preferential issue

7/28/2019 Preferential Issue

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PROJECT REPORT ON

Preferential issue


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INDEX

Meaning of preferential issue


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MEANING OF PREFERENTIAL ISSUE

Preferential issue means an issue of specified securities by a listed Company toany select person or group of persons under section 81 of the Companies Act,

1956 on a private placement basis and does not include an offer of specified

securities made through a public issue, rights issue, bonus issue, employee stock

option scheme, employee stock purchase scheme or qualified institutions

placement or an issue of sweat equity shares or depository receipts issued in a

country outside India or foreign securities

REGULATORIY LAWS

LISTED COMPANY

Companies Act 1956

SEBI (ICDR) Regulations 2009

SEBI (SAST) 2011

Listing Agreement

UNLISTED PUBLIC COMPANY

Companies Act 1956

Unlisted Public Companies (Preferential Allotment) Rules 2011

CONDITIONS FOR PREFERENTIAL ISSUE

A Listed Company may make a preferential issue of specified securities, if:

i. all the equity shares, if any, held by the proposed allottees in theCompany are in dematerialised form;

ii. the Company is in compliance with the conditions for continuous listingof equity shares as specified in the listing agreement with the recognised

stock exchange where the equity shares of the Company are listed;

iii. the Company has obtained the Permanent Account Number of theproposed allottees.

iv. The Company shall not make preferential issue of specified securities toany person who has sold any equity shares of the Company during the six

months preceding the relevant date.

v. Where any person belonging to promoter(s) or the promoter group haspreviously subscribed to warrants of an Company but failed to exercise

the warrants, the promoter(s) and promoter group shall be not be issued

specified securities of such Company on preferential basis for a period ofone year from:


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(a) the date of expiry of the tenure of the warrants due to non-exercise of

the option to convert; or

(b) the date of cancellation of the warrants, as the case may be.

FORMLAITES FOR PREFERENTIAL ISSUE

Board Meeting

To fix the relevant date for the estimation of the price of the share to be issued

and fix the date for the general meeting for obtaining shareholders approval for

preferential issue.

In principal Approval

The company shall obtain in-principle approval for listing as per clause 24 (a)

of listing agreement from the exchanges having nationwide trading terminals

where it is listed, before issuing further shares or securities.

Where the company is not listed on any exchange having nationwide trading

terminals, it shall to obtain such 'in-principle' approval from all the exchanges in

which it is listed before issuing further shares or securities. The company agrees

to make an application to the Exchange for the listing of any new issue of shares

or securities and of the provisional documents relating thereto.

Special Resolution

As per Section 81(1A) of the Companies Act, 1956 any public Company can

issue the shares through private placement by passing a special resolution in the

general meeting.

Pricing of the Shares/convertible Securities:

a)If shares are listed on stock exchange for more than twenty sixweeks

Shares i. The average of the weekly highand low of the closing prices ofthe related equity shares quotedon the recognised stock exchangeduring the 26[twenty six weeks]preceding the relevant date; or

ii. The average of the weekly highand low of the closing prices ofthe related equity shares quotedon a recognised stock exchange

during the two weeks precedingthe relevant date.


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Shares arising out of Warrants/FCD/PCD Same as above. Relevant Date = asabove or as at Companys option a date30 days prior to date of exercise ofwarrants/FCD

b)If shares are listed on stock exchange for less than twenty six weeksShares Price should not be less than Higher of

the following:i. the price at which equity shares

were issued by the Company in itsinitial public offer or the value pershare arrived at in a scheme ofarrangement under sections 391

to 394 of the Companies Act,1956, pursuant to which theequity shares of the Companywere listed, as the case may be;

orii. the average of the weekly high

and low of the closing prices ofthe related equity shares quotedon the recognised stock exchangeduring the period shares havebeen listed preceding the relevant

date; oriii. the average of the weekly high

and low of the closing prices ofthe related equity shares quotedon a recognised stock exchangeduring the two weeks precedingthe relevant date.

Disclosures

As per the guidelines of SEBI (ICDR) 2009 the following disclosures shall be

made in the explanatory statement of the notice of general meeting

I. the objects of the preferential issue;II. the proposal of the promoters, directors or key management personnel of

the Company to subscribe to the offer;

III. the shareholding pattern of the Company before and after the preferentialissue;

IV. the time within which the preferential issue shall be completed;


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V. the identity of the proposed allottees, the percentage of post preferentialissue capital that may be held by them and change in control, if any, in

the Company consequent to the preferential issue;

VI.

an undertaking that the Company shall re-compute the price of thespecified securities in terms of the provision of these regulations where it

is required to do so;

VII. an undertaking that if the amount payable on account of the re-computation of price is not paid within the time stipulated in these

regulations, the specified securities shall continue to be locked- in till the

time such amount is paid by the allottees.

