Listed company’s documentation may get simpler

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The Securities and Exchange Board of India (Sebi) is learnt to be finalising a new mechanism to simplify the documentation process for listed companies wishing to issue new securities. Sources told FE that the concept of an ‘annual information memorandum’ will be introduced by the regulator, replacing the traditional offer document, if a company plans subsequent public issues via an offer for sale (OFS) or a follow-on public offering (FPO).

This memorandum is expected to provide exhaustive information about a company including financials, pending litigations and risk factors. Companies will have to file the document once a year. To incorporate the new mechanism, Sebi will amend Listing Obligations and Disclosure Requirement (LODR) regulations.

As per the current LODR regulations, a company needs to file an offer document whenever it comes up with a public offering. However, offer documents are not mandatory in the cases of private placement like preferential issue, qualified institutional placements (QIPs), etc. The documentation is also not mandatory in case of rights issue where the company plans to tap existing shareholders.

Offer documents are usually drafted by merchant bankers in coordination with legal advisers. Post introduction of annual information memorandum, a company will be able to cut on the fees paid to merchant bankers and lawyers for the issue.

“Currently, we have the concept of annual reports. The new mechanism is a step forward. Annual information memorandums would provide additional details like pending litigations, etc. The regulator would come up with a format for the memorandum soon. This will also help investors get all the information about a company at a single place,” said an investment banker who is part of the primary markets advisory committee (PMAC) of Sebi.

As per the current LODR regulations, a company needs to upload an annual report which should contain audited financial statements, cash flow statements,directors report and management discussion and analysis report. The top 500 listed entities in terms of market capitalisation should also disclose business responsibility report describing initiatives taken by them from an environmental, social and governance perspectives.

In October 2015, Sebi had introduced the concept of abridged prospectus that companies need to file for public offers. Under this mechanism, any company going for an IPO needs to file an abridged prospectus along with the regular draft red herring prospectus (DRHP). The abridged prospects would be a 10-page document which would provide all the key information to the investor about the company. The decision was taken in the interest of investors as the full DRHP of a company runs into 400-500 pages.

Source: http://www.financialexpress.com/article/industry/companies/listed-companys-documentation-may-get-simpler/273624/

Now, listed companies’ management to explain audit qualifications : SEBI

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Markets regulator Sebi today asked listed companies to disseminate cumulative impact of audit qualifications in a separate format along with the annual audited financial results to the stock exchanges.

Besides, the management of a company would be required to explain its view about audit qualifications.

The new framework would ensure that the impact of audit qualifications are clearly communicated by the companies concerned to their investors in a timely manner apart from streamlining the whole process.

Sebi decided to have the new system on audit qualifications after extensive discussions with its advisory committees, Institute of Chartered Accountants of India (ICAI), stock exchanges and industry bodies.

Now, listed entities will be required to disclose the cumulative impact of all audit qualifications on relevant financial items in a separate form called ‘Statement on Impact of Audit Qualifications’ instead of the present form.

Such disclosures will have to be made in a tabular form, along with annual audited financial results filed in compliance with the listing regulations.

The new mechanism will be applicable for all the annual audited standalone/consolidated financial results, submitted by the listed entities for the period ended March 31, 2016 and thereafter.

The listed entity will have to furnish a declaration in case there are no audit qualifications.

In case of audit reports with modified opinion, a statement showing impact of audit qualifications will be filed with the stock exchanges in a format specified by the regulator, Sebi said in a circular today.

Issuing a format for ‘Statement on Impact of Audit Qualifications’ for the financial year, Sebi said that companies will have to disclose net profit, networth, turnover, total expenditure, earning per share, total assets and liabilities.

Besides, the firms will have to make submission about details, types, frequency of audit qualification. The management will have the right to give its views on the audit qualification.

Also, the management of the listed entity will have explain its views on the audit qualifications.

“Where the impact of the audit qualification is not quantified by the auditor, the management shall make an estimate. In case the management is unable to make an estimate, it shall provide reasons for the same. In both the scenarios, the auditor shall review and give the comments,” Sebi noted.

Source: http://www.business-standard.com/article/pti-stories/now-listed-cos-management-to-explain-audit-qualifications-116052700918_1.html

SEBI to delist 4,200 firms; warns erring promoters, auditors

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Capital markets regulator Securities and Exchange Board of India (SEBI) is planning to take a number of steps to deepen it, including forcing thousands of non- or poorly-traded companies to delist and introducing more trading instruments, especially in the commodity space.

