Transcript Clause 49 of the Listing Agreement

SEBI REGULATIONS –
A BACK OFFICE PERSPECTIVE
Seminar Organised by ICSI & RAIN
March 19, 2005
SEBI REGULATIONS – A BACK OFFICE
PERSPECTIVE
• Preferential Allotment
• Delisting
What is Preferential Allotment
• If shares are issued other than as a ‘rights issue’ or
‘public issue’ or ‘offer for sale’, the issue is commonly
referred to as ‘preferential issue’ and necessary
compliances are required for the purpose
• As per DIP Guidelines, “Preferential Allotment”
means an issue of capital made by a body corporate in
pursuance of a resolution passed under Sub -section
(1A) of Section 81 of the Companies Act, 1956.
Preferential Allotment - Regulatory
Framework
• Companies Act, 1956 - Sections 67, 75, 81 and 173
• SEBI (DIP) Guidelines, 2000 - Chapter XIII : Guidelines for
Preferential Issues
• Listing Agreement
• SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
1997
• SEBI (Prohibition of Insider Trading) Regulations, 1992
• Companies (Issue of Share Certificates) Rules, 1960
• SEBI (Delisting of Securities) Guidelines, 2003
• Depositories Act, 1996
• Unlisted Public Companies (Preferential Allotment) Rules, 2003
• Stamp Act
• Guidelines issued by GOI/SEBI/RBI for preferential allotment if
made to Foreign Institutional Investors/ Overseas by issuing
GDRs/ADRs/FCCBs
Preferential Allotment – Listing
Agreement
• Clause 24(a): In-principle approval
– Issuer to obtain ‘in-principle’ approval for listing before
issuing further shares or securities.
• Clause 40A (iii)
– No preferential allotment can be made, if such allotment or
offer result in reducing the non-promoter holding below the
limit of public shareholding specified under DIP Guidelines
• Clause 43: Quarterly statement
– Issuer to furnish a statement on a quarterly basis indicating
the variations between projected utilisation of funds and/ or
projected profitability statement made by it or object/s stated
in the explanatory statement to the notice for the general
meeting for considering preferential issue of securities and
the actual utilisation of funds and/ or actual profitability.
Preferential Allotment – Listing
Agreement
• Clause 43: Quarterly statement
– The statement shall be given for each of the years for which
projections are provided in the explanatory statement & shall
be published in newspapers simultaneously with the
quarterly financial results as required under clause 41.
– If there are material variations between the projections and
the actual utilisation/ profitability, the company shall furnish
an explanation therefor in the advertisement and shall also
provide the same in the Directors’ Report.
• Clause 49
– Quarterly disclosure of uses/application of funds raised by
Preferential Allotment
– Annual Statement of funds utilised for purposes other than
stated purposes – certified by statutory auditors
to the Audit Committee till such time, money raised is fully
spent
Preferential Allotment – DIP Guidelines
Provisions of Chapter XIII
• Pricing
• Currency of Shareholders’ Resolution
• Lock-in Requirements
• Situations where preferential allotment is prohibited
• Other Requirements
• Exemptions
Preferential Allotment – DIP
Guidelines
Pricing (13.1.1)
• Price not less than the higher of the following:
– The average of the weekly high and low of the closing prices
of the related shares quoted on the stock exchange during the
six months preceding the relevant date; OR
– The average of the weekly high and low of the closing prices
of the related shares quoted on a stock exchange during the two
weeks preceding the relevant date.
• "relevant date" means the date thirty days prior to the date on
which the meeting of general body of shareholders is held
• Stock Exchange means a stock exchange in which the highest
trading volume in respect of the shares of the company has been
recorded.
Preferential Allotment – DIP Guidelines
Pricing (Contd…)
• Pricing of Shares arising out of warrants (13.1.2)
– While pricing shall be calculated in the same manner,
the relevant date at the option of the issuer could be:
• 30th day prior to date of shareholder meeting
• 30th day prior to the date of eligibility to apply/get shares
against warrants.
