Pricing

PART VII - PRICING

Regulation 27. Face value of equity shares

Disclosure of Face Value Alongside Issue Price

• The face value of the equity shares must be disclosed in the draft offer document.

  1. The same disclosure must be made in the offer document.

  2. The face value must also be disclosed in advertisements relating to the issue.

  3. The face value must also be mentioned in the application forms.

  4. The face value must be shown along with the price band or the issue price.

• The face value and the price band or issue price must be displayed in identical font size.

Example:

• If the face value is ₹10 and the issue price is ₹150, both ₹10 and ₹150 must be displayed together.

• The ₹10 face value cannot be shown in a significantly smaller font than the ₹150 issue price.

Regulation 28. Pricing

28(1).

• Determination of Price and Conversion Terms

  1. The issuer may determine the price of its equity shares.

     1. The issuer may determine the price in consultation with the lead manager(s).

     2. The issuer may alternatively determine the price through the book building process.

     3. In case of convertible securities, the issuer may determine the coupon rate.

  2. The issuer may also determine the conversion price of the convertible securities.

     1. The coupon rate and conversion price may be determined in consultation with the lead manager(s).

     2. They may alternatively be determined through the book building process, as applicable.

• Example:

  1. For equity shares, the issuer may decide the issue price after consulting the lead manager(s).

  2. Alternatively, the price may be discovered through book building.

  3. For convertible securities, the issuer may similarly determine the coupon rate and conversion price through consultation with the lead manager(s) or through book building.

28(2).

• The issuer shall conduct the book building process.

• The process must be carried out in the manner specified in Schedule XIII.

• The issuer must follow all procedures and requirements prescribed under Schedule XIII.

Regulation 29. Price and price band

29(1).

• Price or Price Band Can Be Determined Later

  1. In a fixed price issue, the issuer may mention a specific price in the offer document.

     1. Alternatively, the issuer may mention a price band in the offer document.

     2. In a book-built issue, the issuer may mention a floor price in the red herring prospectus.

     3. Alternatively, the issuer may mention a price band in the red herring prospectus.

     4. The final issue price can be determined at a later date.

  2. The final price must be determined before filing the prospectus with the Registrar of Companies (ROC).

• Example:

  1. Fixed price issue: Offer document mentions ₹100 as the price.

  2. Book-built issue: Red herring prospectus mentions ₹90–₹100 as the price band.

  3. The final price is determined later, but before filing the prospectus with the ROC.

• Prospectus Must Contain the Final Price or Coupon Rate

  1. The prospectus filed with the Registrar of Companies (ROC) must contain only one price.

  2. The prospectus cannot contain a price band or multiple possible prices.

  3. In case of convertible securities, the prospectus must contain one specific coupon rate.

  4. The final price or coupon rate must therefore be decided before filing the prospectus with the ROC.

• Example:

  1. If the red herring prospectus mentions a price band of ₹90–₹100, the final prospectus must mention only one price, say ₹98.

  2. For convertible securities, if different coupon rates were being considered earlier, the final prospectus must specify only one rate.

29(2).

• Limit on Price Band and Coupon Rate

  1. The cap of the price band cannot exceed 120% of the floor price.

  2. The same 120% limit applies to the coupon rate of convertible debt instruments.

  3. Therefore, the maximum price or coupon rate can be equal to 120% of the floor price, but cannot be more.

• Example:

  1. Floor price = ₹100.

  2. Maximum price in the price band = ₹120.

  3. So, the price band can be ₹100–₹120, but not ₹100–₹125.

• Minimum Cap of the Price Band

  1. The cap means the highest price in the price band.

     1. The cap must be at least 105% of the floor price.

     2. Therefore, the cap cannot be less than 105% of the floor price.

  2. The price band must have a minimum spread of 5% between the floor price and the cap.

• Example:

  1. Floor price = ₹100.

  2. Minimum cap = ₹105.

  3. Therefore, ₹100–₹105 is the minimum permissible price band.

  4. A band of ₹100–₹103 would not satisfy this requirement.

29(3).

• Floor Price or Final Price Cannot Be Below Face Value

  1. The floor price cannot be lower than the face value of the specified securities.

  2. The final issue price also cannot be lower than the face value.

  3. Therefore, the issue price must always be equal to or higher than the face value.

• Example:

  1. Face value = ₹10.

     1. Floor price = ₹10 or more.

     3. Final price = ₹10 or more.

  2. A floor price or final price of ₹8 would not be permitted.

29(4).

