The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR 2018”) has replaced SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (“ICDR 2009”) effectively from November 10, 2018.
What follows is the analysis of Chapter VI of the of the ICDR 2009 which deals with qualified institutions placement.
Definition of QIP:
The definition of the phrase “Qualified Institutional Placement” (“QIP”) has been moved from the QIP chapter and place in the definitions clause of the new regulations. “An offer for sale of specified securities by the promoters and/or promoter group on a private placement basis” is now included under the definition.
Conditions for QIP:
A new provision under Regulation 173 of the ICDR 2018 has been introduced to lay down the conditions for offer for sale by promoters for compliance with minimum public shareholding requirements under Securities Contracts (Regulation) Rules, 1957. A special shareholders’ resolution is stated to not be required if the QIP, “as an offer of sale by promoters”, is being initiated compliance with minimum public shareholding requirements specified in the Securities Contracts (Regulation) Rules, 1957.
It is notable that a QIP by the company to comply with minimum public shareholding requirements under Securities Contracts (Regulation) Rules, 1957 has been permitted by a SEBI circular dated February 22, 2018.
Appointment of Lead Managers:
The ICDR 2018 requires that at least one of the lead managers of the issue are required to not be an associate (defined under SEBI Merchant Banker Regulations, 1992) of the issuer. Furthermore, if any lead manager is an associate, it shall disclose such a role and accept a limited role of marketing the issue. It is notable that a similar restriction already existed in the SEBI Merchant Banker Regulations, 1992.
The concept of a “preliminary document” for QIP is also introduced under the new regulations in the context of (along with the placement document) including this draft document (i) being placed on the websites of the stock exchange and of the issuer; and (ii) submitted to the stock exchange.
The decision of the issuer to offer a discount of up to 5% on the determined price does not require the approval (by special resolution) of the shareholders if the QIP is done by promoters for compliance with the minimum public shareholding. Other QIPs (as was also the case in ICDR 2009) require a special resolution for effecting such a discount.
Application and Allotment:
For the purpose of Regulation 180(2) of the ICDR 2018, the phrase “Qualified Institutional Buyers belonging to the same group” has been defined in an explanation segment. The old regulations refer to Section 372 of the Companies Act, 1956 instead.
In the new regulations, “belonging to the same group” broadly means entities where one of them either controls not less than 15% of the voting rights in the other or exercises control over the others or the entities have a common director (other than nominee or independent director) either indirectly or directly.
Restrictions on the QIP Amount:
The total amount a company can raise via a QIP was earlier capped at five times the net worth of the issuer per financial year, based on the audited balance sheet for the previous year. This restriction has now been lifted in the 2018 Regulations.
Sections 230-234 (dealing with amalgamation schemes) of the Companies Act, 2013 which were notified variously in the years 2016 and 2017, have been accommodated in the ICDR 2018 as and where necessary. The sanctions under the Fugitive Economic Offenders Act, 2018 are blended into new regulations. As a result, an issuer can make a QIP only if none of its directors and promoters are fugitive economic offenders.