FURTHER ISSUE OF SHARES - OVERVIEW OF BASIC CONCEPTS
Pammy JaiswalVinod Kothari and Company
Kolkata:1006-1009, Krishna224 AJC Bose RoadKolkata – 700 017Phone: 033 2281 3742/7715Email: [email protected]
New Delhi:A-467, First Floor, Defence Colony, New Delhi-110024Phone: 011 6551 5340Email: [email protected]
Mumbai:403-406, Shreyas Chambers175, D N Road, FortMumbaiPhone: 022 2261 4021/ 3044 7498Email: [email protected]
Website: www.vinodkothari.com
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Vinod Kothari and Company, consultants and advisors
Based out of Kolkata, New Delhi & Mumbai
We are a team of consultants, advisors & qualified professionals having over 30 years of practice.
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AGENDA
Modes of raising funds under Act, 2013
Modes of raising capital under Act, 2013
Further issue of shares – Scope of section 62 under Act, 2013
Understanding Rights Issue
Issue of shares under ESOP
Preferential Issue of shares and securities
Private Placement of securities
MODES OF RAISING FUNDS UNDER ACT, 2013
Shares
Warrants Debentures
Money market
instrumentsLoans
Equity Shares
Preference Shares
Non-convertible
Compulsorily convertible
Optionally Convertible
Partially convertible
Conditionally convertible
MODES OF RAISING CAPITAL UNDER ACT, 2013
Public Issue
Rights Issue
Preferential Issue
Private Placement
Bonus Issue
FURTHER ISSUE OF SHARES- SCOPE OF SECTION 62 UNDER ACT, 2013
Sec 62 (1) (a) - Rights issue of shares to all existing equity shareholders.
Sec 62 (1) (b) – Issue of shares to employees under a scheme of Employee Stock Option (ESOP).
Sec 62(1) (c) – Issue of shares or securities on preferential basis
UNDERSTANDING RIGHTS ISSUE (1/9)
Offer to all existing equity shareholders in the proportion of their shareholding
Equity Shares Preference SharesConvertible
Preference SharesConvertible Debentures?
UNDERSTANDING RIGHTS ISSUE (2/9)
• Convertible debentures are in the nature of deferred equity
• Ideally there is no redemption
• Merges with the share capital on conversion
De-facto equity
• Investors can enjoy the taste of both
• interest receivable during the tenure of debentures and
• holding equity on conversion
Hybrid instrument
• SEBI ICDR Regulations explicitly provide for rights issue of convertible debentures
• Under FEMA Act, FDI mean investment in the capital of the company which in turn includes CCDs
Other regulatory framework
Why should convertible debentures be included under rights issue?
UNDERSTANDING RIGHTS ISSUE (3/9)
Rights Issue of equity shares
Pass a BR
Compliance under SEBI ICDR and
LODR Regulations (in case of listed
company)
Circulation of Offer letter
Open Bank A/cAcceptance and
subscription
Allotment of equity shares and filing of e-
forms
UNDERSTANDING RIGHTS ISSUE (4/9)
Rights Issue of preference shares
Pass a BR and SR
Compliance under SEBI ICDR and
LODR Regulations (in case of listed
company)
Circulation of Offer letter
Open Bank A/cAcceptance and
subscription
Allotment of equity shares and filing of e-
forms
UNDERSTANDING RIGHTS ISSUE (5/9)
Rights Issue of share warrants
Pass a BR
Compliance under SEBI ICDR and
LODR Regulations (in case of listed
company)
Circulation of Offer letter
Open Bank A/cAcceptance and
subscription
Allotment of equity shares and filing of e-
forms
UNDERSTANDING RIGHTS ISSUE (6/9)
Rights Issue of convertible debentures
Pass a BR and SR
Compliance under SEBI ICDR ad LODR Regulations (in case of listed company)
Circulation of Offer letter
Open Bank A/cAcceptance and
subscription
Allotment of equity shares and filing of e-
forms
UNDERSTANDING RIGHTS ISSUE (7/9)
• Offer letter to provide a time period of 15 -30 days
• Private cos exempted
• Acceptance / refusal by all the offerees
/renounces before the end of offer period
• offer deemed to expire
• letter to contain such statement
• Dispatch of offer letter through
• registered post or
• speed post or
• through electronic mode or
• courier or
• any other mode having proof of delivery
at least three days before the opening of the
issue
• Rights issue of preference shares
• Comply additionally with section 55 read with Rule
9 of the Companies SCD Rules, 2014.
• Rights issue of convertible debentures
• Comply additionally with section 71 read with Rule
18 of the Companies SCD Rules, 2014
Compliances at a glance –Act, 2013
UNDERSTANDING RIGHTS ISSUE (8/9)
• Seek in-principle approval
• Select a designated stock exchange
• Not more than 25% of amount raised should for
general corporate purpose
• For rights issue of convertible debentures and
warrants
• Obtain credit rating
• Appoint a debenture trustee
• Issuance of debentures to more than 500
person, or
• Issuance of secured convertible debentures
• Creation of DRR as provided under Act, 2013
• Creation of security
Compliances at a glance – SEBI ICDR Regs.
