issue term sheet.
The investors get into financial and legal due diligence. After completion
thereof, issues arising from the due diligence are sorted out and the final
terms are drawn up.
In the case of strategic equity or venture capital / private equity, the
transaction documents are drafted and agreed upon in their final form. In
case of other QIP investors, usually, a sanction letter is issued.
The company and if required, the investors as well, seek necessary under law
for the proposed investment and allotment of shares. Necessary
authorisations are also taken for execution of documents.
Execution of transaction documents takes place and the investors
simultaneously make necessary applications, as may be required, for
subscription to shares.
24
Summary Deal Process for a Preferential
Issue
• The investors remit the funds on a set date (Closing Date) or as may
be agreed upon by the parties. Funds coming from abroad are
remitted through normal banking channels using swift codes.
• In case funds are received through cheques or demand drafts, these
are sent for clearing.
• Simultaneously, in the case of a listed company, the company applies
to the concerned stock exchange for the listing of the proposed
shares.
• After the funds are credited to the company’s bank account and on
receipt of in-principle approval from the stock exchange, the
company proceeds with the allotment of shares to the investors.
• The listing process is completed after filing the details of allotments
made and receipt of final listing approval from the stock exchange.
• The shares become listed and the deal process is complete.
25
Issuer’s Perspective
• Private placements are inevitable if public offer markets are
depressed or if the company is unlisted and too premature to go
public.
• Strategic equity has a wider business perspective than equity from
financial investors. Financial investors are more focussed on financial
performance and expected appreciation of their investment.
• It is better to spread QIP between a group of investors rather than
allowing concentration of shares.
• Issuers (especially listed companies) should look for well-known
institutional investors as that would reflect well on their market
capitalisation.
• Issuers should be well-prepared for due diligence and for subsequent
increase in the levels of corporate governance.
• Issuers should be prepared for more rigorous board meetings,
shareholder meetings and disclosures since investor nominees and
independent directors would be on the board.
26
Preferential Issues by Unlisted Companies –
Procedural Requirements
• Under the preferential allotment rules, the main requirements
are –
– The rules apply to all financial instruments, i.e. shares and
convertibles.
– The articles of association shall authorise a preferential allotment of
shares.
– The members shall pass a special resolution under section 81(1A)
and the said resolution shall have a validity of 12 months from the
date of the EGM to complete the allotment.
– The warrants are issued on a preferential basis with an option to
apply for and get the shares allotted, the issuing company shall
determine before hand the price of the resultant shares.
– In case of every issue of shares/ warrants/ fully convertible
debentures/ partly convertible debentures or other financial
instruments with conversion option, the statutory auditors of the
issuing company / company secretary in practice shall certify that
the issue of the said instruments is being made in accordance with
these Rules. Such certificate shall be laid before the meeting of the
shareholders convened to consider the proposed issue.
27
Preferential Issues by Unlisted Companies –
Procedural Requirements
– The notice convening the general meeting of shareholders shall
disclose the following •
•
•
•
•
•
•
•
The price or price band at which the allotment is proposed;
The relevant date on the basis of which price has been arrived at;
The object/s of the issue through preferential offer;
The class or classes of persons to whom the allotment is proposed
to be made;
The intention of promoters/directors/key management persons to
subscribe to the offer;
The shareholding pattern of promoters and others classes of shares
before and after the offer;
The proposed time within which the allotment shall be completed;
Whether a change in control is intended or expected.
28
Preferential Issues by Listed
Companies – Main Requirements
• It should be ensured that the proposed preferential allotment does
not violate the minimum non-promoter holdings required under the
continuous listing requirements. This is going to be uniformly 25%
for all companies from June 2013.
• The requirements of board meeting and general meeting are
identical since special resolution under Section 81(1A) has to be
passed.
• Notice to the concerned stock exchange before and after the Board
Meeting should be given under the listing agreement. Other
relevant provisions of listing agreement and Takeover Code to be
kept in mind.
• All existing shareholdings of the proposed allottees should be held
in demat form. If not they should be dematted including promoter
holdings.
