Raising Finance from Capital Markets refers to the process through which companies obtain long-term funds from the public by issuing securities such as equity shares, preference shares, debentures, or convertible securities through recognised stock exchanges. Companies access the capital market primarily through instruments such as Initial Public Offer (IPO), Follow-on Public Offer (FPO), Rights Issue, Qualified Institutional Placement (QIP), and private placements. These securities are offered to investors in order to mobilise capital for business expansion, project financing, debt repayment, or other corporate purposes.
Table of Contents
- REG – 7 General Conditions for Public & Right Issue
- Appointment of Merchant Bankers & Other Intermediaries
- REG – 6 Conditions for Initial Public Offer (IPO)
- REG – 28 Pricing
- REG – 29 Price & Price Band
- REG – 30 Differential Pricing
- REG – 14 Minimum Promoter Contributions
- REG – 16 Lock-In of Specified Securities Held by Promoters
- Book Building Process (BBP) – SCH XI
- REG – 32 Allocations in Net Offer
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1. REG – 7 General Conditions for Public & Right Issue
A public or right issue of equity shares & convertible securities cannot be made by an issuer under following conditions:
- SEBI has debarred the issuer, any of its promoters, promoter group or directors or selling shareholders from accessing the capital market.
- SEBI has debarred any other company whose promoters, directors are also director or promoter of the issuer, from accessing the capital market.
- If any of its promoters/directors is fugitive (runaway) offender, the restriction (a) & (b) shall not apply to persons who were debarred in the past and the period is over on the date of filing of prospectus.
- A public issue cannot be made if promoter/director is wilful defaulter.
- Issue cannot be made unless an application for in principles approval of listing of equity shares & convertible securities is made to Recognised Stock Exchanges (RSE) & one of them is chosen as Designated Stock Exchange (DSE).
- In case of IPO, application is to be made to at least 1 RSE having nation-wide terminals.
- Unless an agreement is entered into with depositories for dematerialisation of equity shares & convertible securities already issued or proposed to be issued.
- Unless firm arrangements of finance through verifiable means for 75%of stated means of finance, excluding amount to be raised through proposed public or right issue or existing identifiable internal accruals.
- Promoter’s holding before filling of offer document must be in dematerialised form.
- The amount for general corporate purposes mentioned objects in draft offer document should not exceed 25% of amount raised.
- Unless the existing partly paid up shares are either forfeited or are fully paid up.
- Issue shall be open for at least 3 days & not more than 10 days.
- Minimum subscription shall be 90% of issuer size. If not then, amount will be refunded within 15 days of closure of issue.
2. Appointment of Merchant Bankers & Other Intermediaries
The issuer will appoint one or more merchant bankers (MR) of whom at least 1 will be lead merchant banker (LMR).
The rights, obligations & responsibilities relating to disclosures, allotment, refund & underwriting should be pre-determined & disclosed in offer document, if more than 1 merchant banker is appointed.
The issuer should also appoint SEBI registered intermediaries, in consultation with LMR for carrying out the obligations relating to issue.
The issuer shall in case of BBP, appoint syndicate members & in other case appoint bankers to issue at various centers.
The issuer shall appoint Registrar to issue registered with SEBI having connectivity with all depositories.
The issuer shall appoint compliance officer who shall be responsible for monitoring the compliance of securities laws & for redressal of investors.
3. REG – 6 Conditions for Initial Public Offer (IPO)
All of the following conditions are to be fulfilled:
- The issuer must have Net Tangible Assets (NTA) of at least Rs. 3 crores in each of the preceding 3 years (of 12 months each).
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- Out of which not more than 50% NTA must be held in monetary assets.
- If more than 50% of NTA are held in monetary assets, then firm commitment to use the excess in business projects must be made.
- The 50% will not apply in case of IPO entirely through offer for sales.
- The issuer must have average pre-tax operating profit of Rs. 15 crores during 3 most profitable years out of preceding 5 years.
- The issuer must have Net Worth (NW) of at least Rs. 1 crore in each of preceding 3 full years.
- If the issuer has changed its name within last 1 year, then at least 50% of revenue for preceding 1 year must be earned from activities conducted under changed name.
If any of the above conditions are not fulfilled then the issuer may make an IPO by fulfilling following conditions:
- Issue is made through Book Building Process (BBP).
- Issuer undertakes to allot at least 75% of net offer to public to Qualified Institutional Buyers (QIB).
- Issuer must refund the entire subscription money, if it fails to make allotment to QIB.
- The issuer must have at least 1000 prospective allottees.
- An issuer can make IPO of convertible debt instruments without making a prior public issue of its equity shares & listing, provided company has not defaulted payment of interest/principal for a period of 6 months.
- IPO can be made only if there are no outstanding convertible securities or any other rights entitling person an option to convert into equity after IPO.
- If the issue size is more than Rs. 100 crore, a bank, PFI shall monitor on quarterly basis till 95% of utilization of funds.
- The issuer may obtain grading for its IPO from 1 or more Credit Rating Agencies registered with SEBI.
4. REG – 28 Pricing
The issuer in consultation with LMR or through BBP may determine the prices of equity shares.
The issuer in consultation with LMR or through BBP may determine the coupon rate & conversion price in case of issue of convertible securities.
The issuer may mention a price or price band in offer document & floor price in red herring prospectus.
The issue price shall not be less than the face value.
5. REG – 29 Price & Price Band
The issuer may in case of:
- Fixed Price Issue – Price or price band in offer document
- Book Built Issue – Floor price or price band in red herring prospectus
The floor price shall not be less than the face value.
The cap price should not be more than 20% of floor price.
Face value may be less than Rs. 10 but not less than Rs. 1 per share, if the issue price is Rs. 500 or more.
The face value shall be Rs. 10 per share, if the issue price is less than Rs. 500.
6. REG – 30 Differential Pricing
The issuer may offer its specified securities at different prices subject to following:
7. REG – 14 Minimum Promoter Contributions
The promoter’s contribution varies case to case as follows:
8. REG – 16 Lock-In of Specified Securities held by Promoters
In case of public issue of IPO, the promoter’s contribution shall be locked
9. Book Building Process (BBP) – SCH XI
A process undertaken to arise demand & assess price for determining the quantum or value of specified securities or IDR as per SEBI (ICDR) Regulations, 2018 is called book building process.
10. REG – 32 Allocations in Net Offer
In an issue made through book building process, the allocation in net offer to public is made as follows:
In an issue made through the book building process, the issuer may allocate up to 60% of the portion available for allocation to QIB to an Anchor Investor in accordance with the conditions specified.
Any unsubscribed part of RII or NII may be allocated to applicants in any other category. Along with 5%, the mutual funds are also eligible for allocation under balance available for QIB.
In an issue made through book building process under REG 6(2), the allocation in net offer to public is made as follows:
In an issue made other than through book building process, the allocation in net offer to public is made as follows:
Any unsubscribed part in remaining section can be allocated to any other applicant.
If RII’s are entitled to more than 50% on proportionate basis, then they will be allocated that higher percentage.
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