These were among some of the steps it outlined with a meeting with senior editors today.
The news would come as relief to investors, whose monies are stuck in companies where no trading takes place.
SEBI chief UK Sinha said the regulator plans to force promoters of companies whose shares do not see active trading both at the main bourses and in regional exchanges to delist.
Such promoters will have to provide an exit route to investors, failing which they will be penalised.
India has about 8,000 listed companies but active trading hardly takes place beyond the top 1,000. As many as 1,200 companies have been suspended for trading for over seven years now, and these will be the first that will be forced to delist.
Besides, there are over 3,000 companies listed on various regional stock exchanges that have become defunct, Sinha said.
The exercise for over 4,200 listed firms would be completed this year. Such exercises would be taken up going forward to clean up the market from what the SEBI chief described as “a source of nuisance”.
He also warned of strong action against the auditors who close their eyes to the lapses in the financial accounts of listed firms.
“So far, we have had a hands-off approach on auditors, but we will take action if something serious comes to our notice. Auditors cannot go scot-free if they have been certifying the books for years without pointing finger at the lapses,” Sinha said.
SEBI also plans to launch more instruments, such as options contracts, in the commodity markets, and will also introduce more commodities for trading.
Sinha also discussed steps that the regulator has taken to ease entry for foreign investors in India, saying that easier FPI registration rules have paid off.
“The number of registered FPIs increased to 8,721 from 4,580 in 2014,” he said.
He also said costs of mutual fund and insurance products in India need to come down and said the regulator had invited former UIDAI chief Nandan Nilekani to advise it on creation of tech platforms for sale and purchase of mutual funds.
“We are also looking to tweak listing rules for startups,” he said.

SME….! A New Opportunity for Private Company..!!!

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SME ExchangeIn the Present era, the market is booming up so every company wants to take the opportunity to capitalize the same more from market and want to get maximum benefits out of that.

Listing will help them enter capital markets (SME Exchange) and finally to graduate on to mainboard. The SME platform provides opportunity to entrepreneurs to raise equity capital for growth and expansion. It also provides immense opportunity for investors to identify and invest in good SMEs at an early stage.

Let’s see what are the ways available for companies to avail such benefits.

What is SME?

SME means Small and medium-sized enterprises or small and medium-sized businesses (SMBs) are businesses whose personnel numbers fall below certain limits.

What is SME Exchange?

“SME exchange” means a trading platform of a recognized stock exchange having nationwide trading terminals permitted by the Board to list the specified securities issued in accordance with this Chapter and includes a stock exchange granted recognition for this purpose but does not include the Main Board”.

So now question that arises is how those benefits can be obtained…. the simplest answer is by listing in SME Platform.

What are the Criteria for Listing?

  • Incorporation

The Company shall be incorporated under the Companies Act, 1956 or 2013.

  • Financials

Post Issue Paid up Capital

The post-issue paid up capital of the company shall be at least Rs. 3 crores.

  • Net-worth

Net worth (excluding revaluation reserves) of at least Rs. 3 crores, as per the latest audited financial results.

  • Net Tangible Assets

At least Rs. 3 crores as per the latest audited financial results.

  • Track Record

Distributable profits in terms of Section 123 of the Companies Act 2013 for at least two years out of immediately preceding three financial years (each financial year has to be a period of at least 12 months). Extraordinary income will not be considered for the purpose of calculating distributable profits. Or

The net worth shall be at least Rs. 5 crores.

  • Other Requirements

It is mandatory for a company to have a website.

It is mandatory for the company to facilitate trading in demat securities and enter into an agreement with both the depositories.

There should not be any change in the promoters of the company in preceding one year from date of filing the application to Different Exchange for listing under SME segment.

  • Disclosures

A certificate from the applicant company / promoting companies stating the following

  1. a) ” The Company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR).”

Note: Cases where company is out of BIFR is allowed.

  1. b) There is no winding up petition against the company, which has been admitted by the court or a liquidator has not been appointed.
  • Migration from Different Exchange SME Platform to the Main Board

The companies seeking migration to Main Board of Different Exchange should satisfy the eligibility criteria It is mandatory for the company to be listed and traded on the Different Exchange SME Platform for a minimum period of two years and then they can migrate to the Main Board as per the guidelines specified by SEBI vide their circular dated 18th May 2010 and as per the procedures laid down in the ICDR guidelines Chapter X B.

What are the Benefits of Listing in SME

1. Easy access to Capital

Different Exchange SME provides an avenue to raise capital through equity infusion for growth oriented SME’s.

2. Enhanced Visibility and Prestige

The SME’s benefit by greater credibility and enhanced financial status leading to demand in the company’s shares and higher valuation of the company.