• Floor Price or Price Band Must Be Announced in Advance

  1. The issuer must announce the floor price or price band.

     1. The announcement must be made at least 2 working days before the issue opens.

     2. The announcement must be made through a pre-issue and price band advertisement.

     3. The advertisement must follow the format specified in Part A of Schedule X.

  2. The advertisement must be published in the same newspapers where the public announcement under Regulation 26(2) was published.

• Example:

  1. Issue opening date: Monday.

  2. Floor price/price band must be announced by Thursday at the latest, considering working days.

  3. The announcement must appear in the required newspapers and prescribed format.

29(5).

• Contents of the Price Band Announcement

  1. The announcement under 29(4) must contain relevant financial ratios.

     1. These financial ratios must be calculated for both the lower end of the price band.

     2. The ratios must also be calculated for the upper end of the price band.

  2. The announcement must draw investors’ attention to the section titled “Basis of Issue Price” in the offer document.

• Example:

  1. Price band = ₹100–₹120.

  2. Relevant financial ratios must be shown using both ₹100 and ₹120.

  3. Investors must also be directed to the “Basis of Issue Price” section for details supporting the issue price.

29(6).

• Disclosure of Price Band Information on Stock Exchange Websites

  1. The announcement under 29(4) must be disclosed on the websites of the stock exchange(s).

  2. The relevant financial ratios under sub-regulation (5) must also be disclosed on these websites.

  3. These financial ratios must be pre-filled in the application forms.

  4. The application forms must be made available on the websites of the stock exchange(s).

• Example:

  1. Price band = ₹100–₹120.

  2. The price band announcement and financial ratios for ₹100 and ₹120 are uploaded on the stock exchange websites.

  3. The same financial ratios are already filled in the online application forms available there.

Regulation 30. Differential pricing

30(1).

• The issuer may offer its specified securities at different prices, subject to the following:

• (a).

  1. Discount for Retail Investors, Retail Shareholders and Employees

     1. Retail individual investors may be offered specified securities at a discounted price.

        1. Retail individual shareholders may also be offered specified securities at a discounted price.

        2. Employees entitled to a reservation under Regulation 33 may also receive such a discount.

        3. The discount cannot be more than 10% below the price offered to other categories of applicants.

        4. The comparison is made with the price at which the net offer is made to other categories of applicants.

     2. Anchor investors are excluded when determining the price for this comparison.

  2. Example:

     1. The price offered to other categories of applicants is ₹100 per share.

     2. Retail investors can be offered the shares at a price as low as ₹90 per share.

     3. A price below ₹90 would exceed the permitted 10% discount.

• (b).

  1. Price Offered to Anchor Investors in a Book-Built Issue

     1. In a book-built issue, anchor investors are offered specified securities at a price.

     2. The price offered to anchor investors cannot be lower than the price offered to other applicants.

     3. Therefore, anchor investors cannot receive the specified securities at a discounted price compared with other applicants.

  2. Example:

     1. The issue price offered to other applicants is ₹100 per share.

     2. Anchor investors can be offered the shares at ₹100 or more per share.

     3. They cannot be offered the shares at ₹90 per share.

• (c).

  1. Price Offered to Employees Under Alternate Book Building

     1. The issuer may use the alternate method of book building under Part D of Schedule XIII.

        1. In such a case, the issuer may offer specified securities to its employees at a discounted price.

        2. The employee offer price cannot be more than 10% below the floor price.

     2. Therefore, employees can receive a maximum discount of 10% on the floor price.

  2. Example:

     1. The floor price is ₹100 per share.

     2. Employees can be offered the shares at ₹90 per share.

     3. The shares cannot be offered to employees below ₹90 per share.

30(2).

• Disclosure of Discount in Rupee Terms

  1. Any discount offered to investors must be disclosed in the offer document.

  2. The discount must be stated in rupee terms.

  3. The discount should not be disclosed only as a percentage.

• Example:

  1. The issue price is ₹100 per share.

  2. A discount of 10% is offered to eligible employees.

  3. The offer document must state the discount as ₹10 per share.

  4. The discounted price would therefore be ₹90 per share.