Subject : CORPORATE

 
   Title :       11. Securities Law - guidance (Part V) - Issue and Buy-back of Shares
   Author :   
   
 

A "Share" means share in the share capital of a company. A company can issue shares to the public in general or a selected few individuals. The company can issue shares, by way of an offer document to at a price decided by itself (it is thus called a fixed price issue) or determined by bookbuilding process (it is thus called a bookbuilt issue). These shares are then listed by the companies on one or more of the recognised Stock Exchanges for the purpose of trading. Shares can also be bought back by the companies by a process called buy-back of shares. The process of issue of shares increases the share capital of the company and process of buy-back of shares by a company reduces the share capital of that company.

The company can buy-back its shares in any of the following manners:

(i) From the existing shareholders on a proportionate basis through the tender offer;

(ii) From open market (though Book building process or Stock Exchange)

(iii) From odd lot holders.

It may be noted that company may buy-back its shares without shareholders' resolution, to the extent of 10% of its paid-up equity capital and reserves. However, if a company intends to buy-back its shares to the extent of 25% of its paid-up capital and reserves then the same has to be approved by shareholders' resolution as specified in section 77A of Companies Act, 1956.

FAQs on Public Issue of Shares

What is book building of an issue? Book building of an issue is a process by which a demand for the securities proposed to be issued by a corporate body is elicited to determine price and quantum of such securities.

What is the difference between offer of shares through book building and offer of shares through public issue? Price at which shares will be allotted is not known in case of offer of shares through book building, while in case of offer of shares through public issue, price is known to investor at the time of making application. During book building, the demand for shares can be known everyday, but in case of the Public Issue the extent of subscription is known only at the close of the issue.

How is the price determined in an issue of capital? The company concerned determines the price of its securities. However, the company has to indicate in its offer document the justification for the price of securities to be issued.

Does SEBI "approve" the draft offer document? No. SEBI does not clear, vet or approve the offer document.

While the issuer company is primarily responsible for the correctness, adequacy and disclosure of information in the offer document, the Merchant Banker is expected to exercise due diligence to ensure that the issuer company duly discharges its responsibility.

Is my money safe because company has submitted a draft offer document to SEBI? The offer document lists out the risk factors in the issuer company, so the investment decision lies with you and you may take an informed decision by studying the offer document thoroughly.

What is the basis of allotment? The basis on which allotment of shares is made to you is known as the basis of allotment. The basis of allotment is determined by taking into account the size of the issue and the total amount of subscription to the issue.

Do I get allotted all securities that I have applied for? The extent of allotment to you would depend upon the quantum of subscription for an issue and your application size. In case of over-subscription, you would be allotted securities on a proportionate basis.

What is firm allotment? If the issue is not oversubscribed than all the eligible applicants are allotted securities fully as per their applications.

How do I come to know of new issues on offer and from where do I get copies of those draft offer document? Every week SEBI issues press releases regarding details of offer documents filed with SEBI and observations issued. These details can also be obtained from the SEBI website i.e. www.sebi.gov.in. The draft offer document can be purchased from the SEBI office where the document is filed on payment of Rs.100 by way of a DD drawn in favour of SEBI. The draft offer document remains posted on SEBI website for a period of 21days from the date of filing the same to SEBI, which can be downloaded.

From where can I get the application form and the offer document? Application form can be obtained from the lead manager(s) and brokers appointed by the issuer company for the purpose. The application forms are also generally available at collecting bankers. Name and addresses of the lead manager(s) are available in the offer document.

Can the public give their comments/complaints on the issuer company or others connected with the issue? Yes, offer document is open to comments from the public. The comments should be sent within 21 days of the filing of the draft offer document with SEBI.

Where should I complain in case of wrong/non-disclosures/mis-statement in the offer document? The Primary Market Division in SEBI, Mumbai.

Within how many days an applicant should receive the refund order/allotment advise? Despatch of refund orders/allotment advice is to be within 2 working days of finalisation of the basis of allotment. Companies are required to finalise the basis of allotment within 30 days from the closure of the issue in case of a fixed price issue and within 15 days from the closure of the issue in case of a book building issue or else they are liable to pay interest @ 15% p.a.