VIII. The Company shall place a copy of the certificate of its statutory auditorbefore the general meeting of the shareholders, considering the proposed

preferential issue, certifying that the issue is being made in accordance

with the requirements as specified in the SEBI (ICDR) 2009 guidelinesIX. Where specified securities are issued on a preferential basis to promoters,

their relatives, associates and related entities for consideration other than

cash, the valuation of the assets in consideration for which the equity

shares are issued shall be done by an independent qualified valuer, which

shall be submitted to the recognised stock exchanges where the equity

shares of the Company are listed

X. if the stock exchange is not satisfied with the appropriateness of thevaluation, it may get the valuation done by any other valuer.

XI. The special resolution shall specify the relevant date on the basis ofwhich price of the equity shares to be allotted on conversion or exchange

of convertible securities shall be calculated

Time limit

The allotment of shares/ convertible securities shall be done within 15 days of

passing such resolution

If the allotment of specified securities is not completed within fifteen days from

the date of special resolution, a fresh special resolution shall be passed and the

relevant date for determining the price of specified securities will be taken with

reference to the date of latter special resolution.

Payment of consideration

Full consideration of specified securities other than warrants issued shall be paid

by the allottees at the time of allotment of such specified securities.

In case of warrants, an amount equivalent to at least twenty five per cent of the

consideration shall be paid on the date of allotment of warrants and the balance

amount shall be paid shall be paid at the time of allotment of equity shares

pursuant to exercise of option against each such warrant by the warrant holder.


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In case the warrant holder does not exercise the option to take equity shares

against any of the warrants held by him, the consideration already paid by such

warrant holder in respect of such warrant shall be forfeited by the Company.

Tenure of Conversion

The tenure of the convertible securities of the company shall not exceed

eighteen months from the date of their allotment.

Lock-in of specified securities

Situation Lock-in Period

Allotment to promoters is to be locked in.Subject to maximum of 20% of the total

capital (including the preferential issue)

3 years from allotment of the specifiedsecurities or equity shares allotted

pursuant to exercise of the option attachedto warrant

Equity shares allotted in excess of 20% 1 year from allotment pursuant to the

exercise of the option.

specified securities allotted on preferential

basis to persons other than promoter and

promoter group and the equity shares

allotted pursuant to exercise of options

attached to warrants issued on

preferential basis

one year from the date of their

allotment

The lock-in of equity shares allotted

pursuant to conversion of convertible

securities other than warrants, issued on

preferential basis

.

shall be reduced to the extent the

convertible securities have

already been locked-in

The entire pre-preferential capital held by

the allottees

6 months from the relevant date.


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PROCEDURE

S.No Points to consider

1. Hold Board Meeting as per the provisions of Companies Act, 1956 to consider thepreferential issue and to fix the date, time, place and agenda for calling a generalmeeting for getting shareholders approval.

2. Inform the Stock Exchange by fax/ letter/telegram within 15 minutes of conclusionof Board meeting as per the Listing Agreement.

3. The Company shall apply for in principal approval in terms of clause 24(a) of the listing

Agreement along with the requisite fees.

4. Dispatch the general meeting notice together with explanatory statement at least

21 clear days before the date of general meeting.Explanatory statement shall state the following: Object of the Issue

Intention of the Promoters/directors/key management personnel to subscribe tothe offer. Shareholding pattern before and after the offer. Proposed time within which the allotment shall be completed

Identity of the proposed allottees and the percentage of post-preferential issuecapital that may be held by them.

5. Price at which the preferential issue is proposed to be done shall be specified in theresolution.

6. 3 copies of notice of the meeting should be sent to Stock Exchange at the sametime of dispatch to shareholders.

7. General meeting shall be held to pass a Special resolution for issue of securities onpreferential basis.

8. The Statutory auditors shall certify that the issue of said instruments is beingmade in accordance with the requirements of ICDR guidelines. Copies of theauditors certificate shall also be laid before the meeting of the shareholdersconvened to consider the proposed issue.

9. The copy of the proceedings of the general meeting shall be forwarded to Stockexchanges promptly.

10. Form no 23 shall be filed to ROC within 30 days of passing of resolution along withthe requisite fees.

11. Allotment pursuant to resolution passed at a meeting of shareholders of a cogranting consent for preferential issues shall be completed within 15 days from the

date of passing of resolutionIf pending on account of any approval by any regulatory authority or Central Govt,15 days will be extended accordingly.

