Q- What are the steps taken by SEBI to protect investors in the primary market?

Ans- The investment through primary market by investors deemed to the first step in this most
technical securities market. Therefore, it is primary duty of the SEBI to protect their rights and
interest at the first stage.

Regulation 4.
Unless otherwise provided in this Chapter, an issuer making an initial public offer of specified
securities shall satisfy the conditions of this Chapter as on the date of filing of the draft offer 8
Substituted by the Securities and Exchange Board of India Prior to its substitution, it read as
“institutional trading platform”. 13 document with the Board and also as on the date of 9 [filing]
the offer document with the Registrar of Companies.

Regulation 5 Entities not eligible to make an initial public offer

(a) if the issuer, any of its promoters, promoter group or directors or selling shareholders are
debarred from accessing the capital market by the Board.

(b) if any of the promoters or directors of the issuer is a promoter or director

(c) if the issuer or any of its promoters or directors is a wilful defaulter.

(d) if any of its promoters or directors is a fugitive economic offender.

Regulation 6 Eligibility req. for an IPO

6(1) An issuer may make an initial public offer (an offer of equity shares and convertible
debentures by an unlisted issuer to the public for subscription and includes an offer for sale of
specified securities to the public by an existing holder of such securities in an unlisted issuer) if:
(a) The issuer has net tangible assets of at least 3 crores in each of the preceding 3 years (of 12
months each) of which not more than 50% are held in monetary assets. If more than 50% of the
net tangible assets are held in monetary assets, then the issuer has to make firm commitment to
utilize such excess monetary assets in its business or project.

(b) it has a minimum average pre-tax operating profit of rupees fifteen crore, calculated on a
restated and consolidated basis, during the three most profitable years out of the immediately
preceding five years.

(c) The issuer company has a net worth of at least 1crores in each of the preceding 3 full years
(of 12 months each).

(d) In case of change of name by the issuer company within last one year, at least 50% of the
revenue for the preceding one year should have been earned by the company from the activity
indicated by the new name.

(2) Any issuer not satisfying any of the conditions stipulated above may make an initial public
offer if:

(a) The issue is made through the book building process and the issuer undertakes to allot at least
75% of the net offer to public to qualified institutional buyers and to refund full subscription
monies if it fails to make allotment to the qualified institutional buyers.

(3) An issuer may make an initial public offer of convertible debt instruments without making a
prior public issue of its equity shares and listing, provided company has not defaulted payment of
principal/ interest for a period of 6 months.

(4) An issuer cannot make an allotment pursuant to a public issue if the number of prospective
allottees is less than one thousand.

(5) No issuer can make an initial public offer if there are any outstanding convertible securities
or any other right which would entitle any person any option to receive equity shares after the
initial public offer.
2. How does book building differ from private placement?

BOOK BUILDING
Book building means a process undertaken to elicit demand and to assess the price for
determination of the quantum or value of specified securities or Indian Depository Receipts, as
the case may be. SEBI (ICDR) Regulation, 2018 defines book building (ICDR 2(g)) as follows:
Book building means a process undertaken to elicit demand and to assess the price for
determination of the quantum or value of specified securities or Indian Depository Receipts, as
the case may be, in accordance with SEBI (ICDR) Regulation, 2018. The book building process
in India is very transparent. All investors including small investors can see demand for the shares
of the company at various price points on the website of the Exchange before applying.
According to this method, share prices are determines on the basis of real demand for the shares
at various price levels in the market. (This what Sir copied in the handout)

PRIVATE PLACEMENT Sec 42 Comp. Act: When an issuer makes an issue of securities to a
select group of persons not exceeding 200, and which is neither a rights issue nor a public issue,
it is called a private placement. Private placement of shares or convertible securities by listed
issuer can be of two types:
(i) Preferential Allotment: When a listed company issues shares or convertible securities, to a
select group of persons in terms of SEBI (ICDR) Regulations, 2018, it is called a preferential
allotment. The issuer is required to comply with various provisions which intern alia include
pricing, disclosures in notice etc., in additional to requirements specified in Companies Act.

(ii) Qualified Institutions Placement (QIP): When a listed Company issues equity shares or
securities convertible into equity shares to QIBs only, it is called a QIP.

(iii) Institutional Placement Programme (IPP): When a listed issuer makes a further public offer
of equity shares, or offer for sale of shares by promoter/ promoter group of listed issuer in which,
the offer allocation and allotment of such shares is made only to QIBs in terms of SEB (ICDR)
Regulations, 2018 for the purpose of achieving minimum public shareholding it is called an IPP.
 Private Placement Book Building
1. A private placement shall be made only to 1. Price at which securities will be
a select group of persons who have been offered/allotted is not known in advance to the
identified by the Board (herein referred to investor, Only an indicative price range is
as “identified persons”), whose number known.
shall not exceed fifty or such higher 2. Demand for the securities offered , and at
number as may be prescribed, 200, as per various prices, is available on a real time basis
the Rules, [excluding the qualified on the website during the bidding period.
institutional buyers and employees of the 3. (Reservations)
company being offered securities under (a) In an issue made through the book building
ESOP. process, the allocation in the net offer to public
category is made as follows:
2. The price at which the security is being (1) Not less than 35 % to retail individual
offered should be in the Private placement investors.
offer application. (2) Not less than 15 % to non institutional
investors i.e. investors other than retail
3. The identified persons to whom the offer is individual investors and qualified institutional
made and also who is willing to subscribe buyers.
to the private placement offer shall apply to (3) Not more than 50% to Qualified
the issue in the application form enclosed Institutional Buyers; 5 % of which would be
with the private placement offer letter. allocated to mutual funds. Provided that in
addition to five per cent allocation available in
4. Securities such as debentures are also terms of clause (3), mutual funds shall be
offered through Private Placement. eligible for allocation under the balance
available for qualified institutional buyers.
5. Payment is made before the allotment.
4. The book normally remains open for a
6. The company shall have to allot the period of 3 days
securities within 60 days of the receipt of 5.On the close of the book building period, the
the application money and in case of book runners (lead merchant bankers) evaluate
failure, the company shall refund the the bids on the basis of the demand at various
money within 15 days of the expiry of the price levels.
60 days. The book runners and the Issuer decide the
final price at which the securities shall be
issued.
6. Payment is done after the allotment.