Circular, CIR/IMD/DF/12/2014, dated 17th June, 2014
Base Issue Size, Minimum Subscription, Retention of
Over-Subscription Limit and further disclosures in the Prospectus for Public
Issue of Debt securities
1. Minimum Subscription Limit:
a) Section 69 of the Companies Act,
1956 specifies that no allotment shall be made of any share capital of a company,
offered to the public for subscription, unless the amount stated in the
prospectus as the minimum amount has been subscribed. As per Schedule II to the
Companies Act, 1956, the issuer is required to make a declaration about refund
of the issue, if minimum subscription of 90% of the issue size is not received.
b) However, for public issue of
non-convertible debentures (NCDs), no such requirement is specified under
Companies Act, 1956. Further, as per Regulation 12 of SEBI (Issue and Listing
of Debt Securities) Regulations, 2008 (SEBI ILDS Regulations), the issuer may
decide the amount of minimum subscription, which it seeks to raise from public
through issue of NCDs and disclose the same in the offer document.
c) Companies Act, 2013 and the
Rules made there under also do not specify the quantum of minimum subscription
needed in case of public issues (both for equity and debt), but only requires
disclosure of the same in the offer document.
d) In view of the above, it has
been decided that the minimum subscription for public issue of debt securities
shall be specified as 75% of the base issue.
e) size for both NBFCs and Non NBFC
issuers. Further, if the issuer does not receive minimum subscription of its
base issue size (75%), then the entire application monies shall be refunded
within 12 days from the date of the closure of the issue. In the event, there
is a delay, by the issuer in making the aforesaid refund, then the issuer shall
refund the subscription amount along with interest at the rate of 15% per annum
for the delayed period.
f) However, the issuers issuing
tax-free bonds, as specified by CBDT, shall be exempted from the above proposed
minimum subscription limit.
2. Base Issue Size:
In
any public issue of debt securities, it has been decided that the Base Issue
size shall be minimum Rs 100 Crores.
3. Retention of Over-Subscription Limit:
a) Currently, in respect of public
issue of NCDs, SEBI ILDS Regulations does not specify any maximum cap on the
retention of over-subscription.
b) In general, issuers shall be
allowed to retain the over-subscription money up to the maximum of 100% of the
Base Issue size or any lower limit as specified in the offer document. However,
for the issuers filing a shelf prospectus, they can retain oversubscription up
to the rated size, as specified in their Shelf Prospectus.
c) The issuers of tax free bonds,
who have not filed Shelf Prospectus, the limit for retaining the
oversubscription shall be the amount, which they are authorised by CBDT to
raise in a year or any lower limit, subject to the same being specified in the
offer document.
4.
Further disclosures in the prospectus for Debt Issues:
I. “Objects of the issue”
a) As per Schedule I of SEBI ILDS
Regulations, companies making public issue of NCDs need to specify the “Object
of the issue” in the offer document. However, detailed disclosure requirements,
as required in case of equity issues are not specified under the SEBI ILDS
Regulations.
b) On analysis of the various offer
documents, filed by the issuers for public issue of NCDs, it is observed that
almost none of the issuers gave concrete objectives for the issue. Most of the
objectives stated are in the form of a blanket statement encompassing a lot of
avenues for utilizing the monies raised through the issue.
c) In this regard, it is stated
that the entities coming out with public issue of NCDs shall provide granular
disclosures in their offer document, with regards to the "Object of the
Issue" including the percentage of the issue proceeds earmarked for each
of the “object of the issue”. Further, the amount earmarked for "General
Corporate Purposes", shall not exceed 25% of the amount raised by the
issuer in the proposed issue.
d) Further, it is understood that
NBFCs are the most frequent users of the debt channel and most of the NBFCs
utilize the issue proceeds for onward lending. In view of the same, NBFCs shall
have to disclose in their offer document, the details with regards to the
lending done by them, out of the issue proceeds of previous public issues,
including details regarding the following:
i. Lending policy;
ii. Classification of loans/advances
given to associates, entities /person relating to Board, Senior Management,
Promoters, Others, etc.;
iii. Classification of loans/advances
given to according to type of loans, sectors, maturity profile (less than one
year, 1-3 yrs, 3-5 yrs, 5-10 yrs, etc.), denomination (loans of value below Rs.
50 lakhs, Rs. 50 Lakhs – 1 Cr; Rs. 1 Cr- 5 Cr, Rs. 5 Cr- 25 Cr, Rs. 25 Cr.-100
Cr etc,), geographical classification of borrowers, etc.;
iv. Details of top ten borrowers
including their name, address, exposure etc;
v. Details of top ten loans,
overdue and classified as non-performing in accordance with RBI Guidelines, in
terms of exposure to those entities.
II. Disclosures in the offer document for public
issue of NCDs:
Issuers
coming out with public issues of NCDs need to make disclosure in accordance
with the disclosure requirements as specified in Schedule II to Companies Act,
1956 (Chapter III of Companies Act, 2013) and disclosure requirements as
specified in Schedule I of SEBI ILDS Regulations. In furtherance to the same,
it has been decided that following additional disclosures have to be made in
the Offer Document, by the issuers.
i.
Offer document
shall contain the following disclaimer clause in bold capital letters:
"It
is to be distinctly understood that submission of offer document to the
Securities and Exchange Board of India (SEBI) should not in any way be deemed
or construed that the same has been cleared or approved by SEBI. SEBI does not
take any responsibility either for the financial soundness of any scheme or the
project for which the issue is proposed to be made or for the correctness of
the statements made or opinions expressed in the offer document. The lead
merchant banker, ______________ has certified that the disclosures made
in the offer document are generally adequate and are in conformity with the
SEBI (Issue and listing of Debt Securities) Regulations, 2008 in force for the
time being. This requirement is to facilitate investors to take an informed
decision for making investment in the proposed issue.
It
should also be clearly understood that while the Issuer is primarily
responsible for the correctness, adequacy and disclosure of all relevant
information in the offer document, the lead merchant banker is expected to
exercise due diligence to ensure that the issuer discharges its responsibility
adequately in this behalf and towards this purpose, the lead merchant banker
_______________ has furnished to SEBI a due diligence certificate dated
______________ which reads as follows:
(due
diligence certificate submitted to the Board, as per Schedule II of SEBI ILDS
Regulations, to be reproduced here)"
ii. Provisions relating to
fictitious applications
iii. Declaration by board of
directors that the underwriters, if any, have sufficient resources to discharge
their respective obligations.
iv. Reservation in the Issue, if any
v. Utilization details regarding
the Previous Issues of the issuer as well as the Group Companies
vi. Benefit / interest accruing to
Promoters/Directors out of the object of the issue
vii. Details regarding material
Contracts other than the contracts entered in the ordinary course of business
and the material contracts entered within the previous 2 Years.
5.
The provisions
of this circular shall be applicable for the draft offer document for issuance
of debt securities filed with the designated stock exchange on or after July
16, 2014.
6.
This circular is
issued in exercise of powers conferred under Section 11(1) of the Securities
and Exchange Board of India Act, 1992 to protect the interests of investors in
securities and to promote the development of, and to regulate the securities
markets.
7.
This circular is
available on SEBI website at www.sebi.gov.in.
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