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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?

ProspectusProspectus

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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 Acceptance of the offer,

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.

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ISSUES

Public Rights Preferential

Initial Public Offering (IPO)

Further Public Offering (FPO)

Fresh Issue Offer for Sale Fresh Issue Offer for Sale

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

P riva te P lacem ent B ought-out D ea l(O ffe r fo r S a le )

Issue o f P rospec tus

Raising of Capital

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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 - Disclosure as per SEBI guidelines mandatory in

addition to the requirement of schedule to the Companies Act.

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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 –

Avoidance of allotment,

punishment

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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.

Presentation By

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

PVS CORPORATE AND ALLIED SERVICESe-mail:Jainsir@rediff.mail

S-13, “SABURI”, Bharat Nagar, NAGPUR-400 010.

Presentation on Book- Building and

Listing of Securities

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Book BuildingOverview – 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.

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75% Book-Building Process 100% Book-building Process

Process of Book-building

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BOOK – BUILDING100% Book Building

QIBsMFs, Banks,

FIIs, VCF,

Pension Fund

Non-institutional

Bidders

> 1000 shares

Retail

Bidders

<

1000 shares

Upto 50% of Net Offer to

Public

Minimum 15% Minimum 35%

Discretionary Allotment

Proportionate Allotment

Proportionate Allotment

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BOOK – BUILDING75% Book Building

QIBsMFs, Banks,

FIIs, VCF,

Pension Fund

Non-institutional

Bidders

> 1000 shares

Retail

Bidders

<

1000 shares

Upto 50% of Net Offer to

Public

Minimum 15% Minimum 35% at fixed

price BB

Discretionary Allotment

Proportionate Allotment

Proportionate Allotment

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The option is available to the Issuer Company subject to the following-

I) 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.

Eligibility Norms and Rules for 75% Book- Building Process

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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

Issue closes for subscription

Allotment made to the investors

Shares come to investor's demat account

Trading in shares starts

at least 3 working days

15 days of the closure of the issue

7 days from the finalization of allotment

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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.

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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 as the OVER ALLOTMENT provision.

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

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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

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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 IDIOM-METAPHOR)

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.

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5.8 IS THERE ANY LIABILITY FOR MIS-STATEMENT IN PROSPECTUS?

A. Civil Liabilities for mis-statements in prospectusa. 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.

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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

fictitious name.

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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