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Friday, November 30, 2007

Amendments in SEBI DIP Guidelines

Dear All,

The SEBI has made certain amendments in SEBI (Disclosure and Investor Protection) Guidelines, 2000 vide Circular No. SEBI/CFD/DIL/DIP/28/2007/29/11 dated 29 th November 2007 (Today). The gist of amendments is;

1. Introduction of Fast Track Issues (FTIs).

As per existing SEBI (DIP) Guidelines, if existing listed Company wants raise funds from the public either through rights issue or follow on public issue, it needs to comply with procedural formalities as in the case of Initial Public Offering (IPO). The SEBI has come out with Press Release relating FTIs, as it is felt that there is a need to enable well established and compliant listed companies to access Indian primary market in a time effective manner through follow-on public offerings and rights issues. Accordingly, it has been decided to enable listed companies satisfying certain specified requirements to make Fast Track Issues (FTIs).

The amendments made vide this circular to enable well established listed Companies to proceed with follow-on public offering / rights issue by filing a copy of the Red Herring Prospectus (in case of book built issue) / Prospectus (in case of fixed price issue) registered with the Registrar of Companies or the letter of offer filed with Designated Stock Exchange, as the case may be, with SEBI and stock exchanges. Such companies are not required to file draft offer document with SEBI and stock exchanges.

2. Amendments regarding Issue of Indian Depository receipts (IDRs).

As per existing provisions only QIP can apply in an IPO of IDRs. Now, vide this amendment it has been decided to allow all categories of investors to apply in IDR issues, subject to the condition that;

  • at least 50% of the issue being subscribed by QIBs, and
  • the balance being made available for subscription to other categories of investors at the discretion of the issuer, which shall be disclosed in the prospectus. Further, it has been decided to reduce the minimum application value in IDR from Rs. 2,00,000/- to Rs. 20,000/- and to carry out certain consequential amendments to SEBI (DIP) Guidelines pursuant to amendments to IDR rules by the Ministry of Corporate Affairs.

3. Quoting of PAN mandatory:

Presently, as per SEBI (DIP) Guidelines, all applicants in public and rights issues are required to disclose their PAN/GIR in the application form if they are making an application for a value exceeding Rs. 50,000/-. It has been decided to extend the requirement of quoting PAN in application forms to all applicants, irrespective of the application value.

4. Discount in issue price for retail investors / retail shareholders:

Presently, SEBI (DIP) Guidelines do not provide for issuance of shares at differential price to investors within the net public offer category. SEBI has been receiving requests to permit issuance of shares to retail individual investors / retail individual shareholders at a price lower than that being offered to other categories. It has now been decided to introduce a provision in SEBI (DIP) Guidelines, permitting companies making public issues to issue securities to retail individual investors / retail individual shareholders at a discounted price, provided that such discount does not exceed 10% of the price at which securities are issued to other categories of public.

5. Definition of "Retail individual shareholder" for listed companies:

Presently, listed companies making public issues can make reservation on competitive basis for its existing shareholders who, as on the record date, are holding shares worth up to Rs. 50,000/-. However, no limit has been set on the value of the application that can be made by such shareholders. It has now been decided to define the term "Retail Individual Shareholder" to mean a shareholder whose shareholding is of value not exceeding Rs. 1,00,000/- as on the day immediately preceding the record date, and who makes application or bids in a public issue for value not exceeding Rs 1,00,000/-.

6. Clarification on the term CEO / CFO:

SEBI (DIP) Guidelines requires all directors, CEO and CFO of the issuer company to certify that disclosures made in the offer document are true and correct. It is now clarified that the terms "CEO" and "CFO" in SEBI (DIP) Guidelines shall have the same meaning as assigned to them in clause 49 of the Equity Listing Agreement.

7. Deletion of the chapter on "Guidelines for Issue of Capital by Designated Financial Institutions (DFIs)":

SEBI had introduced separate guidelines in 1992 for primary issuances by DFIs, to place companies / corporations / institutions engaged mainly in financing of developmental activities and playing a catalytic role in the infrastructure development of the country on a different footing. compete on equal footing with private entities and it is felt that DFIs, as a concept, may have outlived its utility. It has therefore been decided to remove the special dispensations given to DFIs by deleting the chapter on "Guidelines for Issue of Capital by DFIs" from SEBI (DIP) Guidelines.

8. Monitoring of issue proceeds:

Presently, as per SEBI (DIP) Guidelines, every issuer making an issue of more than Rs. 500 crores is required to appoint a monitoring agency, which is required to file a monitoring report with SEBI for record purpose. It has been decided that this provision shall not apply to (i) issues by banks and public financial institutions and (ii) offers for sale. Further, it has been decided that the

monitoring agency shall henceforth be required to file the monitoring report with the issuer company and not with SEBI, so as to enable the company to place the report before its Audit committee.

9. Amendments to Guidelines for Preferential Issues:

It has been decided that listed companies intending to make preferential allotment shall be required to obtain PAN of each of the applicants of the preferential issue before making the preferential allotment.

10. Miscellaneous amendments:

· SEBI issues standard observations as a supplement to issue-specific observations on each and every draft offer document filed with SEBI. These standard observations are being rationalised / reviewed. Accordingly, it has been decided to amend SEBI (DIP) Guidelines to incorporate certain clauses from the standard observations, essentially those pertaining to confirmations, undertakings, documents, information, etc., to be submitted by the Lead Manager/s to the Issue while filing an offer document with SEBI. Lead Managers shall also be required to file as an annexure to the due diligence certificate, a detailed check list indicating compliance of each of the clauses of the relevant chapters of SEBI (DIP) Guidelines.

· SEBI (DIP) Guidelines contain certain provisions, which have become redundant or need to be aligned with other provisions of SEBI (DIP) Guidelines / the Companies Act, 1956 or in respect of which, there have been requests for exemption on regular basis. Consequently, it has been decided to fine-tune the guidelines by modifying such clauses.

Thanks & Regards
Karvy Investor Services Limited


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