29
Other Procedural Aspects for Preferential
Issues
• Convene the Board Meeting to consider the final term sheet
proposed by the investor after the negotiations and due diligence
has been completed.
• In cases where there is a subscription agreement, the Board
meeting should be convened to approve the draft agreement(s) and
authorise the signatories for execution of the agreements.
• At the Board Meeting, the date for convening of the EGM for
passing the necessary resolutions is considered and the Secretary /
MD is authorised to convene the meeting.
• Based on the proposed date of the shareholders’ meeting, the
‘Relevant Date’ for the pricing guideline of SEBI is ascertained and
the issue price / conversion price is determined. In the case of
convertibles, the relevant date can be fixed at 30 days prior to the
date of conversion.
30
Other Procedural Aspects for Preferential
Issues
• For listed companies, the explanatory statement under section
173(2) for the proposed resolution authorising the preferential
allotment shall specifically contain the following –
– The objects of the preferential issue
– Intention of the promoters / directors /key management personnel
to subscribe to the offer.
– Shareholding pattern before and after the offer.
– Proposed time within which the allotment shall be completed.
– The names of the proposed allottees and the percentage of their
shareholding in the company on completion of the allotment.
31
Other Procedural Aspects for Preferential
Issues
• The statutory auditors of the company shall certify that the
proposed allotment has met the provisions applicable to preferential
allotments and such certificate should be laid before the EGM.
• In case of shares being allotted for consideration other than cash, a
separate valuation certificate will need to be obtained and it should
also be submitted to the concerned stock exchange.
• The EGM shall convene on the appointed date and pass a special
resolution under section 81(1A) of the Companies Act authorising
the company to allot shares on a preferential basis to the proposed
investors. The resolution shall specifically state the relevant date
being used for determining the allotment price / conversion price.
• The EGM may also have to pass necessary resolution for increase in
authorised capital of the company to accommodate the preferential
allotment.
• The EGM may also have to pass special resolution for amendment
of the Articles of Association to the satisfaction of the proposed
investors.
32
Other Procedural Aspects for Preferential
Issues
• ROC filings for special resolutions and increase in authorised capital
where necessary.
• The subscription list of the proposed allottees and amounts due on
allotment has to be prepared based on the subscription agreement or
the applications furnished by the investors. For this purpose, the
company has to print limited amount of special application forms.
• If non-resident investors are involved, it has to be examined whether
the proposed investment falls within the sectoral FDI cap. If not, prior
to the EGM passing the special resolution, the approval from FIPB
should have been obtained.
• Obtain the valuation certificate from the auditors / chartered
accountant for the purpose of non-resident investors that the offer price
is in conformity with RBI guidelines on pricing.
33
Other Procedural Aspects for Preferential
Issues
• Receipt of subscription amounts from the investors. From non-resident
investors, the remittances have to come through normal banking
channels. The company has to obtain the FICR from the authorised
dealer for the remittance.
• A second board meeting to be convened to approve the allotment of
shares under the preferential issue. In the case of listed companies, the
allotment has to be completed within 15 days from the date of the
special resolution (EGM date). If FIPB approval is not received by such
time, the 15 day period should be reckoned from the time of receipt of
the approval.
• If allotments are not completed within 15 days as stated above, the
resolution shall lapse and fresh consent from shareholders would be
required.
• On completion of allotment, within 30 days, the return of allotment has
to be filed and if there are non-resident allottees, form FC-GPR should
also be filed with the RBI.
• Listing formalities to be completed in compliance with the listing
agreement.
34
QIP Disclosures and Placement
Document
• The QIP offer document should be prepared in accordance with the
disclosure requirements and should contain inter alia, the following –
–
–
–
–
Summary of the Offering and Instrument
Risk Factors
Market Price Information and details of trading volumes as prescribed.
Use of proceeds
•
•
•
•
–
–
–
–
–
–
purpose of the issue;
break-up of the cost of project for which the money is raised through issue;
the means of financing such project; and
proposed deployment status of the proceeds at each stage of the project.
