Navigating SEBI Guidelines for Public Issue: Comprehensive Policies and Regulations for Capital Growth                

Introduction

The Security and Exchange Board of India is an important regulatory body in the nation. It plays a pivotal role in the regulation of the securities market in India. SEBI performs various important functions in the nation. 

One of SEBI’s critical functions is to oversee public issues. The SEBI ensures that public issues take place with transparency. It helps in protecting investors and maintaining market integrity.

Companies raise capital with the help of public issues. 

They are a significant avenue to secure funding. However, this process must be complied with within strict guidelines. SEBI ensures that the process safeguards investor’s interests and promotes safe practices. What are these guidelines that protect member’s interests? Let us understand SEBI guidelines for public issues!

What is a Public Issue?

Public issue refers to the financial process that helps a company raise capital. The capital is raised by offering shares or debentures to the public. These issues take various forms. These forms are:

Initial Public Offering

The company offers its shares for the first time to the public. It is the first sale of the company’s shares.

Follow-on Public Offering

This public issue is done by listed companies. It issues additional shares to the public. This type of offer increases the company’s capital. This issue is open to non-members as well.

Rights Issue

A company offers new shares of its company to its existing members. Rights issues help a company to convert its profit into its capital.

Offer for Sale

This issue is requested by a promoter or a large shareholder who intends to sell all or a proportion of their shares to the public.

Each of these public issues is under the obligation to comply with the SEBI guidelines for public issues. Following these provisions is essential to protect transparency in transactions. It is essential for market stability.

SEBI Guidelines for Public Issue

SEBI has established detailed and strict guidelines that guide companies in public issues. These guidelines generally cover different aspects like the eligibility criteria of the company, disclosure requirements needed, pricing system, and post-issue norms.

Eligibility Criteria for Public Issue

Companies must meet specific criteria to be eligible to apply to a public issue. This criteria is established to ensure the financial health of the company. Companies must be credible and financially stable to access public markets. The key eligibility criteria as per SEBI guidelines for public issues are:

Track Record

Companies need to maintain consistent profit to enter into a public issue. They should have tangible assets worth INR 3 Crore in each of the three preceding years.

Net Worth

Companies should have a net worth of INR 1 crore or more in the preceding 3 years.

Pre-issue Net Worth

The pre-issue net worth of the company should not be less than the post-issue paid-up capital.

Minimum Public Shareholding

The companies must ensure at least 25% of their capital remains with the public post their public issue.

Disclosure Requirements

Transparency is one of the most important reasons behind SEBI guidelines. Companies need to provide an extensive disclosure. This will benefit the investors and help them to make informed decisions.

Important disclosure norms include:

Prospectus

The prospectus is an important document that provides detailed information related to the company. This includes the company’s financial statements, its operational model, business models, and elements of risk and management. It is important to read the prospectus to understand the terms of the public issue. It must be examined and approved by SEBI and made available to potential investors.

Due Diligence

Companies must go through due diligence or an examination which is conducted by merchant bankers. The bankers test the company’s accuracy of information presented in the prospectus.

Financial Statements

Companies are required to present the audited financial statements for the past 5 years before opting for a public issue. The latest interim financial details have to be added, too.

Risk factors

Companies must disclose all material risk factors that may impact the business or company’s financial performance.

Pricing Mechanisms

SEBI guidelines for public issues also lays down the method for choosing the pricing mechanisms for public issues. This guarantees a fair valuation of shares and protects investor interests. Primarily, there are two main pricing mechanisms:

Fixed Price Issue

Here, the company sets a predetermined price for its share in the fixed price issue. Investors have to subscribe to the shares at the given fixed price. There is no market-driven price mechanism here.

Book building process

The company provides a price band in the book-building process. Investors can bid within this price brand, within the highest possible price and minimum issue price. The final issue price is determined based on the bids received by the company. The Book building process ensures a market-driven price mechanism. It considers the price that the market expects.

Pre-issue Obligations

Pre-issue obligations include: 

1. Filing of Draft Prospectus: Companies must file a draft prospectus with SEBI at least 21 days before the issue opening date. SEBI reviews the document and provides comments.
2. Public Announcements: Companies must make public announcements regarding the issue, including the issue opening and closing dates, price band, and other relevant details.
3. Appointment of Intermediaries: Companies must appoint intermediaries such as merchant bankers, registrars, underwriters, and syndicate members to manage the public issue process.

Post Issue Obligations

1. Allotment of Shares: Companies must complete the allotment of shares within 12 working days from the issue closing date.
2. Refund of Excess Application Money: If the issue is oversubscribed, companies must refund the excess application money to investors within 12 working days.
3. Listing and Trading: Companies must list their shares on recognized stock exchanges within 12 working days from the issue closing date to facilitate trading.
4. Post-Issue Monitoring: SEBI requires continuous monitoring of the use of proceeds from the public issue to ensure that funds are utilized as stated in the prospectus.

Investor Protection Measures

SEBI guidelines focus on investor protection through various measures: 

Underwriting

A portion of the public issues must be underwritten to ensure full subscription of the issues. This ensures successful subscription of the issues even when the public response is insufficient. 

Investor Grievance Redressal

Companies have to establish strong grievance redressal to solve all investor grievances. 

Price Stability 

SEBI guidelines for public issues have set strict price stabilization norms to protect investors from extreme price volatility immediately after listing. 

Certification

Merchant bankers have to certify the correctness of the disclosures mentioned in the prospectus. This acts as an additional protective layer for the investors. 

Corporate Governance and Compliance

SEBI guidelines look after the strict corporate governance policies and rules with the following regulatory requirements: 

Board composition

Companies are required to have an ideal mix of executive, non-executive, and independent directors on their boards. 

Audit Committee

The company must appoint an audit committee. This committee looks after the company’s financial reporting and internal control process. 

Conclusion 

SEBI guidelines for public issues are important guidelines that help corporations maintain integrity and transparency in India’s capital markets. SEBI ensures that public issues are conducted fairly and transparently by setting strict criteria for entrance, comprehensive and detailed disclosure norms, and efficient compliance measures. 

Companies that intend to raise capital can opt for public issues by following these guidelines. Following these guidelines builds public trust and helps companies attain successful outcomes. As companies and markets evolve, SEBI’s regulatory framework will play an important role in developing a vibrant and strong financial ecosystem in India.

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FAQ: 

1.What is the role of SEBI in Public Issues? 

SEBI has established detailed and strict guidelines that guide companies in public issues. These guidelines generally cover different aspects like the eligibility criteria of the company, disclosure requirements needed, pricing system, and post-issue norms. 

One of SEBI’s critical functions is to oversee public issues. The SEBI ensures that public issues take place with transparency. It helps in protecting investors and maintaining market integrity.

Companies raise capital with the help of public issues. 

They are a significant avenue to secure funding. However, this process must be complied with within strict guidelines. SEBI ensures that the process safeguards investor’s interests and promotes safe practices.