• Pricing of shares on conversion of PCDs/FCDs
(13.1.3)
– Pricing shall be calculated in same manner as
determined for allotment of shares in lieu of warrants
Preferential Allotment – DIP Guidelines
Currency of Shareholders resolution (13.4)
• Shareholders’ resolution for preferential issue of shares/
other instrument is to be implemented (by making
allotment and despatch of certificates) within 15 days
from the date of passing of the resolution (from the date of
regulatory or government approval, if required)
• If allotment and despatch of certificates are not completed
within 15 days from the date of shareholders’ resolution
fresh consent will be necessary; consequently the ‘relevant
date’ will also change.
Preferential Allotment – DIP Guidelines
Lock-in Requirements (13.3)
• Lock-in of 1 year from the date of allotment shall be applicable for all
preferential allotments made to all categories of allottees including
promoters
• Shares allotted on preferential basis to promoters/promoter group shall
be locked in for 3 years from the date of allotment
• Overall lock-in for promoter holding shall not exceed 20% of the post
issue capital
• Lock-in already complied shall be reduced while calculating lock-in on
shares arising upon conversion, etc.
• Pre-preferential allotment holding of the allottee shall also be kept under
lock-in from the relevant date up to 6 months from the date of making
preferential allotment
• Locked in securities can be transferred inter se amongst
Promoters/Promoter Group or to a new promoter or person in control of
the Company subject to SAST and subject to continuation of lock-in the
hands of the transferees for the remaining period
Preferential Allotment – DIP Guidelines
Situations where Preferential Issue can’t be made (13.3)
• Conditions for continuous listing not complied with
• Partly paid-up securities
• Pre-allotment Shareholding of the allottee not in demat form
• To those shareholders who have sold their shares during 6
months prior to the relevant date
Preferential Allotment – DIP Guidelines
Other Provisions
• Currency of instruments (Warrants/PCDs/FCDs/Others), with a
provision for the allotment of equity shares at a future date, shall
not exceed beyond 18 months from the date of issue of the
relevant instruments. (13.2)
• If warrants are allotted, at least 10% of the price fixed shall be
payable on allotment of warrant/ PCD; such amount to be adjusted
on exercising option. In case option is not exercised, amount will
be forfeited. (13.1.2.3)
• The statutory auditors of the Company shall certify that the issue
is being made in accordance with these Guidelines; the Certificate
shall be laid before the general meeting convened to consider
preferential issue (13.5)
Preferential Allotment – DIP Guidelines
Other Provisions (Contd…)
• In case preferential allotment is to promoters, their relatives,
associates/related entities for consideration other than cash,
valuation of assets shall be done by an independent qualified
valuer and the valuation report submitted to the exchanges on
which shares of the Issuer Company are listed. (13.5.1.c)
• Details of money utilised/ non-utilised out of the preferential
issue proceeds shall be disclosed under an appropriate head
in the Balance Sheet of the Company. (13.5A)
Preferential Allotment – DIP Guidelines
Exemptions (13.7) Guidelines will not be applicable, where shares are
issued :
• In pursuance to the merger and amalgamation
scheme approved by High Court
• In accordance with the provisions of Rehabilitation
package approved by BIFR
• To All India Public Financial Institutions in
accordance with the provisions of Loan
Agreements
Preferential Allotment – Other Regulatory
Provisions
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations
• Shares cannot be allotted to a person, who together with
persons acting in concert with him, would be entitled to
exercise more than 55% of the voting rights of the Company
post-allotment of the share capital
Companies Act, 1956
• Return of allotment of Shares in Form 2 to be filed with ROC
• Further listing of securities issued under Preferential
allotment with the Stock Exchanges
Stamp Act
• Requisite stamp duty as per State Stamp Act should be paid
on the securities issued under preferential allotment
Time Table – Preferential Allotment
15 days
30 days
25 days
Completion of
formalities
SEBI REGULATIONS – A BACK
OFFICE PERSPECTIVE
• Delisting of Securities
Delisting - Regulatory Framework
• SEBI (Delisting of Securities) Guidelines, 2003
• Listing Agreement
• Companies Act, 1956
– Section 61
– Notice of General Meeting, Special Resolution, etc.
• SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997
• SEBI (Ombudsman) Regulations, 2003
Modes of Delisting
• Compulsory Delisting
– Delisting Guidelines
– By Operation of Law eg. Decision of BIFR, Provision
of SEBI (Ombudsman) Regulations
• Voluntary Delisting
– Voluntary delisting from one or more of Stock
Exchange(s)
– Pursuant to Takeover
– Pursuant to Rights Issue
Delisting – Listing Agreement
• Clause 32
– Disclosure stating the fact of delisting together
with reasons is required in the Directors Report
• Clause 36
– Intimation to the Stock Exchanges about Voluntary
delisting by the company from the stock
exchange(s)
• Clause 40A
– Company shall maintain the level of non-promoter
holding at the level of public shareholding as
required at the time of listing, on a continuous
basis.
Delisting – SEBI Guidelines, 2003
• Applicability
– Voluntary delisting sought by the promoters
– Any acquisition of shares consequent to which the
public shareholding falls below the minimum limit
specified in the listing conditions or listing
agreement
– Compulsorily delisting by the stock exchanges
– Delisting pursuant to rights issue
• A Company is not permitted to use Buy Back
to reduce public shareholding and get its
shares delisted
Concept of ‘Public Shareholding’
Relevance: A Listed Company has to ensure that public
shareholding does not fall below the minimum level, otherwise
the shares will have to be delisted.
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Takeover Regulations, 1997: As per these Regulations, “public
shareholding” means shareholding held by persons other than
promoters as defined under clause (h) of the said Regulations
Securities Contract (Regulations) Rules, 1957: One of the
requirements of listing is that a Company should offer at least 25%
to public. 10% limits are available subject to fulfillment of certain
conditions (Rule 19(2)(b))
SEBI DIP Guidelines, 2000 requires the Issuer to comply with
Rule 19(2)(b) of Securities Contract (Regulation) Rules, 1957
SEBI Delisting Guidelines, 2003: As per the Guidelines, public
shareholding shall be the shareholding in a company held by
persons other than the promoter, the acquirer or the persons acting
in concert with him and the term ‘public holders of securities’ shall
be construed accordingly
Delisting – SEBI Guidelines, 2003
Voluntary Delisting - Provisions
• A Company listed for a minimum period of 3 years eligible
• Exit opportunity to be given to investors through a reverse book
building mechanism
• No exit opportunity required in cases where the securities
continue to be listed in a stock exchange having nation wide
trading terminals
• Amount of consideration for the tendered and accepted securities
shall be settled in cash
• In case offer resulted in acceptance of fewer number of shares
than the total shares outstanding and as a consequence the public
shareholding does not fall below the minimum limit specified by
the listing conditions or the listing agreement, the offer shall be
considered to have failed and no securities shall be acquired
pursuant to such offer
Delisting – SEBI Guidelines, 2003
Voluntary Delisting - Provisions
• Company to intimate to the Stock Exchanges its decision to
voluntary delist the securities
• Prior approval of shareholders by a special resolution
necessary
• Promoters to make a public announcement before making
application for delisting from all exchanges
• Appointment of Merchant Banker
• Appointment of Trading Members and Bidding Centres
• Application to Stock Exchanges for delisting after
completion of all prescribed formalities
Delisting – SEBI Guidelines, 2003
Exit Price – Provisions for Voluntary Delisting
• Offer Price shall have a Floor Price and no maximum
price
• Floor Price will be the average of traded price of the
preceding 26 weeks from the date of public
announcement
• Final Price shall be the price at which the maximum
number of shares has been offered. Example:
Offer Quantity
50
82
108
27
5
Offer Price
120
125
130
135
140
Remarks
Floor Price
Final Price
Time Table – Voluntary Delisting
Min 3 days
3 days
15 days
Announcement
- Within 2 Working Days
- Final Price
- Acceptance of Price
6 months
Right of
remaining
shareholders
to tender securities
