An Overview of Amendment to SEBI ICDR Regulations 2021

Under Section 11 (1) of SEBI Act, 1992, to safeguard the interests of investors has announced a notification on 9^th June 2020 to deliver assured relaxations in ICDR Regulations, 2009 concerning FPO (Further Public Offer). The announced notification is issued to all the registered Merchant Bankers and to all the acknowledged Stock Exchanges. This blog emphasises the SEBI amendments made in ICDR Regulations to furnish relaxations in FPO.

What are the SEBI ICDR Regulations?

Section 30 of the SEBI Act, 1992, it can make regulations to execute its functions. The ICDR Regulations made under should be as per the SEBI Act, 1992. In 2009, SEBI made a regulation called SEBI (ICDR) 2009. In this regulation, ICDR stands for Issue of Capital and Disclosure Requirements. Following are some ICDR Regulations:

1. Preferential Issue;
2. Bonus shares issue by a listed issuer;
3. Qualified or competent institutions placement by a listed issuer;
4. Rights issue (where aggregate value is Rs. 50 lakh or more);
5. Public Issue;
6. Issue of IDRs (Indian Depository Receipts).

The ICDR Regulations have been changed from time to time. The ICDR Regulations intend to simplify the framework and language to increase the text insight. It has different chapters to distinguish the type of issues & the regulation that deals with it.

FPO – Meaning

The full form of FPO is Further Public Offer. An FPO is made when a listed company to elevate its funds comes with a fresh issue of shares or an offer for sale to the public. After the Initial Public Offer (IPO), the subsequent issue to the public is Further Public Offer (FPO).

A Further Public Offer is dissimilar from an Initial Public Offer, as the name suggests. An Initial Public Offer is a procedure wherein an unlisted company raises their funds by providing its shares to the public and subsequently listing it. Whereas, when a similar company issues the shares for the 2^nd time to the public, it would be a Further Public Offer (FPO).

SEBI Amendment of ICDR Regulations Concerning FPO Norms

SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018 that is ICDR Regulation makes it compulsory for the promoters of the Issuer Company or entity to regulate MPC (Minimum Promoters’ Contribution) to be locked in for a stated time.

The aforementioned necessities are not applicable in the case when funds are raised via:

• IPO or FPO (where is no identifiable promoter);
• Rights Issue;
• FPO (When the equity shares of the issuer are traded frequently for at least three years and the issuer is a dividend-paying company).

On December 16, 2020, in their board meeting, the Securities and Exchange Board of India discussed the changes to ICDR Regulations, removed Minimum Promoters’ Contribution (MPC) and the listed company’s lock-in necessity.

The reason behind the suggested amendment was that when an issuer is already a listed company and has fulfilled the situation of MPC at the beginning stage while raising funds via an FPO. Moreover, when a company or an entity is already listed, its information becomes available in the public domain. Investors are ready to subscribe to the FPO as that has enough knowledge or disclosure to make an advised decision.

Hence, on January 08, 2021, issued SEBI (Issue of Capital & Disclosure Requirements) (Amendment) Regulations, 2021 or SEBI (ICDR) (Amendment) Regulations, 2021 or (Amendments Regulations).

Following are some basic changes in the SEBI amendment of ICDR Regulations, 2021:

Lock-in Requirement

Regulation 115 of ICDR makes it compulsory for the promoters’ stated securities shall be locked in for time duration. In its board meeting on January 2021, SEBI deemed that now if the MPC provision is removed, then the query of lock-in may not arise. So, the SEBI (Securities and Exchange Board of India) deleted provision after clause (c) of regulation 115 of ICDR Regulations.

But, deleting the same has brought uncertainty in complying with the lock-in requirements, explained as:

1. After regulation 115(c), the present provision states that the excess contribution of promoters, as mentioned in Regulation 112(b), shouldn’t be subject to lock-in.
2. Regulation 113 (1)(a) provides that the promoters shall contribute:
3. Up to 20% of the suggested issue size;
4. Up to 20% of post-issue capital.
5. The present provision of Regulation 112(b) discuss the promoters who subscribe in surplus of the higher of the two options described above. The price of such surplus subscription shall be identified in pricing guidelines for preferential issue under Regulation 164 or the issue price, whichever is higher. Since the promoters furnished in surplus of the option given, SEBI exempted them from the lock-in requirement.

MPC Requirement

The current clause of Regulation 112(b) of the regulations of ICDR was substituted by SEBI in its recent amendment, 2021. The criterion of deciding lock-in and MPC the dividend-paying capacity was removed. Moreover, it inserted the extra compliance of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015^[1]. The issuer should have rectified at least 95% of the grievances received from the investors.

Lock-in Requirement (In the Case of Equity Shares on Preferential Shares)

According to Rule 19A (5) of Securities Contracts (Regulations) Rules, 1957, the minimum public shareholding (mentioned as MPS) falls below 10% due to CRIP. Such a listed company is required to get MPS at least 10% within eighteen months and 25% within three years from the date of fall.

Regulation 167(4) declares that when equity shares are issued on the basis of a preferential share in agreement with any resolution plan, they shall be locked in for at least one year. Such lock-in doesn’t help dilution of shareholding of the promoter to get MPS.

Conclusion

In its current amendment of 2021, the Securities and Exchange Board of India relaxed the ICDR Regulation concerning a Further Public Offer. The Minimum Promoters’ Contribution and lock-in requirements in the case of issue of stated securities in agreement with specified securities to a Further Public Offer are removed from the regulations; this created uncertainty in the case of FPO. Securities and Exchange Board of India should examine the deletion of the provision after Regulation 115 (c) of ICDR Regulation.

Read our article:SEBI Guidelines for IPO: Guidelines for Making Public Offer in India