Industry Description
Business Description
Organizational Structure and Major Shareholders
Board of Directors and Senior Management
Taxation Aspects relating to the Instrument
Legal Proceedings
35
QIP Disclosures and Placement
Document
– Capitalization Statement
– The audited consolidated or unconsolidated financial statements prepared
in accordance with Indian GAAP shall contain the following:
– Report of Independent Auditors on the Financial Statements
•
•
•
•
•
•
•
•
Balance Sheets
Statements of Income
Schedules to Accounts
Statements of Changes in Stockholders’ Equity
Statements of Cash Flows
Statement of Accounting Policies
Notes to Financial Statements
Statement Relating to Subsidiary Companies (in case of unconsolidated
financial statements)
– Management’s Discussion and Analysis of Financial Condition and Results
of Operations
– Accountants
– General Information
36
QIP Disclosures and Placement
Document
• The QIP memorandum should be numbered and circulated
privately and also placed on the website of the company and the
stock exchange and also sent to SEBI within 30 days of allotment
for record.
• Appointment of a merchant banker for the QIP is mandatory.
• The merchant banker shall conduct due diligence and issue
necessary certificate to stock exchange on the compliance of the
QIP guidelines and apply for listing of the QIP shares. A copy of
the QIP memorandum should also be furnished. The listing
application should also be accompanied by a certificate from the
company that the issue has been made in accordance with the QIP
guidelines and other necessary undertakings under the Listing
Agreement.
37
Preferential Issue vs QIP - An assessment
•
•
•
•
•
•
Currency of shareholders’ resolution – Preferential Issue has to completed in 15
days while QIP can be executed within 12 months. This provides greater
flexibility for the company in negotiating the terms and finding appropriate
investors.
The shares issued to investors under preferential issue are locked in for one
year. There are also other lock-in restrictions. However, shares issued under
QIP are free from lock-in for secondary market sales. This provides better
flexibility for the investors and a premium to market price for the company.
Convertibles issued under QIP have a currency of 60 months vis-à-vis 18
months in a preferential issue. This provides a staggered dilution and better
investor perception and market capitalisation.
There are however restrictive covenants on the number of investors and the
maximum allotment per investor under QIP while no such restrictions exist
under preferential issue.
The cost of a QIP would be higher since there is a requirement for
appointment of a merchant banker and due diligence and preparation of QIP
document.
The level of disclosures in QIP are higher than in a preferential issue.
38
Role of CA in Preferential Issues
• As Practitioners –
– Auditors’ certification for preferential issue of convertibles by
unlisted companies.
– Statutory audit or financial reporting to be included in
Information Memorandum / Placement Document / IPP Offer
Document
– Tax benefits certificate for company
– Tax benefit certificate for investor
– Opinions as may be necessary in tax matters relating to
company
– As due diligence agencies to conduct Accounting and Financial
DDR.
– DCF Valuation Certificate under FEMA for unlisted companies.
– Certification for the purposes of Section 56(viib) of the IT Act.
– Independent Valuation Certificate / Fairness Opinion for
pricing as per SEBI Regulations for furnishing under listing
agreement / FEMA
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Role of CA in Preferential Issues
• As Industry CAs working as merchant bankers, independent
consultants and corporate advisors –
– Mandatory merchant banking services for QIP and IPP offers .
Role includes DDR, certifications, transaction advisory
including pricing and deal compliance.
– Mandatory certification for valuation under SEBI / FEMA
– Independent certification / Fairness Opinion on Valuation.
– Advisors and consultants are associated mainly to advise the
company / promoters on transaction structure, term sheet
conditions, commercial and tax/ legal aspects.
• As CFOs / Finance Heads of Issuer Companies –
– Back ending the transaction for preparation of offer literature,
due diligence by external agencies.
– Complementary role with Company Secretary in Board and
AGM processes.
– Certification from auditors / Merchant bankers
– Statutory Compliance and deal close matters.
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THANK YOU
CA. Pratap Subramanyam
FCA,ACS
[email protected]
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