Pricing

PART VII - PRICING

Regulation 125. Face value of equity shares

• Disclosure of Face Value

  • The face value of the equity shares shall be disclosed in:

    • Draft offer document.

    • Offer document.

    • Advertisements.

    • Application forms.

  • The face value shall be disclosed along with the price band or issue price.

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

Regulation 126. Pricing

126(1).

• Determination of Issue Price and Coupon Rate

  • The issuer may determine the price of equity shares in consultation with the lead manager(s).

  • For convertible securities, the issuer may determine:

    • The coupon rate.

    • The conversion price.

  • These may also be determined through the book building process, where applicable.

  • Therefore, the pricing method can be either consultation with the lead manager(s) or the book building process, as applicable.

126(2).

• Book Building Process

  • The issuer shall undertake the book building process in accordance with the manner specified in Schedule XIII.

  • Schedule XIII therefore prescribes the procedure and requirements to be followed for the book building process.

Regulation 127. Price and Price Band

127(1).

• Price or Price Band Before Filing the Prospectus

  • In a fixed price issue, the issuer may mention either:

    • A specific price, or

    • A price band in the offer document.

  • In a book-built issue, the issuer may mention either:

    • A floor price, or

    • A price band in the red-herring prospectus.

  • The issuer may determine the final issue price at a later date.

  • The final price must be determined before filing the prospectus with the Registrar of Companies.

Single Price or Coupon Rate in Prospectus

• The prospectus filed with the Registrar of Companies shall contain only one price.

• In case of debt securities where a coupon rate is applicable, the prospectus shall contain only the specific coupon rate.

• Therefore, the final filed prospectus cannot contain a price range or multiple prices.

• The price or coupon rate must be specifically determined before filing the prospectus.

127(2).

• Price Band and Coupon Rate Limits

  • The cap of the price band must be less than or equal to 120% of the floor price.

  • In case of convertible debt instruments, the coupon rate must also be within the same 120% limit of the floor price.

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

  • Therefore, the price band can range from 105% to 120% of the floor price.

127(3).

• Floor Price and Face Value

  • The floor price or the final issue price shall not be lower than the face value of the specified securities.

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

127(4).

• Announcement of Floor Price or Price Band

  • The issuer shall announce the floor price or price band at least two working days before the opening of the bidding.

  • The announcement shall be made through a pre-issue and price band advertisement.

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

  • The advertisement must be published in the same newspapers in which the public announcement under Regulation 124(2) was published.

127(5).

• Financial Ratios and Basis of Issue Price

  • The announcement under sub-regulation (4) shall contain the relevant financial ratios.

  • These financial ratios must be computed at both ends of the price band:

    • Lower end of the price band.

    • Upper end of the price band.

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

  • This allows investors to consider the financial ratios at both possible price points and refer to the detailed justification for the issue price.

127(6).

• Disclosure on Stock Exchange Websites

  • The announcement under sub-regulation (4) shall also be disclosed on the websites of the stock exchange(s).

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

  • These financial ratios must be pre-filled in the application forms made available on the stock exchange websites.

  • Therefore, investors can see the price band announcement and relevant financial ratios directly through the stock exchange websites and application forms.

Regulation 128. Differential Pricing

128(1).

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

• (a).

• Discount for Retail Investors, Retail Shareholders and Employees

  • Retail Individual Investors, Retail Individual Shareholders and employees entitled to the reservation under Regulation 130 may be offered specified securities at a lower price.

  • The price offered to these categories cannot be more than 10% lower than the price at which the net offer is made to other categories of applicants.

  • Anchor investors are excluded when determining the price of the net offer for this comparison.

  • Therefore, the maximum permitted discount is 10% compared with the applicable price offered to other categories.

• Example:

• Suppose the price offered to other categories of applicants is ₹100 per share.

  • Maximum discount allowed to Retail Individual Investors, Retail Individual Shareholders and eligible employees = 10%.

  • 10% of ₹100 = ₹10.

  • Therefore, the lowest price at which these categories can be offered the shares = ₹90 per share.

  • They can be offered the shares at ₹90, ₹95, ₹98, etc.

  • They cannot be offered the shares below ₹90.

• (b).

• Pricing for Anchor Investors

  • In a book-built issue, the price offered to anchor investors shall not be lower than the price offered to other applicants.

  • Therefore, anchor investors cannot receive a price lower than the price available to other applicants.

  • The anchor investor price may be equal to or higher than the price offered to other applicants.

  Example:

  • Price offered to other applicants = ₹100 per share.

  • Anchor investors can be offered at ₹100 or more.

  • They cannot be offered at ₹99 or any lower price.

• (c).

• Different Pricing in a Composite Issue

  • In a composite issue, the price of specified securities offered through the public issue may be different from the price offered through the rights issue.

  • The issuer must provide a justification for the difference in prices.

  • This justification must be disclosed in the offer document.

  Example:

  • Public issue price = ₹100 per share.

  • Rights issue price = ₹90 per share.

  • The issuer may have different prices, but the offer document must explain why the two prices differ.

• (d).

• Employee Pricing under Alternate Book Building

  • If the issuer opts for the alternate method of book building under Part D of Schedule XIII, a special pricing rule applies to employees.

  • The issuer may offer specified securities to its employees at a discounted price.

  • The price offered to employees cannot be more than 10% lower than the floor price.

  • Therefore, the maximum permissible employee discount is 10% of the floor price.

  Example:

  • Floor price = ₹100 per share.

  • Maximum discount = 10% = ₹10.

  • Minimum price that can be offered to employees = ₹90 per share.

128(2).

• Disclosure of Discount

  • Any discount offered to eligible investors shall be disclosed in the offer document.

  • The discount must be expressed in rupee terms.

  • The offer document should therefore state the actual amount of discount per specified security, rather than only mentioning the discount as a percentage.

  Example:

  • Issue price = ₹100.

  • Discount = 10%.

  • Discount disclosed in the offer document = ₹10 per share.