What do I do if I have not received the refund orders/share certificates/allotment advises/credit of shares? You should give your complaint in writing to the lead manger/registrar to issue/IGG Division of SEBI.

Within how many days should the company get its securities listed after the issue? The post issue lead manager ensures that all steps for completion of the necessary formalities for listing and commencement of trading at all stock exchanges where the securities are to be listed are taken within 7 working days of finalisation of basis of allotment.

From where can I get the addresses of the companies and details of change of names etc.? From the stock exchanges and the Office of Registrar of Companies.

Are my securities listed with SEBI? No. Your securities are listed with the Stock Exchange(s) recognised by SEBI.

Is it mandatory to have a Demat Account for applying in public issue? An investor usually has the option to apply for and receive the shares in physical form. However, it is advisable to get the allotment in Demat form as the shares in Initial Public Offer (IPO) shall be compulsorily tradeable in Demat segment in Stock Exchanges. Dealing of physical shares (allocated in IPO) will not be accepted. In case of an IPO of issue size of Rs. 10 crore or more, securities shall be issued only in dematerialised form.

In a book building issue what is the minimum number of days for which bid should remain open in book building? Book should remain open for minimum of 5 days.

Is the issue price for fixed price and bookbuilt portion and net offer to public the same? Yes.

What is the floor price in case of book building? Floor price is the minimum price at which bids can be made.

Can the Individual Investor use book building facility for making an application? Yes.

Can the bidder revise his bids? Yes.

What proof can bidder request from trading member for entering bids? A bidder can request for a transaction registration slip as the proof of his/her having entered the bid. Whenever a bid is entered by trading members in to the system, a unique transaction registration slip is automatically generated. Transaction registration slip gives details regarding number of shares bided for, price, the client name, etc.

Is it possible to enter bids less than floor price? No. The system automatically rejects the bids if price is less than floor price.

FAQs on Buyback of Shares

From where can I get details of companies proposing to buy-back their shares? Listed companies are required to intimate the stock exchange of general meetings and resolutions passed thereof. Hence, information on companies proposing to buy-back shares may be obtained from the stock exchanges. Also, when buy-back offer document or public announcement is filed with SEBI, SEBI issues a press release and the offer document is put on the SEBI website under primary market page under the head "buy-back".

Am I compulsorily required to accept the buy-back offer? No. The decision to accept or forgo the offer lies exclusively with you.

How do I decide as to whether I should hold the shares or accept the offer? The decision as to whether you should hold your shares or accept the offer lies with you. However, you should read the letter of offer and take a decision in this regard after considering various factors such as the price of the offer, number of shares likely to be accepted under the offer, etc.

How do I tender my shares for buy-back, in the tender offer method? The company will send you a tender/offer form. You will have to fill up the form as per the instructions of the company and enclose the documents asked for, by the company.

How do I participate in the offer for buy-back in case I do not receive the offer form? You can make an application on plain paper stating your folio number, name, address, number of shares held, share certificate number, distinctive numbers, number of shares tendered, together with the original share certificate and tender the same at the collection centres/registrars, as mentioned in the public announcement.

Can I tender my shares for buy-back if I am not a registered shareholder? Yes, provided you submit the duly executed transfer deed for transfer of shares in your name, along with the offer form and other relevant documents as required for transfer, if any. The same should be sent to the registrar to the buy-back offer.

What is the manner in which the company decides the acceptances from each shareholders? In case the shares of the company are tradeable compulsorily in demat segment, the acceptances from any investor shall be on a proportionate basis irrespective of the number of shares tendered in the buy-back, and irrespective of whether shares are in physical or demat form.

If the shares are not in compulsory demat segment, first the entire shares tendered being less than the minimum market lot shall be accepted in full. Thereafter, the acceptances will be on proportionate basis in a manner to ensure that the acceptances are in market lot. In such a case, a draw of lots shall be done, as in the case of public issues.

When will the shareholders receive intimation about acceptance their shares? The company is required to send intimation to the tenderers within 15 days from the closure of the offer.

When will the shareholders receive the consideration/the share certificate? The company is required to send the above, within 21 days from the closure of the buy-back offer.

Courtesy : SEBI.

 

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