3. Encourages Growth of SMEs

Equity financing provides growth opportunities like expansion, mergers and acquisitions thus being a cost effective and tax efficient mode.

4. Ensures Tax Benefits

In case of listed securities Short Term Gains Tax is 15% and there is absolutely no Long Term Capital Gains Tax.

5. Enables Liquidity for Shareholders

Equity financing enables liquidity for shareholders, provides growth opportunities like expansion, mergers and acquisitions, thus being a cost effective and tax efficient mode.

6. Equity financing through Venture Capital

Provides an incentive for Venture Capital Funds by creating an Exit Route and thus reducing their lock in period.

7. Efficient Risk Distribution

Capital Markets ensure that the capital flows to its best uses and that riskier activities with higher payoffs are funded.

8. Employee Incentives

Employee Stock Options ensures stronger employee commitment, participation and recruitment incentive.

How are the Listing Procedures done?

This is as simple as we understand & execute the following steps!!!

Planning

The Issuer Company consults and appoints the Merchant Banker/s in an advisory capacity.

Preparation

The Merchant Banker prepares the documentation for filing after, conducting due diligence regarding the Company i.e checking the documentation including all the financial documents, material contracts, government approvals, Promoter details, planning the IPO structure, share issuances, and financial requirements

Process

Application procedure:

Submission of DRHP/Draft Prospectus – These documents are prepared by the Merchant Banker and filed with the Exchange as well as with SEBI as per requirements.

Verification & Site Visit – Different Exchange verifies the documents and processes the same. A visit to the company’s site shall be undertaken by the Exchange official .The Promoters are called for an interview with the Listing Advisory Committee.

Approval – Different Exchange issues an In-Principle approval on the recommendation of the Committee, provided all the requirements are compiled by the Issuer Company.

Filing of RHP/Prospectus – Merchant Banker files these documents with the ROC indicating the opening and closing date of the issue.

Once approval is received from the ROC/MCA, they intimate the Exchange regarding the opening dates of the issue along with the required documents.

Public Offering

The Initial Public Offer opens and closes as per schedule. After the closure of IPO, the Company submits the documents as per the checklist to the Exchange for finalization of the basis of allotment.

Post Listing

Different Exchange finalizes the basis of allotment and issues the notice regarding Listing and Trading.

Any Guidelines for Listing?

Yes the Company has to follow the below guidelines.

Capital
The post issue face value capital should not exceed Rs. Twenty-five crores.

Trading lot size

The minimum application and trading lot size shall not be less than Rs. 1,00,000/- .

The minimum depth shall be Rs. 1,00,000/- and at any point of time it shall not be less than Rs. 1,00,000/-.

The investors holding with less than Rs. 1,00,000/- shall be allowed to offer their holding to the Market Maker in one lot.

However in functionality, the market lot will be subject to revival after a stipulated time.

Participants
The existing Members of the Exchange shall be eligible to participate in SME Platform.

Underwriting
The issues shall be 100% underwritten and Merchant Bankers shall underwrite 15% in their own account.

So at last we can say that, if you want to increase the reputation of your company in the developing Countries like India, then you should have to register your Company in SME Platform because ultimately your company gets reputation as it is traded in Exchange Platform so Goodwill of the company  also increases and ultimately you achieve your profit.

This is best platform provided to the company for those companies who have not much of Paid Up Capital and also are less reputed but by registering in SME Platform, the company not only gets reputation all over India at large but also the company gets Profit by availing Tax benefits up to some extent. Thus,Small companies can now think big.

So considering the above fact, companies should have to opt for this option and after few years, the company would also be transferred from SME Platform to Main Board, hence your company is considered as the same as other reputed companies.

So by considering the Current Market Scenario every Private Company as well as Unlisted Public Company has to think on this matter and work accordingly. Though this facility has been available since long but few of them were able to grab this opportunity. Now it’s time to rethink about this opportunity.

SME Capital Markets so far

The SME Capital market in India has seen a flurry of activities in past 3 years. SME Platform has opened up immense opportunities not only for the small and medium enterprises to maximize wealth and gain visibility but also provides new investment opportunity to investors.Increasing number of companies are participating on SME Exchanges of BSE and NSE.
So far, 119 companies have got listed on BSE SME Exchange and 11on NSE Emerge. Further, several companies have filed their draft offer documents with these Exchanges. The total market capitalization of SME Exchanges has peaked over INR 10,000 Crores. These facts are remarkable, given the initial phase of SME capital markets that too in challenging times when even Main Board primary markets have witnessed little activity.

