SEBI Guidelines for Making Public Offer

Narendra Kumar

06 Sep, 2022

An issue making  public offer issue shall adhere to the conditions of Chapter III of SEBI (ICDR) Regulations as on the date of filing a draft offer document with the Board (SEBI) and also at the time of registering the offer document with the Registrar of Companies.

Necessary conditions for Making an initial Public Offer (IPO) issue:

1. An issuer making an initial public offer must fulfill that:
   • It has net tangible assets of at least three crore rupees in each of the preceding three full years (each year of twelve months), of which not more than fifty percent. are held in monetary assets:
   • it has a past record of distributable profits for at least three out of the immediately preceding five years as per section 205 of the Companies Act, 1956. Thus it shall be a profit-making company.
     While calculating the distributable profits extraordinary items shall be excluded in such calculation;
   • it must have a net worth of at least one crore rupees in each of the preceding three full years (each year of twelve months);
   • the aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size must not exceed five times its pre-issue net worth calculated as per the audited balance sheet of the preceding financial year;
   • if it has changed its name during the last one year, at least fifty percent of the revenue generated for the preceding one full year has been earned by it from the activity mentioned by the new name.

2. An issuer not fulfilling any of the conditions prescribed in sub-regulation (1) may make an initial public offer if:
   1. • The issue is made through the book building process and the issuer promises to allow at least fifty percent. of the net offer to the public, qualified institutional buyers and to refund full subscription amount if it fails to make an allotment to the qualified institutional buyers, or
      • At least fifteen percent. Of the cost of the project is contributed by scheduled commercial banks or public financial institutions, out of which at least ten percent. Shall come from the appraisers and the issuer guarantees to allow at least ten percent. of the net offer to the public, to qualified institutional buyers and to refund full subscription amount if it fails to make the allotment to the qualified institutional buyers;
   2. • the minimum amount post-issue face value capital of the issuer is ten crore rupees; or
      • the issuer commits to furnish market-making for at least two years from the date of listing of the particular securities, subject to the following:
        • the market makers offer to buy and sell quotes for at least of three hundred specified securities and confirm that the bid-ask spread for their quotes does not, at any point of time, exceed ten percent.;
        • The inventory of the market makers, as on the date of allotment of the specified securities, shall not be less than five percent. of the proposed issue.
3. An issuer may make an initial public offer(IPO) of convertible debt instruments even though he has not undertaken a prior public issue of its equity shares and further listing thereof.
4. An issuer shall not make an allotment pursuant to a public issue if the number of prospective allottees is below one thousand.
5. No issuer shall make an initial public offer(IPO) if [as on the date of registering the prospectus with the Registrar of Companies] i) there are any outstanding convertible securities or ii) any other right entitling any person any option to receive equity shares after the initial public offer:
   Provided that the norms of this sub-regulation shall not apply to:
   • a public issue brought out during the prevalence of convertible debt instruments issued through an earlier initial public offer if the conversion price of such convertible debt instruments was fixed and mentioned in the prospectus of the earlier issue of convertible debt instruments;
   • Outstanding options permitted to employees under an employee stock option scheme (ESOS) formulated in consonance with the relevant Guidance Note or Accounting Standards, if any, issued by the Institute of Chartered Accountants of India (ICAI) in this matter.

6. Subject to provisions of the Companies Act, 1956, equity shares may be offered for sale to the public if such equity shares have been held by the sellers for a period of at least one year before the filing of draft offer document with the Board under the provisions of sub-regulation (1) of regulation 6:

Provided that in the case where the equity shares received on conversion or exchange of fully paid-up compulsorily convertible securities and also depository receipts are being offered for sale, the holding period of such convertible securities and that of resultant equity shares together shall be considered for calculation of one-year period prescribed in this sub-regulation:

Provided further that the requirement of holding equity shares for a period of one year will not be applicable:

6. 1. in case of an offer for sale of specified government company securities or statutory authority or corporation or any special purpose vehicle formed and controlled by any one or more of them, which is engaged in infrastructure sector activities;
   2. if the specified securities offered for sale were acquired under any scheme approved by a High Court under sections 391-394 of the Companies Act, 1956, in place of business and invested capital which is existing for a period of more than one year prior to such approval.

7. No issuer shall make an initial public offer without obtaining grading for the initial public offer from at least one credit rating agency registered with the Board. This has to be as on the date of registering prospectus or red herring prospectus with the Registrar of Companies.

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