PART IX: MISCELLANEOUS
Regulation 152. Restriction on further capital issues
Once an issuer has made an issue of specified securities:
The issuer is restricted from making any further issue of specified securities through any other route in the following cases of (a) & (b).
This restriction covers further issues made through:
Public Issue: Offering securities to the public.
Rights Issue: Offering securities to existing shareholders in proportion to their existing shareholding.
Preferential Issue: Issuing securities to selected persons or a specified group of investors.
Qualified Institutions Placement (QIP): Issuing securities to qualified institutional buyers.
Bonus Issue: Issuing additional shares to existing shareholders without receiving consideration.
Any other manner: The restriction also covers other methods of issuing specified securities.
Exceptions:
The issuer is permitted to issue securities under:
An Employee Stock Option Scheme (ESOP) or
A Stock Appreciation Right (SAR) Scheme.
(a).
In a fast-track issue:
This restriction applies during the period starting from the date the issuer files the offer document or prospectus with the Registrar of Companies (ROC).
The restriction continues until either:
The specified securities offered through the offer document are listed on the stock exchange or
The application money is refunded to the applicants.
The applicable starting document depends on the issue method:
Book-built issue: Filing of the offer document with the ROC.
Fixed-price issue: Filing of the prospectus with the ROC.
Example:
A company files its prospectus with the ROC on 1 December.
The specified securities are listed on 20 December.
The relevant restricted period runs from 1 December to 20 December.
(b).
In the case of other issues (not fast-track issues), the restriction begins from the date the issuer files the Draft Offer Document.
It continues until either:
The specified securities offered through the offer document are listed on the stock exchange; or
The application money is refunded to the applicants.
Unlike a fast-track issue, where the relevant period starts from filing the offer document or prospectus with the ROC:
Here it starts much earlier, at the draft offer document filing stage.
Example:
1 December: Company files the Draft Offer Document with SEBI.
15 January: Company files the final offer document.
25 January: Securities are listed.
The restriction applies from 1 December until 25 January.
Exception:
The issuer is generally restricted from making any further issue of specified securities during the restricted period.
However, an exception is available if the issuer has already disclosed the details of the proposed further issue in the relevant document.
The disclosure must clearly mention either:
The total number of specified securities proposed to be issued; or
The total amount of money proposed to be raised through that further issue.
For other issues, these details must be disclosed in the Draft Offer Document.
For fast-track issues, the details must be disclosed in the Offer Document, as applicable.
Example:
Company A is coming out with a public issue. During the restricted period, it also plans to make a further issue of 10 lakh equity shares to raise ₹50 crore.
If this proposed further issue and its details are fully disclosed in the relevant offer document, the issuer can rely on this exception.
If the issuer has not disclosed the proposed further issue, it cannot simply go ahead with it during the restricted period.
Regulation 153. Price stabilisation through green shoe option
153(1).
An issuer may include a Green Shoe Option (GSO) in its public issue to help stabilise the market price of its specified securities after they are listed on the stock exchange.
The main objective is to prevent sharp price fluctuations immediately after listing and provide some stability to the share price.
Under this arrangement, the issuer can make additional securities available for allotment, subject to the prescribed conditions.
These additional securities can be used by the stabilising agent to manage excess demand or downward pressure on the market price after listing.
The additional conditions are as follows:
(a).
The issuer must obtain prior approval from its shareholders through a resolution passed at a general meeting.
This resolution must authorise the issuer to allot additional specified securities to the Stabilising Agent, if required, after the stabilisation period ends.
The allotment is conditional. It is made only if the stabilising agent needs additional securities to complete the green shoe arrangement.
This is the same general meeting resolution that approves the public issue.”
(b).
The issuer must appoint one of the Lead Managers involved in the public issue as the Stabilising Agent.
The Stabilising Agent is responsible for carrying out the price stabilisation process after the specified securities are listed.
This includes monitoring the market price and undertaking the permitted stabilisation activities to reduce excessive downward pressure on the share price.
(c).
Before filing the Draft Offer Document, the issuer and the Stabilising Agent must enter into a formal agreement.
This agreement must clearly specify all the terms and conditions governing the Green Shoe Option.
It must specifically include:
The responsibilities and obligations of the Stabilising Agent.
The fees payable to the Stabilising Agent for carrying out the price stabilisation process.
The expenses that the Stabilising Agent is expected to incur while performing its responsibilities.
Other terms and conditions governing the Green Shoe arrangement.
(d).
Before filing the Offer Document, the Stabilising Agent must enter into an agreement with the promoters, pre-issue shareholders, or both.
Under this agreement:
The promoters or pre-issue shareholders agree to lend specified securities to the Stabilising Agent for the purpose of implementing the Green Shoe Option.
The agreement must clearly mention the maximum number of securities that can be borrowed for over-allotment.