• For rights issue of warrants
• Not extend tenure of more than 18 months from
the date of allotment
• Pricing formula be decided upfront
• Atleast 25% of the exercise price should be
received upfront
UNDERSTANDING RIGHTS ISSUE (9/9)
• Prior and post intimation to stock exchange of the board meeting dealing approving issuance
• Intimation of record date
• Intimation of notice of shareholder’s meeting
Compliances at a glance – SEBI LODR Regs.
ISSUE OF SHARES UNDER ESOP
ESOP
Eligible employees of company (hold co /
subsidiary co)
Approval through SR
Disclosures under Rule 12 of Companies
SCD Rules
Compliance under SEBI SBEB Regs (in case of listed co)
Offer of shares and securities on preferential
basis
Person u/s 62 (1) (a) Person under 62 (1) (b)Any other group of
specified person
PREFERENTIAL ISSUE OF SHARES AND SECURITIES (1/2)
Compliances
Rule 13 of Companies SCD Rules
Rule 14 of the Companies PAS Rules
Sec 55 / Sec 71 read with allied rules, as the case
may beSEBI ICDR Regs.
PREFERENTIAL ISSUE OF SHARES AND SECURITIES (2/2)
SECTION 62 (3) NOT AN INDEPENDENT MODE UNDER SECTION 62!
1st Stage
Issuance of original security
(Convertible debt)
• Section 62(1)
• Section 42
2nd Stage
Issuance of shares
• Section 62(3)
Offer of securities
Limited number of offerees
Other compliances
•Securities take their meaning from SEBI SCRA
• Includes equity , debt, preference shares, convertible instruments, warrants,
•Max no. 200 for each class of security in FY
•Excludes past and present employees ad QIBs
•Breach of limit makes it a deemed public offer
•Pre-identification of investors
•Passing of BR and SR (if not previously approved)
•Circulation of PPOL
•Opening of separate bank account
•Valuation requirements
•Requirements under SEBI ICDR / SEBI ILDS for listing of privately placed securities
•E-form filing
PRIVATE PLACEMENT OF SECURITIES (1/3)
PRIVATE PLACEMENT OF SECURITIES (2/3)
Meaning of the phrase ‘select group of persons’
Act, 2013 uses the phrase ‘ select group
of person’
Act, 1956 defined
‘domestic concern’
Act, 1956 did not defined
private placement
In the matter of
Rattan Singh v Moga
Transport Co, indirect
meaning of domestic
concern
Private placement
Offered to more than
200 persons
Deemed public offer
(section 40 of Act, 2013 and
SEBI ICDR Regs.)
Private placement of securities Jumping to public issue
PRIVATE PLACEMENT OF SECURITIES (3/3)
FUND RAISING TREND IN 2019
49951
71183
10019
0
10000
20000
30000
40000
50000
60000
70000
80000
Fund Raising Modes
Chart Title
Rights Issue Private Placement Public Issue
Amount in INR (crores)https://www.primedatabase.com/medianews.asp
SAT RULING IN THE MATTER OF CICL- SEARCHING THE LOST BOUNDARY!
SAT held that issuance of FCDs was not under section 42 but under section 62 (3) of the Act which is an independent sub-section and an exception to section 62, read with section 71 of the Act readwith allied rules.
Company filed appeal before SAT stating that section 42 is not applicable and the issue of FCDs is made under section 62(3) of the Act which has not been considered by the SEBI
On receipt of certain complaints, SEBI enquired and observed that the offer of FCDs by the Company and subsequent allotment were deemed public issue of securities undersection 42 of the Act read with Rule 14(2)(b) of the Companies (Prospectus and Allotment of Securities) Rules, 2014. Accordingly, provisions of section 40 of the Act as wellas SEBI ICDR Regulations was required to be complied.
An unlisted public limited company offered to issue Unsecured Fully Convertible Debentures (‘FCDs’) to all its 1929 existing shareholders, with the condition that the shareholders will haveno right to renounce the offer in favour of any person and that these debentures would be mandatorily converted into shares upon maturity. Out of these only 335 shareholders subscribed
CONTACT US
Vinod Kothari and Company
Kolkata:1006-1009, Krishna224 AJC Bose RoadKolkata – 700 017Phone: 033 2281 3742/7715Email: [email protected]
New Delhi:A-467, First Floor, Defence Colony, New Delhi-110024Phone: 011 6551 5340Email: [email protected]
Mumbai:403-406, Shreyas Chambers175, D N Road, FortMumbaiPhone: 022 2261 4021/ 3044 7498Email: [email protected]
Website: www.vinodkothari.com