SEBI (Issue of Capital and Disclosure Requirements) (Fourth Amendment) Regulations, 2010 notified

SEBI has notified the SEBI (ICDR) (Fourth Amendment) Regulations, 2010, amending the SEBI (ICDR) Regulations, 2009. This amendment regulations came into effect from November 12, 2010. The major changes made to ICDR regulations by this amendment regulations are the following:

1.                  Investment limit for retail investors has been raised from the current Rs 1 lakh to Rs 2 lakh. (see previous post)

2.                  Insurance funds, set up and managed by department of posts, to be recognised as a QIBs.

3.                  Issuers coming out with public offer to make a simultaneous public announcement (in newspapers) about the filing of draft offer document with SEBI.

4.                  The merchant bankers to submit a compliance certificate in the specified format to SEBI certifying as to whether the contents of the news reports appearing after filing of draft offer document are supported by disclosures in the offer document or not.

Amendment in relation to conditions for initial public offer

SEBI has also amended regulation 26(5) of the ICDR Regulations. The amended regulation reads as follows:

“No issuer shall make an initial public offer if there are any outstanding convertible securities or any other right which would entitle any person with any option to receive equity shares.”

The regulation originally read as follows:

“No issuer shall make an initial public offer if [as on the date of registering the prospectus with the Registrar of Companies] there are any outstanding convertible securities or any other right which would entitle any person any option to receive equity shares [after the initial public offer].”  The words “as on the date of registering the prospectus with the Registrar of Companies” and “after the initial public offer” has now been deleted.

The implication of this amendment is that the issuing company should not have any outstanding convertible securities at the time of filing red herring prospectus/ prospectus with the ROC. This is evident from the second amendment made in the same regulation. A new proviso (c) has been added to regulation 26(5) wherein SEBI exempts fully-paid up outstanding convertible securities which are required to be converted on or before the date of filing of the red herring prospectus (in case of book-built issues) or the prospectus (in case of fixed price issues) from the purview of the above mentioned rule. This means the following:

1. An issuer company can have certain outstanding convertible securities at the time the time of filing the draft red herring prospectus with the SEBI, provided that (a) such securities are fully paid up and (ii) such securities are required to be converted on or before the date of filing of the red herring prospectus/ prospectus with the Registrar of Companies.

2. An issuer company cannot have:
(a) any partly paid up outstanding convertible securities; or
(b) fully paid up outstanding convertible securities which are required to be converted at a date after the filing of the red herring prospectus/ prospectus with the Registrar of Companies,
 at the time of filing of the draft red herring prospectus/ draft prospectus with the SEBI.

[Apologies for certain typos in the original post. They are now corrected. - Emil]

A copy of the amendment regulations is available here.