These borrowed securities are used to allot or allocate securities to investors in excess of the original issue size.
This additional allotment is known as over-allotment.
However, the maximum over-allotment cannot exceed 15% of the original issue size.
(e).
The Lead Manager, in consultation with the Stabilising Agent, must decide how many additional specified securities should be allotted under the Green Shoe Option.
This decision determines the extent of over-allotment in the public issue.
However, the decision must comply with the maximum limit of 15% of the original issue size prescribed under clause (d).
Therefore, the Lead Manager and Stabilising Agent cannot decide to over-allot securities beyond this permitted limit.
(f).
The issuer must disclose all material details relating to the Green Shoe Option in both the Draft Offer Document and the final Offer Document.
These disclosures must comply with the requirements specified under Part A of Schedule VI of the SEBI ICDR Regulations.
The disclosures should provide investors with a clear understanding of how the Green Shoe Option will operate.
This includes relevant details such as:
The maximum number of securities proposed to be over-allotted.
The role and responsibilities of the Stabilising Agent.
The arrangements for borrowing securities from promoters or pre-issue shareholders.
The terms and conditions governing the stabilisation process.
Other material details required under Part A of Schedule VI.
(g).
The clause identifies who is permitted to lend specified securities to the Stabilising Agent for the Green Shoe Option.
The eligibility differs depending on whether the company is making an Initial Public Offer (IPO) or a Further Public Offer (FPO).
In an IPO: The promoters and pre-issue shareholders may lend specified securities.
In an FPO: The promoters and pre-issue shareholders holding more than 5% of the specified securities may lend specified securities.
These shareholders can lend securities only up to the extent of the proposed over-allotment.
The purpose is to make additional securities available to the Stabilising Agent so that the Green Shoe Option can be implemented.
(h).
The securities borrowed by the Stabilising Agent from promoters or pre-issue shareholders must be held and transferred in dematerialised (Demat) form.
This means physical share certificates cannot be used for the borrowing and allotment process.
The additional securities obtained through the Green Shoe Option must be allocated on a pro-rata basis to all successful applicants.
Pro-rata allocation means that:
The additional securities are distributed proportionately among investors who receive an allotment, rather than being given selectively to particular applicants.
153(2).
After the specified securities are listed, the Stabilising Agent is responsible for deciding how to carry out the price stabilisation process.
The Stabilising Agent has the authority to determine the important aspects of purchasing securities from the stock market, including:
Timing: When the securities should be purchased.
Quantity: How many securities should be purchased.
Price: At what price the securities should be purchased from the market.
These decisions are taken with the objective of stabilising the post-listing market price and reducing downward pressure on the share price.
The Stabilising Agent must operate within the limits and conditions prescribed for the Green Shoe Option.
153(3).
The Green Shoe Option's price stabilisation process can continue for a maximum period of 30 days.
This 30-day period begins from the date on which the stock exchanges grant trading permission for the specified securities allotted in the public issue.
The period does not begin from the date of allotment or the date of listing application. It specifically starts from the date trading permission is granted.
The Stabilising Agent must complete the stabilisation activities within this period.
Example:
Company A's shares receive trading permission from the stock exchanges on 1 December.
The stabilisation process begins on 1 December.
It can continue for a maximum of 30 days.
The Stabilising Agent must complete the stabilisation process within this permitted period.
153(4).
The Stabilising Agent must open two separate special accounts to manage the Green Shoe Option activities.
These accounts must be maintained separately from the issuer's regular issue account.
1. Special Bank Account
The Stabilising Agent must open a special bank account with a bank.
The money received from applicants against the over-allotted securities must be credited to this account.
This account keeps the funds received through over-allotment separate from the normal issue proceeds.
2. Special Demat Account
The Stabilising Agent must also open a special account with a Depository Participant (DP).
Securities purchased from the stock market during the stabilisation period must be credited to this account.
The purchases must be made using the money available in the special bank account.
153(5).
During the stabilisation period, the Stabilising Agent may purchase specified securities from the stock market using the money available in the special bank account.
These purchased securities are credited to the special Demat account maintained with the Depository Participant.
Once the stabilisation period ends:
The Stabilising Agent must return these securities to the promoters or pre-issue shareholders from whom the securities were originally borrowed.
The return must be made immediately and, in any case, within two working days after the end of the stabilisation period.
Example:
Company A's Stabilising Agent borrows 1 lakh shares from its promoters for the Green Shoe Option.
After listing, the Stabilising Agent purchases 80,000 shares from the market.
These 80,000 shares are credited to the special Demat account.
When the stabilisation period ends, the purchased shares must be returned to the promoters.
The return must be completed within two working days.
153(6).
At the end of the stabilisation period:
The Stabilising Agent must check whether it has purchased enough specified securities from the stock market to cover the entire quantity that was over-allotted.
