Special Services- Public Offering/Corporate Actions

Special Services- Public Offering/Corporate Actions (Part 1)

Definition: Corporate actions refer to events that affect the rights, obligations, and/or interests of beneficial owners of securities held in a depository.
Key Concepts:
- Corporate actions can be categorized into cash corporate actions (involving monetary benefits, e.g., dividend and interest) and non-cash corporate actions (involving benefits other than cash, e.g., bonus issues, rights offers).
- Record Date: The cut-off date announced by the issuer to determine the beneficial owners entitled to corporate benefits.
- Book Closure: A period during which the issuer's books are closed to determine the beneficial owners eligible for corporate benefits.

Steps:
- The issuer/investor informs the depository about the proposed corporate action.
- The depository provides the details of beneficial owners' holdings to the issuer or its R&T Agent.
- The issuer/R&T Agent distributes corporate benefits to the beneficial owners.
Monetary Benefits: Distributed directly to beneficial owners based on their holdings on the cut-off date.
Non-Monetary Benefits: Distributed based on the particulars of beneficial owners' holdings received from the depository.

Record Date: The date used to determine the beneficial owners eligible for corporate benefits.
Book Closure: The period during which the issuer's books are closed to determine the beneficial owners eligible for corporate benefits.
Dematerialization: The process of converting physical securities into electronic form.
Rights Issue: A concept where dematerialized Rights Entitlements (REs) are credited to the demat account of eligible shareholders.

Dematerialized REs: Credited to the demat account of eligible shareholders before the issue opening date.
Trading of REs: Traded on the secondary market platform of stock exchanges with T+1 rolling settlement.
Renunciation of REs: Can be done by trading on the stock exchange platform or off-market transfer.

Corporate Actions: In case of Capital Reduction, a new ISIN will be created and the securities shall be debited under the old ISIN and credit is given in the new ISIN as per the applicable ratio.
Sub-division/Consolidation: The face value of the securities undergoes a change, resulting in a new ISIN with the new face value.
Bonus Issues: The eligible holders as on the record date fixed by the Company shall be entitled to receive the bonus entitlement, with bonus shares credited as per the applicable ratio in the temporary ISIN of the company.
Impact on SLB and Pool Balances: Securities will get debited/credited as per the appropriate predefined ratio in case security balances are held in the Securities Lending and Borrowing/Pool Account of Clearing Member.

Ownership: Ownership of the pledged/hypothecated securities remains with the pledgor (borrower) until the pledge is invoked.
Corporate Benefits: All corporate benefits - cash and non-cash - like dividends, bonus, rights etc., will accrue to the borrower.
Dividends: Dividends will be given to the borrower in the usual manner.

Eligible Investors: Eligible investors in debt securities will receive interest from the Issuers / its R&T Agents.
Government Securities: In respect of government securities, the depository distributes the interest to eligible clients, after RBI has credited interest amount to the depositories account.

Primary Market: The primary market provides the channel for raising funds from investors through issue of new securities or sale of existing securities in case of offer for sale.
Issuers: The issuers of securities issue (create new securities or sell existing securities) in the primary market to raise funds for investment and/or to discharge some obligation.
Dematerialised Form: According to the Companies Act, 2013, every listed public company, making an initial offer of any security of Rs. 10 crore and above has to issue it only in dematerialised form in accordance with Depositories Act, 1996.

Allotment: Allotment in public issues in respect of Equity is mandatory in demat form.
Demat Account: To receive the securities in electronic form, investor must open a demat account through any DP with any depository before making an application.
Application Form: The application form should have provision for investors to furnish their demat account number along with the following information: Depository Name, DP's Name, DP-ID, Beneficiary Account Number (BO ID).

SEBI Guidelines: SEBI had issued circular No. CIR/CFD/POLICY CELL/1/2015 dated April 13, 2015 on Mechanism for acquisition of shares through stock exchange mechanism pursuant to tender-offers for the purpose of takeovers, buy back and delisting of securities.
Client Details: The Clients (eligible shareholders) who wish to participate in the tender offers will be required to mention the details while submitting delivery instructions slip (DIS) or electronic instructions to the Participants.