Delisting – SEBI Guidelines, 2003
Voluntary Delisting via Rights Issue
• Promoters/Persons in Control subscribe the
unsubscribed portion in a Rights Issue which may
result in public holding falling below permissible
minimum level
• Delisting permitted if Promoters/ Persons in control
agree to buyout remaining holders at the price of
rights issue
• Promoters/ Persons in control make an ‘Offer for
Sale’ within 3 months to raise public shareholding
Delisting – SEBI Guidelines, 2003
Voluntary Delisting via Takeover
• In case, where post acquisition, public shareholding
in the target company would reduce to a level below
the limit specified in the Listing Agreement for the
purpose of listing on continuous basis, the acquirer
may acquire such shares or Voting Rights only in
accordance with the guidelines regarding delisting of
securities specified by SEBI
• Acquisition of shares in terms of SEBI (Delisting of
Securities) Guideliens, 2003 would not trigger the
Takeover Regulations
Delisting – SEBI Guidelines, 2003
Compulsory Delisting - Provisions
• Stock Exchanges may delist companies
– which have been suspended for a minimum period of six months for
non-compliance with the Listing Agreement
– Other grounds
•
•
•
•
•
No trading in Company’s securities
Non-performance in terms of revenue/income/profits
Minimal public interest
Negligible tangible assets
Unfavourable track record of compliance with the Listing Agreement for the past
three years
• Unfavourable Promoters’ Directors’ track record
• Company is sick and unable to meet current debt obligations
• Other relevant information available about the Company, its promoters/directors,
project, litigations, etc.
• In case of compulsory delisting,the promoter of the company shall be liable
to compensate the security-holders of the company by paying them the fair
value of the securities held by them and acquiring their securities, subject
to their option to remain security-holders
Delisting – SEBI Guidelines, 2003
Circumstances under which securities cannot be delisted
• Minimum listing period of 3 years not completed
• Outstanding convertible Instruments
• Minimum number of Shares to be acquired to enable
delisting is not tendered under the Exit Offer
• Additional conditions as may be prescribed by Stock
Exchanges not fulfilled
Delisting – SEBI Guidelines, 2003
Reinstatement of delisted securities
• Reinstatement of delisted securities permitted
by Stock Exchanges with a cooling period of 2
years
• Relisting is based on conditions prevailing at
that time and the application for relisting to be
scrutinised by Central Listing Authority
Delisting – Other Regulatory Provisions
SEBI (Ombudsman) Regulations, 2003
Securities of the Company shall be liable for delisting in
case of non-implementation of the Award of SEBI under
SEBI (Ombudsman) Regulations, 2003
Companies Act, 1956
A Company shall not, at any time, vary the terms of a
contract referred to in the prospectus or statement in lieu of
prospectus, except subject to the approval of, or except on
authority given by, the company in general meeting.
[Section 61]
Back Office Preparation
• Compilation of Share Prices and calculation of
appropriate price, computation of exit price etc.
• Drafting of Shareholders’ Resolution containing
relevant details as specified
• Calculation of Lock in Shares
• Drafting of Public Announcement, Advertisement,
Application to Stock Exchanges
• Taking of Auditor’s Certificate
• Disclosures in Balance Sheet / Director’s Report
Back Office Preparation
• Projection of funds to be raised, utilisation
of funds, variation if any, reasons for
material variation etc.
• Preparation of Quarterly / Annual Statement
• Obtaining Audit Committee’s Views, if any
• Appointment of Valuer, if required
• Allotment and Issue within time
Back Office Preparation
• Internal and External Interactions
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Shareholders
Stock Exchanges
Internal Accounts, Finance Departments
Audit Committee
Statutory Auditors
Valuer - Merchant Banker / CA
Bankers
Brokers, Bidding Centres etc.
Press
AND DON’T FORGET,
ALL THIS HAS TO BE DONE
BY WE –
COMPANY SECRETARIES
Thank You
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