12. In case of preferential allotment to promoters, their relatives, associates andrelated entities, for consideration other than cash, valuation of assets in

consideration for the shares are proposed to be issued shall be done by anindependent valuer and the Valuation report shall be submitted to Stock Exchangeon which the shares of the Company are listed.

13. Within 15 days from the date of general meeting, conduct the board meeting toallot the specified securities

14. A return of allotment in Form No. 2 shall be filed within 30 days of allotment with

the concerned Registrar of Companies after paying the requisite fees.15. Disclosure in Balance Sheet:


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The details of the money utilized out of the preferential issue shall be disclosedunder the appropriate head in the balance sheet of the Company indicating thepurpose for which such monies have been utilized.The details of unutilized monies shall be disclosed under a separate head in the

balance sheet of the company indicating the form in which such unutilized monieshave been invested.

16. File documents for listing of shares with the Stock Exchange

CHECKLIST OF DOCUMENTS REQUIRED FOR IN PRINCIPAL APPROVAL ATBSE

S.No Checklist of Documents

1. A certified true copy of the resolution passed by the Board of Directors in which thecompany has propose to issue securities on a preferential basis.

2. Details of the end use of the proceeds to be raised through the preferential issue.

3. Companys intimation as to that the proposed equity shares to be issued onpreferential basis would be ranking parri-passu in all respect including dividendwith the existing equity shares of the company.

4. Certificate from the auditors of the Company certifying that the pricing of the

shares issued on preferential basis, is as per the SEBI (ICDR) guidelines. Theauditors should specifically mention in detail about the relevant date, average ofweekly high and low of the closing price of the shares quoted on the StockExchange during 26 weeks and two weeks preceding the relevant date.

5. A certification from a Managing Director of the company that the proposedallotment of securities does not violate clause 40A of the Listing Agreement and

the Company continue to maintain the non-promoter holding in the Company as

per clause 40A.6. Certified true copies of the proposed allottee(s) letter addressed to the Company in

which they have given consent for subscribing to the proposed issue of aforesaidsecurities should be submitted.

7. The company should obtain the confirmation letters from the NSDL/CDSLspecifically mentioning that they have frozen/kept the entire pre-preferential

allotment shareholding of the allottees of the aforesaid securities as lock-in as perSEBI (ICDR) 2009 guidelnes and the certified true copies of the same should befiled with the Exchange.

8. A certificate from the Managing director as well as the Auditors of the Companyshould be submitted specifically that:- The proposed allottees of the aforesaid securities are holding their existing shares

only in the dematerialized form.- The proposed allottees of the aforesaid securities have not sold/transferred any

equity shares during the six months period prior to the relevant date.- The company has complied with the lock-in requirements as required under

Clause 13.3.1(g) of Amendments to SEBI (DIP) Guidelines, dated the 8th

April,2004 and the details of the lock in equity shares are as under:

The certificate should be in the following Proforma:Name of Allottees Total No of shares Date of Lock inFrom To


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9. The Managing Director of the Company shall certify the following: That the proposed preferential issue to be made by the company is in accordancewith the provisions of the SEBI (SAST) Regulations, 1997 of the SEBI.The proposed preferential issue of shares and allotment made does not/ does

require (strike off which is not applicable) the acquirer to make an open offerunder the said regulations.

10. A printed copy of the notice issued to the shareholders of the Company conveningthe EGM/AGM alongwith with Auditors Certificate regarding pricing of submitted atthe time of the EGM/AGM for shareholders approval should be submitted.

11. Names of the Companies, firms of other parties listed in the register maintainedunder section301 of the Companies Act, 1956.

12. Names of the Companies under same management within the meaning ofsection370 of the Companies Act, 1956.

13. Name and addresses of the Directors of the allottee company should be submitted.

14. Latest profile including business activities as well as a latest annual report of thecompany shall be submitted.

15. Name, address together with their PAN/GIR Numbers of the allottees of theseshares should be submitted


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16. Name of the Stock Exchanges where the shares of the company are listed.

17. Resolution passed under section 81(1A) of the companies act, passed by theshareholders of the Company.

18. A certificate from the Managing Director as well as Auditors of the Company shouldbe submitted certifying that the company has complied with all the

provisions/guidelines issued by SEBI under the preferential issue guidelines andfurther the company has complied with all the legal and statutory formalities andno statutory authority has restrained the company from issuing the proposeshares.


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