 

Growth Opportunities for SMEs

These recent initiatives of capital markets aim at bridging the gap between SMEs and capital markets by providing an opportunity to SME entrepreneurs to raise growth capital and reap benefits of listed space. SME entrepreneurs spot a ray of fresh light and hope for raising growth capital in economical and tax efficient manner and move up the ladder towards next-level growth. In the process, this opens up as a immense opportunity for capital markets, market intermediaries and professionals.

SEBI registered AIF count hits 200-mark

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Markets regulator Sebi has allowed as many as 209 entities to set AIFs, pooled-in investment vehicles for real estate, private equity and hedge funds, over a period of 42 months.

The 209 Alternative Investment Funds (AIFs) have been registered with Sebi since August 12.

Among the newly registered AIFs are Kotak India Real Estate Fund, Ideaspring Capital Fund, IDFC Private Equity Fund and Canara Bank Venture Development Trust.

AIFs are funds established or incorporated in India for the purpose of pooling in capital from Indian and foreign investors for investing as per a pre-decided policy. Under Sebi guidelines, AIFs can operate broadly in three categories.

The Securities and Exchange Board of India (Sebi) rules apply to all AIFs, including those operating as private equity funds, real estate funds and hedge funds among others.

The regulator had notified in May 2012, the guidelines or this class of market intermediaries.

The Category-I AIFs are those funds that get incentives from the government, Sebi or other regulators and include social venture funds, infrastructure funds, venture capital funds and SME funds.

The Category-III AIFs are those trading with a view to making short-term returns and includes hedge funds among others. The Category-II AIFs can invest anywhere in any combination but are prohibited from raising debt, except for meeting their day-to-day operational requirements.

These AIFs include private equity funds, debt funds or fund of funds, as also all others falling outside the ambit of above two other categories.

 

Source: http://www.business-standard.com/article/pti-stories/sebi-registered-aif-count-hits-200-mark-116042000467_1.html

Sebi may soon revisit start-up listing norms

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The Securities and Exchange Board of India (Sebi) may soon review its framework for listing of start-ups, including e-commerce firms, while incorporating suggestions from various stakeholders to make this platform much more vibrant.

The Institutional Trading Platform (ITP) is yet to see any start-up listing ever since an easier set of compliance and disclosure requirements was notified in August 2015.

These norms have been put in place to encourage Indian start-ups and entrepreneurs to remain within the country rather than go abroad for funds.

Under the rules, start-ups can list on the separate ITP of stock exchanges such as BSE and NSE.

The platform is open to only institutional investors and high networth individuals (HNIs), while retail investors have been excluded in order to safeguard small investors against a higher level of risks associated with this platform.

Many start-ups believe that the current listing norms are unattractive for them to list in India. Moreover, not a single company got listed on the relaxed ITP platform.

Now, Sebi is likely to review the ITP norms soon. It will also incorporate suggestions from various stakeholders to make this platform much more vibrant, sources said.

Sebi’s Primary Market Advisory Committee (PMAC) has also suggested that norms should be reviewed as the matter progresses.

Under the notified rule, minimum trading lot and the minimum application size have been kept at Rs 10 lakh so that only sophisticated and large investors come in.

For their listing, Sebi also relaxed the mandatory lock-in period for promoters and other pre-listing investors to six months, as against three years for other companies.

Besides, the disclosure requirements for these companies have been relaxed.

The companies can, however, graduate to the main platform later and the small investors can also invest at that time.

Earlier this month, Infibeam Incorporation made a stock market debut becoming the first e-commerce player in the country to get listed. The firm got listed on the main-board instead of institutional trading platform.

Source: http://www.business-standard.com/article/markets/sebi-may-soon-revisit-start-up-listing-norms-116041500531_1.html

SEBI board clears wilful defaulter rules; clarifies on definition of control

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SEBI says wilful defaulters would also be not allowed to take control of any other listed company.

India’s market regulator Securities and Exchange Board of India (SEBI), on Saturday, tightened the rules for so-called wilful defaulters preventing them from raising funds through public issues. The rules, however, are applicable prospectively which suggests that those who have already been termed wilful defaulters may not come within the ambit of these strictures.

Following a board meeting in Delhi, on Saturday, SEBI said that entities declared as wilful defaulters will not be allowed to raise money through sale of shares, debt securities and non-convertible preference redeemable shares to the public.

“No issuer shall make a public issue of equity securities/debt securities/non-convertible redeemable preference shares, if the issuer company or its promoter or its director is in the list of the wilful defaulters,” said a press release issued by SEBI.

Such entities will not be allowed to take control of another listed entity, SEBI said. These firms will also not be allowed to set up market entities like mutual funds. The rules are applicable prospectively, said the regulator.

