Chapter 3 Part 3 of the SEBI(ICDR) Regulations,2009 and specifically 32,33 and 34 of the said regulations provide for promoters contribution.The said provisions are explained below discussion.
Minimum Promoters Contribution – Public issue
The promoters of the issuer shall contribute in the public issue as follows:
- In case of an initial public offer,not less than twenty percent of the post issue capital;which provided that in case the post issue shareholding of the promoters is less than twenty percent. Alternative investment funds may contribute for the purpose of meeting the shortfall in minimum contribution as specified as specified for promoters,subject to a maximum of ten percent of the post issue capital.
- In case of a further public offer,either to the extent of twenty percent of the proposed issue size or to the extent of twenty percent of the post issue capital;
- In case of a composite issue,either to the extend of twenty percent of the proposed issue or to the extent of twenty percent of the post issue capital excluding the rights issue component.
Public/Composite issue of convertible securities
In case of a public issue or composite issue of convertible securities,minimum promoters contribution shall be as follows:
- the promoter shall contribute twenty percent as stipulated in clause(a) ,(b) or (c) of sub-regulation(1), as the case may be, either by way of equity shares or by way of subscription to the convertible securities,which provided that if the cost of the shares decided to conversion is not determined earlier and not closed in the offer document,the promoters shall contribute only by the option of subscription to the convertible securities which is issuing in the public issue .
- In case of any issue of convertible securities which are convertible or exchangeable on various dates and if the promoters contribution is by the way of equity shares (conversion fees being pre-determined),such contribution shall not be at a cost lower than the weighted average cost value of the share capital arising out of conversion of those securities.
- Subject to the provisions of clause(a) and (b) above , in case of initial public offer of convertible debt instruments without a prior public issue of equity shares of the company ,the promoters shall bring in a contribution of at least twenty percent of the project cost in the form of equity shares ,subject to contributing at least twenty percent of the issue size from their own funds in the form of Equity shares,which provided that if the project is to be implemented in stages,the promoters contribution shall be with respect to total equity participation till the respective stage the debt raised or proposed to be raised through the public issue.
Promoters contribution in excess of minimum
In case of a further public offer or composite issue where the promoters contribute more than the stipulated minimum promoters contribution,the allotment with respect to the over contribution shall be made at a cost value found in terms of the provisions of regulation 76 or the issue the cost value,whichever is greater.
Promoters Contribution to be brought in before public issue opens,
The promoters may agree the requirements of the regulations at least one day prior to the date of opening of the issue and the amount of promoters contribution shall be kept in an escrow account with a scheduled commercial bank and shall be issued to the issuer along with the release of the issue proceeds.Provided that where the promoters contribution of a company has already been brought in and utilized,the issuer shall give the cash flow statement disclosing the use of such funds in the offer document.Provided further that where the minimum promoters contribution is more than hundred crore rupees ,the promoters shall bring in at least one hundred crore rupees before the date of opening of the issue and the remaining amount may be brought on basis before the calls are made to public.
Computation of promoters contribution
Promoters contribution shall be computed on the basis of the post issue expanded capital:
- assuming full proposed conversion of convertible securities into equity shares;
- assuming exercise of all vested options,where any employee stock options are outstanding at the time of initial public offer in terms of provision (b) to sub-regulation (5) of regulation 26.
- For computation of “weighted average price”: The Weight means the amount of equity shares presenting out of conversion of such securities into equity shares at various stages;
- “price” means the price of equity shares on conversion arrived at after taking into account that determined before the conversion cost value at various stages.
Securities ineligible for minimum promoters contribution
For the computation of minimum promoters contribution ,the following specified securities shall not be eligible:
- A specified securities provided while the proceeding of three years,if they are:provided for consideration other than the cash and revaluation of requirements or capitalization of intangible asserts in involved in such transaction ;or
- Resulting from a bonus announce by the use of revaluation reserves or unexpected profits of the issuer or from bonus announce against the shares which are ineligible for minimum promoters contribution.
- Specified securities of the company provided by promoters and alternative investments while the proceeding one year at a price lower than a price at which the securities are being offered to public in the initial public offer.Provided that nothing contained in this clause shall apply:
- if the promoters /alternative investment funds as applicable pay to the issuer,the difference between the price at which specified securities are offered in the initial public offer and the price at which the securities had been acquired.
- if such specified securities are acquired in terms of the scheme under sub-sections 391-394 of the Companies Act,1956,as approved by the High Court ,by promoters in lieu of business and invested capital that had been in existence for a period of more than one year prior to such approval;
- to an initial public offer by a Government company ,statutory authority or corporation or any special purpose vehicle set up by any of them,which is engaged in infrastructure sector;
- Specified securities allotted to the promoters and alternative investment funds during the proceeding one year at a price less than the issue price,against funds brought in by them,during that period ,in case of an issuer formed by conversion of one or more partnership firms,where the partners of the partnership firms are the promoters of the issuer and there is no change in the management.
