further issue of shares - vinod...

FURTHER ISSUE OF SHARES - OVERVIEW OF BASIC CONCEPTS

Pammy JaiswalVinod Kothari and Company

Kolkata:1006-1009, Krishna224 AJC Bose RoadKolkata – 700 017Phone: 033 2281 3742/7715Email: [email protected]

New Delhi:A-467, First Floor, Defence Colony, New Delhi-110024Phone: 011 6551 5340Email: [email protected]

Mumbai:403-406, Shreyas Chambers175, D N Road, FortMumbaiPhone: 022 2261 4021/ 3044 7498Email: [email protected]

Website: www.vinodkothari.com

COPYRIGHT & DISCLAIMER

This presentation is only for academic purposes; this is not intended to be a professional advice or opinion.

Anyone relying on this does so at one’s own discretion. Please do consult your professional consultant for any

matter covered by this presentation.

No circulation, publication, or unauthorised use of the presentation in any form is allowed, except with our prior

written permission.

No part of this presentation is intended to be solicitation of professional assignment.

ABOUT US

Vinod Kothari and Company, consultants and advisors

Based out of Kolkata, New Delhi & Mumbai

We are a team of consultants, advisors & qualified professionals having over 30 years of practice.

Our Organization’s Credo:

Focus on capabilities; opportunities follow

AGENDA

Modes of raising funds under Act, 2013

Modes of raising capital under Act, 2013

Further issue of shares – Scope of section 62 under Act, 2013

Understanding Rights Issue

Issue of shares under ESOP

Preferential Issue of shares and securities

Private Placement of securities

MODES OF RAISING FUNDS UNDER ACT, 2013

Shares

Warrants Debentures

Money market

instrumentsLoans

Equity Shares

Preference Shares

Non-convertible

Compulsorily convertible

Optionally Convertible

Partially convertible

Conditionally convertible

MODES OF RAISING CAPITAL UNDER ACT, 2013

Public Issue

Rights Issue

Preferential Issue

Private Placement

Bonus Issue

FURTHER ISSUE OF SHARES- SCOPE OF SECTION 62 UNDER ACT, 2013

Sec 62 (1) (a) - Rights issue of shares to all existing equity shareholders.

Sec 62 (1) (b) – Issue of shares to employees under a scheme of Employee Stock Option (ESOP).

Sec 62(1) (c) – Issue of shares or securities on preferential basis

UNDERSTANDING RIGHTS ISSUE (1/9)

Offer to all existing equity shareholders in the proportion of their shareholding

Equity Shares Preference SharesConvertible

Preference SharesConvertible Debentures?


• Convertible debentures are in the nature of deferred equity

• Ideally there is no redemption

• Merges with the share capital on conversion

De-facto equity

• Investors can enjoy the taste of both

• interest receivable during the tenure of debentures and

• holding equity on conversion

Hybrid instrument

• SEBI ICDR Regulations explicitly provide for rights issue of convertible debentures

• Under FEMA Act, FDI mean investment in the capital of the company which in turn includes CCDs

Other regulatory framework

Why should convertible debentures be included under rights issue?


Rights Issue of equity shares

Pass a BR

Compliance under SEBI ICDR and

LODR Regulations (in case of listed

company)

Circulation of Offer letter

Open Bank A/cAcceptance and

subscription

Allotment of equity shares and filing of e-

forms


Rights Issue of preference shares

Pass a BR and SR



company)



subscription


forms


Rights Issue of share warrants

Pass a BR



company)



subscription


forms


Rights Issue of convertible debentures

Pass a BR and SR

Compliance under SEBI ICDR ad LODR Regulations (in case of listed company)



subscription


forms


• Offer letter to provide a time period of 15 -30 days

• Private cos exempted

• Acceptance / refusal by all the offerees

/renounces before the end of offer period

• offer deemed to expire

• letter to contain such statement

• Dispatch of offer letter through

• registered post or

• speed post or

• through electronic mode or

• courier or

• any other mode having proof of delivery

at least three days before the opening of the

issue

• Rights issue of preference shares

• Comply additionally with section 55 read with Rule

9 of the Companies SCD Rules, 2014.

• Rights issue of convertible debentures

• Comply additionally with section 71 read with Rule

18 of the Companies SCD Rules, 2014

Compliances at a glance –Act, 2013


• Seek in-principle approval

• Select a designated stock exchange

• Not more than 25% of amount raised should for

general corporate purpose

• For rights issue of convertible debentures and

warrants

• Obtain credit rating

• Appoint a debenture trustee

• Issuance of debentures to more than 500

person, or

• Issuance of secured convertible debentures

• Creation of DRR as provided under Act, 2013

• Creation of security

Compliances at a glance – SEBI ICDR Regs.