If it has purchased all the required securities, those securities can be returned to the promoters or pre-issue shareholders who originally lent them.
However, if the Stabilising Agent is unable to purchase the full quantity from the market, a shortfall arises.
To meet this shortfall, the issuer must allot additional specified securities at the original issue price.
These securities must be allotted in dematerialised form and credited to the special Demat account maintained by the Stabilising Agent.
The issuer must complete this allotment within five days from the closure of the stabilisation period.
The Stabilising Agent then returns these newly allotted securities to the promoters or pre-issue shareholders in place of the securities originally borrowed.
After completing the return of securities, the special Demat account must be closed.
Example:
Company A has an issue size of 10 lakh shares and over-allots 1 lakh additional shares under the Green Shoe Option.
The Stabilising Agent borrows 1 lakh shares from the promoters.
During the stabilisation period, it purchases only 70,000 shares from the market.
Therefore, there is a shortfall of 30,000 shares.
The issuer must allot 30,000 new shares at the original issue price in Demat form.
This allotment must be completed within five days after the stabilisation period closes.
The Stabilising Agent returns:
70,000 shares purchased from the market.
30,000 newly allotted shares.
The promoters receive back the full 1 lakh shares originally lent.
153(7).
If the issuer allots additional specified securities to cover the shortfall under the Green Shoe Option, it must apply for listing of those additional securities.
The listing application must be submitted to all stock exchanges where the securities allotted in the original public issue are listed.
The clause also provides that Chapter VII of the SEBI ICDR Regulations does not apply to this particular allotment.
This means the additional allotment is not required to follow the separate requirements under Chapter VII:
As this allotment is being made specifically to complete the Green Shoe Option arrangement.
153(8).
When the issuer allots additional specified securities to cover the shortfall under the Green Shoe Option, the Stabilising Agent must transfer the corresponding money to the issuer.
The money must be transferred from the special bank account maintained specifically for the Green Shoe Option.
Example:
Company A has an issue price of ₹100 per share.
The Stabilising Agent is unable to purchase 30,000 shares from the market.
The issuer allots 30,000 additional shares at ₹100 each to cover the shortfall.
The total amount payable is ₹30 lakh.
The Stabilising Agent transfers ₹30 lakh from the special bank account to the issuer.
153(9).
After the stabilisation period ends, the Stabilising Agent must calculate the balance remaining in the special bank account.
First, the amount corresponding to the additional securities allotted to cover the shortfall must be transferred to the issuer under sub-regulation (8).
The Stabilising Agent may then deduct the expenses incurred for carrying out the stabilisation process.
Any money remaining after these two adjustments must be transferred to SEBI's Investor Protection and Education Fund (IPEF).
Once the remaining amount is transferred, the special bank account must be closed soon thereafter.
Example:
Assume the special bank account has ₹50 lakh.
₹20 lakh is transferred to the issuer for the additional shares allotted.
₹5 lakh is deducted towards stabilisation expenses.
The remaining ₹25 lakh must be transferred to SEBI's Investor Protection and Education Fund.
The special bank account is then closed.
153(10).
The Stabilising Agent has reporting obligations during and after the Green Shoe Option stabilisation process.
Daily reporting to the Stock Exchange:
Throughout the stabilisation period, the Stabilising Agent must submit a report to the stock exchange every day.
This keeps the stock exchange informed about the stabilisation activities being carried out.
Final reporting to SEBI:
After completion of the stabilisation process, the Stabilising Agent must submit a final report to the SEBI Board.
The report must follow the format prescribed under Schedule XV of the SEBI ICDR Regulations.
153(11).
The Stabilising Agent must maintain a register for at least three years from the date of completion of the stabilisation period.
This register acts as an official record of all borrowing, market purchases and additional allotments carried out under the Green Shoe Option.
The register must contain the following particulars:
(a).
The names of the promoters or pre-issue shareholders from whom the specified securities were borrowed.
The names should be along with the number of securities borrowed from each of them.
(b).
The price, date and time of every transaction carried out during the stabilisation process.
This ensures that every market purchase is properly recorded.
(c).
Details of the additional securities allotted by the issuer after the stabilisation period to cover any shortfall in securities purchased from the market.
Regulation 154. Alteration of rights of holders of specified securities
An issuer cannot unilaterally change the terms of its specified securities if the change is likely to adversely affect the interests of the existing security holders.
This restriction covers all terms, including the original terms of issue.
However, the issuer can make such changes if it obtains approval through either of the following two methods:
1. Written consent:
Obtain written consent from holders representing at least 75% of the specified securities of that particular class.
2. Special resolution:
Obtain approval through a special resolution passed at a meeting of the holders of that particular class of specified securities.
The approval must come from holders of the affected class, not from shareholders of a different class.
