No eligibility norms for SME exchange listed companies, pure auction in follow-on public offers and fewer requirements for fast track issues

SEBI vide press release PR No.344/2009 dated November 9, 2009 has announced the decisions taken by SEBI Board in its meeting held on the same day. The key decisions are the following: -

SME Exchange/ Platform
SEBI has decided that companies listed on the SME exchanges would be exempted from the eligibility norms applicable for IPOs and FPOs prescribed in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR). The norms prescribed by SEBI are as follows: -

• In order to have informed, financially sound and well-researched investors with a certain risk taking ability, a minimum IPO application size of Rs. 1 lakh would be prescribed.
  The minimum trading lot would be Rs. 1 lakh. An upper limit of Rs. 25 crore paid-up capital would be prescribed for a company to be listed on the SME platform/exchange and a minimum paid-up capital of Rs. 10 crore would be prescribed for listing on the main boards of the NSE and the BSE.


• If the follow on offer/rights issue results in triggering of the limit of Rs. 25 crore, then the company would have to migrate to the main board.


• The offer document will have to be filed with SEBI and the exchange. No observations would be issued by SEBI on the offer documents filed by the Merchant Bankers (MBs).


• The MB to the issue will bear the responsibility for market making for a minimum period of three years. MBs would be allowed to do market making along with a disclosed nominated investor (like PE, VC, HNI and QIB). Under this arrangement, all the stock being bought and sold as part of market making will ultimately get transferred to the disclosed nominated investor with whom the Merchant Banker has a contractual agreement. Merchant Banker would have to disclose their intention of this arrangement and have it approved by stock exchanges where the issuer SME is listed.

QIB status to insurance funds set up by army forces
SEBI Board decided to accord QIB (Qualified Institutional Buyer) status to insurance funds set up by armed forces such as Army Group Insurance Fund.

Reservation to employees in Public Issues
Currently the ICDR regulations permit reservation upto 10% of issue size to employees in public issues. However, there is no ceiling on number of shares that could be allotted. The Board decided to put a ceiling of Rs.1 lakh on the value of allotment that can be made to an employee under employee reservation category and to permit reservation upto 5% of the post issued capital instead of 10% of issue size.

Voluntary adoption of IFRS by listed entities having subsidiaries
The board decided to provide an option to all listed entities with subsidiaries to submit their consolidated financial statements as per the International Financial Reporting Standards (IFRS).

Introduction of pure auction as an additional book building mechanism
SEBI decided to introduce a new form of book-building in follow-on public offers for qualified institutional buyers. Under the new method, qualified institutional buyers will be free to bid for shares at any price above the floor price. On the other hand, retail investors will get shares only at the floor price.

Requirements for Fast Track Issues
In order 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, SEBI introduced the concept of Fast Track Issues (FTIs) in November 2007. SEBI Board on a review decided to relax certain requirements of FTIs such as reducing the average market capitalization of public shareholding of the issuer to five thousand crore rupees from ten thousand crore rupees, pegging the annualized trading turnover to free float for companies whose public shareholding is less than 15 percent of the issued capital. The Board also decided that incase the clause relating to composition of Board of Directors has not been complied with in one or more quarters, it need not be deemed as non compliance, provided the company is in compliance in this regard at the time of filing the offer document with stock exchange/ ROC and adequate disclosures are made in the offer document in this respect.

A copy of the press release is available here.