• For rights issue of warrants

• Not extend tenure of more than 18 months from

the date of allotment

• Pricing formula be decided upfront

• Atleast 25% of the exercise price should be

received upfront


• Prior and post intimation to stock exchange of the board meeting dealing approving issuance

• Intimation of record date

• Intimation of notice of shareholder’s meeting

Compliances at a glance – SEBI LODR Regs.

ISSUE OF SHARES UNDER ESOP

ESOP

Eligible employees of company (hold co /

subsidiary co)

Approval through SR

Disclosures under Rule 12 of Companies

SCD Rules

Compliance under SEBI SBEB Regs (in case of listed co)

Offer of shares and securities on preferential

basis

Person u/s 62 (1) (a) Person under 62 (1) (b)Any other group of

specified person

PREFERENTIAL ISSUE OF SHARES AND SECURITIES (1/2)

Compliances

Rule 13 of Companies SCD Rules

Rule 14 of the Companies PAS Rules

Sec 55 / Sec 71 read with allied rules, as the case

may beSEBI ICDR Regs.

PREFERENTIAL ISSUE OF SHARES AND SECURITIES (2/2)

SECTION 62 (3) NOT AN INDEPENDENT MODE UNDER SECTION 62!

1st Stage

Issuance of original security

(Convertible debt)

• Section 62(1)

• Section 42

2nd Stage

Issuance of shares

• Section 62(3)

Offer of securities

Limited number of offerees

Other compliances

•Securities take their meaning from SEBI SCRA

• Includes equity , debt, preference shares, convertible instruments, warrants,

•Max no. 200 for each class of security in FY

•Excludes past and present employees ad QIBs

•Breach of limit makes it a deemed public offer

•Pre-identification of investors

•Passing of BR and SR (if not previously approved)

•Circulation of PPOL

•Opening of separate bank account

•Valuation requirements

•Requirements under SEBI ICDR / SEBI ILDS for listing of privately placed securities

•E-form filing

PRIVATE PLACEMENT OF SECURITIES (1/3)


Meaning of the phrase ‘select group of persons’

Act, 2013 uses the phrase ‘ select group

of person’

Act, 1956 defined

‘domestic concern’

Act, 1956 did not defined

private placement

In the matter of

Rattan Singh v Moga

Transport Co, indirect

meaning of domestic

concern

Private placement

Offered to more than

200 persons

Deemed public offer

(section 40 of Act, 2013 and

SEBI ICDR Regs.)

Private placement of securities Jumping to public issue


FUND RAISING TREND IN 2019

49951

71183

10019

0

10000

20000

30000

40000

50000

60000

70000

80000

Fund Raising Modes

Chart Title

Rights Issue Private Placement Public Issue

Amount in INR (crores)https://www.primedatabase.com/medianews.asp

https://www.primedatabase.com/medianews.asp

SAT RULING IN THE MATTER OF CICL- SEARCHING THE LOST BOUNDARY!

SAT held that issuance of FCDs was not under section 42 but under section 62 (3) of the Act which is an independent sub-section and an exception to section 62, read with section 71 of the Act readwith allied rules.

Company filed appeal before SAT stating that section 42 is not applicable and the issue of FCDs is made under section 62(3) of the Act which has not been considered by the SEBI

On receipt of certain complaints, SEBI enquired and observed that the offer of FCDs by the Company and subsequent allotment were deemed public issue of securities undersection 42 of the Act read with Rule 14(2)(b) of the Companies (Prospectus and Allotment of Securities) Rules, 2014. Accordingly, provisions of section 40 of the Act as wellas SEBI ICDR Regulations was required to be complied.

An unlisted public limited company offered to issue Unsecured Fully Convertible Debentures (‘FCDs’) to all its 1929 existing shareholders, with the condition that the shareholders will haveno right to renounce the offer in favour of any person and that these debentures would be mandatorily converted into shares upon maturity. Out of these only 335 shareholders subscribed

CONTACT US

Vinod Kothari and Company

Kolkata:1006-1009, Krishna224 AJC Bose RoadKolkata – 700 017Phone: 033 2281 3742/7715Email: [email protected]

New Delhi:A-467, First Floor, Defence Colony, New Delhi-110024Phone: 011 6551 5340Email: [email protected]

Mumbai:403-406, Shreyas Chambers175, D N Road, FortMumbaiPhone: 022 2261 4021/ 3044 7498Email: [email protected]

Website: www.vinodkothari.com

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