- Specified securities pledged with any creditor.
Securities acquired under merger/amalgamation
Specified securities referred in clauses (a) and (c) of sub-regulation (1) shall be eligible for the computation of promoters contribution of the company,if such securities are acquired pursuant to a scheme which has been approved under sub-section 391-394 of the Companies Act,1956.For the purpose of clause(b) of sub-regulation (1),the term “infrastructure sector” includes the facilities are services as specified in schedule 10.
Requirements of minimum promoters contribution not applicable in certain cases
The requirements of minimum promoters contribution shall not apply in case of:
- an issuer which does not have any identifiable promoter;
- a further public offer,where the equity shares of the issuer are not infrequently traded in a recognized stock exchange for a period of at least three years and the issuer has a track record of half separated payment for immediately proceeding three years:provided that where the promoters wish to subscribe to the particular securities provided to the extent higher than the higher of the two options available in clause(b) of sub-regulation (1) of regulation 32.
- rights issues.
Meaning of infrequently traded
For the use of clause(b), “infrequently traded” have similar meaning as defined to them in explanation to sub-regulation (5) of regulation 20 of the Securities and Exchange Board of India(Substantial Acquisition of shares and takeovers) Regulations,1997 and the reference date for the use of computing the annualized trading turnover referred to in the said explanation shall be the date of filling the draft offer document with the Board and in case of fast track problem,the date of filing the offer document with the Registrar of Companies before the problem.
Date of Commencement of lock in and inscription of non-transferability
Save as otherwise provided in this chapter ,specified securities held by promoters and persons other than promoters shall not be transferable from the date of allotment of the particular securities in the proposed public issue for the period stipulated in this chapter.The certificate of particular securities which are refer to lock-in shall contain “non transferable” and the lock-in period and in case such securities are dematerialized,the issuer shall make sure that the lock-in is monitored by the depository.Where the particular securities which are respect to lock in are partially paid-up and the amount called-up on such particular securities is less than the amount called-up on the securities issued to the public ,the “lock-in” shall end of three years after such particular securities have become passed with the specified securities issued to the public.
Lock-in of specified securities held by promoters
In a public problem,the specified securities held by promoters shall be locked-in for the period stipulated here under:
- minimum promoters contribution including contribution made by the alternative investment funds,referred to in provision to clause (a) of sub-regulation(1) of regulation 32,shall be locked in for a period of three years from the date of commencement of commercial production or date of allotment in the public problem.
- promoters holding in excess of minimum promoters contribution shall be locked-in for a period of one year.Provided that the excess promoters contribution as provided in provisions to clause(b) of regulation 34 shall not be subject to lock-in.the expression “date of commencement of commercial production” means the last date of the month in which production in a manufacturing company is wishes to commence the offer document .
in case of an initial public offer,the entire pre-issue capital held by the persons other than the promoters shall be locked in for a period of one year.Provided that nothing contained in this regulations shall apply to:
- equity shares allotted to employees under an employee stock opinion or employee stock purchase scheme of the issuer prior to the initial public offer ,has made full disclosures with respect to such options or scheme in accordance with part A of Schedule 8.
- equity shares held by a venture capital fund or alternative investment fund of category 1 or a foreign venture capital investor; Provided that such equity shares of the company shall be locked in for period of at least one year from the date of purchase by the venture capital fund or alternative investment fund or foreign venture capital investor.
pledge of locked-in specified securities
Particular securities held by the promoters and locked-in may be pledged with any commercial bank or any institutions of finance as the security for loan offered by such bank or institution ,subject to the following:
- if mentioned securities are locked in in accordance with clause(a) of Regulation 36,the loan has been provided by such bank or institution for the use of financing one or more of the objects of the issue and pledge of mentioned is one of the terms of sanction of the loans.
- if the mentioned securities are handled in terms of clause(b) of Regulation 36 and the pledge of those securities is one of the terms of sanction of the loan.
Transferability of locked-in specified securities
According to the rules of Securities and Exchange board of India (Substantial Acquisition of shares and Takeovers) Regulations ,the mentioned securities offered by promoters and locked-in as per regulation 36 may be transfer to any persons of the promoters group or a new promoter or a person in control of the issuer and mentioned securities provide by the persons other than promoters and locked-in as per regulation 37 .
Report on promoters transactions in securities to ROC/Stock Exchange
Regulation 69(4) of ICDR Regulations offers that the issuer shall make sure that transactions in securities by the promoters and promoter group during the period between the date of registering the offer document with the Registrar of Companies or filling the letter of offer with the designated stock exchange,as the case may be and the date of closure of the issue shall be reported to the recognized stock exchanges where the specified securities of the issuer are listed,within 24 hours of the transactions.
For more detailed about the Business Registration -> Click here.