At a press conference in New Delhi, UK Sinha, chairman of SEBI said that all rules made by the regulator are prospective in nature.

In January 2015, SEBI issued a draft paper proposing that wilful defaulters would not be allowed to sell shares, debt securities and non-convertible preference redeemable shares to the public. The paper had suggested that wilful defaulters be barred from taking control of another listed entity, but that they be allowed to participate in counter offers to deal with hostile takeover bids. Each of these restrictions would be applicable if the issuer, its promoter, group company or director of the issuer of such securities were in the list of wilful defaulters published by RBI, the stock market regulator had said.

The final regulations announced on Saturday are along the same lines.

Policy makers have toughened their stance against wilful defaulters as they try and improve the asset quality of the banking sector. While defaulters who are hit by external factors such as weakness in economic conditions may deserve some help from the system, policy makers feel that wilful defaulters must not be spared.

RBI has been asking banks to get tough on wilful defaulters and has a tough set of rules in place which say that anyone tagged a wilful defaulter cannot raise fresh funds from the banking system. The banking regulator, however, has been of the view that such defaulters also need to have their access to capital markets restricted. This has now happened with SEBI tightening its rules as well.

While RBI has not disclosed the quantum of loans that fall under the wilful default category, data has emerged from some large public sector banks.

Loans worth Rs.11,700 crore given by State Bank of India have been locked up as non-performing assets as nearly 1,160 defaulters have wilfully decided not to repay, PTI reported on 24 February.

Another state-owned lender, Punjab National Bank (PNB), declared 904 borrowers who owed it a combined Rs.10,869.71 crore as of December-end as wilful defaulters. PNB added 140 companies to the list of wilful defaulters in the December quarter alone.

The most prominent case in this regard is the attempt by banks and investigative agencies to recover dues from UB Group chairman Vijay Mallya, who has been declared a wilful defaulter by lenders like State Bank of India. The country’s largest lender had moved the Bangalore debt recovery tribunal (DRT) seeking an arrest warrant against Mallya. On Friday, the Enforcement Directorate (ED) issued summons to Mallya, asking him to be personally present before it on 18 March. The summons is part of ED’s probe into a money laundering case against the former liquor baron.

Definition of control

Separately, the market regulator clarified what the term ‘control’ means in the context of mergers and acquisitions (M&As) by pegging the shareholding threshold of an acquirer at 25%.

“Considering the international practices and the current regulatory environment in India, the definition of control may be amended such that control is defined as (a) the right or entitlement to exercise at least 25% of voting rights of a company irrespective of whether such holding gives de facto control and/or (b) the right to appoint majority of the non-independent directors of a company,” said SEBI in its press release.

The move is aimed at removing ambiguities that companies currently confront during takeovers. Currently, the definition of ‘control’ under the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011—popularly known as the Takeover Code—doesn’t specify a threshold for shareholding.

The current takeover code states that an acquirer is in ‘control’ only if the board of the company that’s being acquired gives the former the right to appoint a majority of the directors, and have the final say on management and policy decisions.

The control of management or policy decisions is through shareholding or management rights or shareholders’ agreement or voting agreements.

SEBI has also cleared a framework for protective rights with an exhaustive list of rights that do not lead to acquisition of control.

“An illustrative list of protective rights which would not amount to acquisition of control may be issued. Grant of such protective rights to an investor may be subject to obtaining the public shareholders’ approval (majority of minority),” SEBI said.

Somasekhar Sundaresan, partner, J Sagar Associates, said “The company that is declared to be a willful defaulter ought to be left out of the severity of SEBI’s measures, and instead those in control of the company alone should have been targeted. A defaulter, whether willful or not, requires restructuring, and imposing prohibitions on the business entity could in fact hurt lenders for whose benefit the policy on willful defaulters has been developed. Expanding the scope to directors would also mean that turning around a company that is accused of being a willful defaulter would become impossible since no one would join the board even after throwing out the old promoters. Detailed provisions on when a borrowing entity ceases to be a willful defaulter would be needed—it cannot be after the board is replaced since, so long as it is a willful defaulter, no one would be able to join the board.”

“The move to allow shareholders to confer the power to exercise veto rights to selected investors without getting into whether they mean “control” is a positive measure. Open offers are for the benefit of public shareholders and they must have the power to waive an open offer. This is a very mature measure of reform. Market players would keenly await what SEBI puts out as a list of veto rights aimed at investor protection will not constitute control,” added Sundaresan.

Source: http://www.livemint.com/Money/LSmk1XiZ26pZnyGj5m4ufP/Sebi-bars-wilful-defaulters-from-markets-posts-at-listed-fi.html