PUBLIC OFFER OF SECURITIES

PUBLIC OFFER OF SECURITIES (Part 1)

Definition: A company may raise capital at different stages from different categories of investors.
Details: The capital raised can be categorised based on when it is raised, the investors to whom it is issued, and the method used to raise capital.
- Based on when equity capital is raised:
  - Initial public offer
  - Further public offer
- Based on the category of investors:
  - Private placement of shares
  - Preferential allotment of shares
  - Qualified institutions placement
  - Rights issue of shares
- Based on the method of issue:
  - Fixed Price offer
  - Book-building offer

Definition: In a public offer of shares, a company issues shares to a large number of new investors, who are members of the public.
Details:
- This market for the first time offer of shares is called the primary market offer.
- The regulations of SEBI and the Companies Act aim at protecting the interest of the retail investors by prescribing:
  - Disclosure of relevant information both at the time of the issue and periodically thereafter.
  - Arrangement for the allotment of shares in dematerialised form.
  - Listing the shares on a stock exchange so that investors have liquidity.
  - The continued participation of the promoters in the business through a lock-in of the promoters’ holdings.

Definition: A public issue of shares made through the book building process could be combined with a reservation of shares to certain categories of investors.
Details:
- The issuing company can have differential pricing for the retail investors, which can be at a discount not exceeding 10 percent of the price at which shares are allotted to other categories of investors.
- The promoters of a company making a public issue of shares are required to continue to hold at least 20 percent of the post-issue paid up capital of the company.

Definition: The first public offer of shares made by a company is called an Initial Public Offer (IPO).
Details:
- An IPO is made by a company whose shares are not listed on a stock exchange.
- Once the IPO is made, the shares have to be compulsorily listed and the shares become available for trading on the stock exchange.
- An IPO can either be a fresh issue of shares or it can be an offer for sale of existing shares by any of the existing shareholders.

Definition: SEBI’s regulations prescribe certain eligibility requirements for a company planning a public issue.
Details:
- The issuer company should have net tangible assets of at least Rs. 3 crores in each of the preceding 3 full years.
- It has an average operating profit of at least Rs.15 crores, calculated on a restated and consolidated basis, during the preceding 3 years.
- It has a net worth of at least Rs. 1 crore in each of the preceding 3 full years, calculated on a restated and consolidated basis.

Definition: A further public offer is made by a listed company to issue additional shares or through an offer for sale to increase capital or meet regulatory requirements.
Details: The offer is subject to regulatory requirements laid down by SEBI and the Companies Act, and the securities must be listed within 3 working days (T+3 days) after the closure of the public issue.

Definition: Buy-back of securities refers to the process by which a company buys back its own shares or other specified securities from its existing shareholders.
Details: The buy-back is subject to regulations laid down by SEBI and the Companies Act, and the company must follow a specific procedure, including passing a special resolution, giving public notice, and opening an escrow account.

Tender Offer: A company may buy back its shares or other specified securities from its existing security-holders on a proportionate basis, with 15% reserved for small shareholders.
Open Market: A company may buy back its shares from the open market, either through a book building process or through the stock exchange, but this method is being phased out.
Restrictions: A company cannot buy back its shares through a private negotiated deal.

Public Notice: The company must give a public notice of the buy-back in nationwide newspapers, providing details of the proposed buy-back, reasons, and process.
Escrow Account: The company must open an escrow account within 2 working days of the public announcement, with a deposit of 25% of the consideration payable.
Letter of Offer: In case of buy-back through tender offer, no draft letter of offer is required to be filed with SEBI, but the public announcement must disclose the details of the offer.

Buy Back Process: The company must appoint a merchant banker to manage the buy back.
Stock Exchange Requirements: The public notice must give details of the brokers and stock exchanges through which the buyback will be conducted. The company can only use a stock exchange with nation-wide trading terminals.
Buy Back Timing: The buy-back offer on stock exchange shall open not later than 4 working days from the record date.
Share Extinguishing: The shares bought back will be extinguished and a certificate to that effect be given to SEBI and the stock exchange.

Book Building Process: The company must appoint a merchant banker to manage the issue. Only listed companies are allowed to have a buy back through this process.
Public Notice: The public notice should give details of book building process to be followed. The book building will be done through an electronically linked facility.
Offer Duration: The offer shall remain open for a minimum of 2 trading days.
Share Extinguishing: The certificates pertaining to the accepted bids will be destroyed and the shares tendered in electronic form will be extinguished.

Payment and Share Certificate Return: Within 5 working days from the closure of the buy-back offer, the payment has to be made to the shareholders or share certificates returned if the offer is rejected.
Share Certificate Destruction: The share certificates representing the shares that have been bought back will be destroyed and a certificate to that effect signed by the Registrar of the issue, the secretarial auditor, and directors of the company will be submitted to SEBI.
Daily Information Update: Information about the shares bought-back shall be given to the stock exchange on a daily basis and also the company shall upload the information of securities bought back on its website on a daily basis.