According to SEBI, It has been observed that existing listed issuers have preferred private placement including Qualified Institutional Placement (QIP) route vis-à-vis a subsequent offerings by way of Further Public Offer (FPO) / Rights Issue. Further, participants in various forums have indicated that issuers have inclination towards private placement, because of shorter time frame and lower costs associated with such route.

Now, SEBI is examining how to further facilitate capital raising by existing listed companies through FPO/Rights issue so as to provide retail investors the opportunity to participate in subsequent offerings and enable issuers to raise capital in the shortest possible time duration from issue closure to listing. By the end in 2010, the timeline was reduced by SEBI from 22 days to 12 days and now it is exploring ways and means to further curtail the timeline from 12 days.

The said discussion paper contains proposal on the following two areas

I. Proposal on use of Secondary Market infrastructure for making applications in Public Issue e-IPO

The broad process flow by using the secondary market infrastructure for primary issuance would be as under

1. Investor will be able to submit his application to/place order with any SEBI registered Stock Broker, Depository Participant (DP) or Registrar and Transfer Agent (RTA) and Self Certified Syndicate Bank (SCSB). Depositories can take access to the Stock Exchange platform and in turn provide the same to their DPs / RTAs (other than the RTA, who acts as the RTA to the particular issue, to address the concerns of conflict of interest). Investor will continue to have the option of submitting Application Supported by Blocked Amount ("ASBA") application to SCSB or stock broker. To start with DP and RTA shall accept only ASBA applications. However, they may be enabled to accept non-ASBA applications in future subject to appropriate changes in the regulatory framework, as may be necessary.

2. Investors can also fill the application form online and submit it on the web portal of trading member, DP/ RTA or SCSB (in case of ASBA), if provided by the intermediary. Under this case, the investor will not be required to physically sign  any paper as even the Companies Act, 2013 recognizes the electronic form of a document. This will help eliminate printing application form and thereby reduce the overall cost of public issuance.

3. On receipt of application, the Stock Broker / DP / RTA/ SCSB will have to lodge the application on the bidding platform

4. Investors will not be able to withdraw bids upon closure of the issue. Upon closure of the issue, the bid book shall be made available to the Registrar by Stock Exchanges and Depositories. Details of payment confirmation for the bids will be made available by banks, and clearing corporation to the Registrars.

5. Based on the bid file and payment confirmations, Registrars will finalise the basis of allotment.

6. On approval of basis of allotment by Stock Exchanges, Registrars will give instructions to clearing corporations and banks to credit funds in the public issue account maintained by the clearing corporation. Excess money received will be refunded to the investors by the stock broker / bank, as the case may be.

7. Upon confirmation of receipt of public issue amount by the clearing corporation to the Registrar, instruction will be issued to Depositories to credit securities directly to the investor’s account.

8. On confirmation of the same, Stock Exchanges will issue the listing and trading notice. Based on trading notice, funds will be transferred from public issue account of the clearing corporation to issuer’s account.

9. Investors would get SMS/e-mail alert for allotment under the IPO, similar to alerts being sent to investors for secondary market transactions

10. On account of the above, the post issue timelines will reduce from T+12 days to T+6 days. Once the process gets stabilised, timelines can be further curtailed to T+3/2 days. Further, on account of reduction in printing of application forms, the overall cost of public issues will also come down.

11. The suggested changes shall be applicable for applications in the retail and employee reservation categories. Primary Market Advisory Committee (PMAC) of SEBI while deliberating on the matter proposed that ASBA should be made non-mandatory for non-retail clients as well since the secondary market infrastructure is proposed to be used and thereby the (unutilized / excess) funds of the clients (both retail and non-retail) available with the Brokers can be used for applying in the IPOs/FPOs/RI, instead of bringing additional funds. Another view in this respect was that parity among the investors shall be maintained by mandating 100% ASBA for retail investors also as ASBA has been working well and has scope for reducing timelines by eliminating cheques from the process.

12. The said proposal may be used for debt issues as well. However, in order to make this mechanism applicable to debt issues, suitable amendments may be required under SEBI (Issue and Listing of Debt Securities) Regulations, 2008.

13. It is proposed to discontinue the three day monitoring report considering the reduction of overall timelines to T+6. A framework for redressal of investor grievances has been laid out. A framework for use of mobile applications for making bids in public issues has been suggested for implementation in future

II. Proposal on Fast Track Issuances (FPO and Rights Issue)

Based on deliberations, it is proposed that the fast track route may be extended to companies having an average market capitalisation of public shareholding between Rs. 250 crores to Rs. 3,000 crores, subject to fulfillment of certain additional conditions, along with the existing conditions stated in Regulation 10 of ICDR Regulations. The additional conditions proposed are as under:

i. Promoters should mandatorily subscribe to their rights entitlement and should not renounce their rights, except to the extent of renunciations within the promoter group, or for the purposes of complying with minimum public shareholding norms.

ii. Shares of the company should not have been suspended (except for corporate actions) from trading in past 3 years.

iii. Annualised delivery based trading turnover requirement of 10% of the total paid up capital.

iv. No direct or indirect conflict of interest should be there between the lead manager, its group or associate company with the issuer or its group or associate company.

v. Issuer, promoter group and directors of the issuer should not have settled any alleged violation of securities laws through the consent mechanism with the Board in last 3 years.

In addition to above, for facilitating divestment of Central Public Sector Enterprises (CPSEs), it is recommended that the fast track issue route shall be available to them without the requirement of a minimum average market capitalisation of public shareholding subject to CPSEs complying with all the other existing conditions for Fast Track route. Also, in case where CPSE is not able to comply with any of these conditions, SEBI may, based on the merits of the case, consider granting exemption.

Public comments are to be e-mailed on or before January 30, 2015, to capitalraising@sebi.gov.in or sent by post, to:-
Shri. Amit Tandon
Deputy General Manager
Corporation Finance Department
Securities and Exchange Board of India
SEBI Bhavan
Plot No. C4-A, "G" Block
Bandra Kurla Complex
Bandra (East), Mumbai - 400 051
Ph: +91-22-26449373/ +91-22-26449483

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