following post is contributed by Nivedita Shankar of Vinod Kothari & Co.
She can be contacted at firstname.lastname@example.org]
the market regulator Securities Exchange Board of India (“SEBI”) has notified the SEBI (Issue and Listing of Non-Convertible
Redeemable Preference Shares) Regulations, 2013
(“Regulations, 2013”) on June 12,
were issued by SEBI for issue and listing of securities:
Exchange Board Of India (Issue and Listing of Debt Securities) Regulations,
2008 which is applicable to non-convertible debt securities which create or
acknowledge indebtedness i.e. debentures, bonds;
Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009 which is applicable to convertible securities only.
the issue and listing of Non-Convertible Redeemable Preference Shares (“Preference Shares”) and with
Regulations, 2013, SEBI has tried to fill the gap.
of Preference Shares.
privately placed Preference Shares issued through public issue or on private
listing of Perpetual Non-Cumulative Preference Shares and Innovative Perpetual
Debt Instruments by banks. Such instruments shall be made subject to the prior
approval and in compliance with the guidelines issued by Reserve Bank of India.
effectively, the essence of Regulations, 2013 is to:
preference shares which are offered to public
but may be listed.
in accordance with the provisions of the Companies Act, 1956 and does not
include a preference share which is convertible into or exchangeable with
equity shares of the issuer at a later date, with or without the option of the
pursuant to Section 87(2)(b) of the Act, in case of non-payment of dividend in
respect of a period of not less than two years ending with the expiry of the
financial year immediately preceding the commencement of the meeting or in
respect of an aggregate period of not less than three years comprised in the
six years ending with the expiry of the financial year aforesaid, such
preference shares shall attain voting rights. Thus, keeping the Act and
Regulations, 2013 in perspective, in case issuing companies fail to pay
dividend, such Preference Shares shall carry voting rights, but shall be
public company, PSU, statutory corporation
defined in SEBI (Issue of Capital and Disclosure Requirements) Regulations,
offer or invitation to public to subscribe which is not private placement
and includes any such document or advertisement whereby the subscription to
non-convertible redeemable preference shares are invited by the issuer from public;
“under the same management”
of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. This
is provided in Regulation 4
pre-requisites for making public issue, being listed below:
approval for listing of Preference Shares on the recognized stock exchanges.
of not less than “AA-“ by a SEBI registered credit rating agency. Such ratings
shall be disclosed in the offer document.
of 3 (three) years.
create a capital redemption reserve in accordance with Companies Act, 1956 (“Act”).
registered with SEBI.
providing loan to or acquisition of shares of any person who is part of the
same group or who is under the same management, other than to subsidiaries of
Disclosures in offer document
Act and Schedule I of Regulations, 2013
make an informed decision.
Filing of draft offer document
certificate to be issued as per Schedule II of Regulations, 2013
lead merchant banker and posted on the website of designated stock exchange
document to be addressed before filing of offer document with Registrar of
forwarded to SEBI and designated stock exchange simultaneosly.
Advertisements for public issues
English national daily newspaper and one Hindi national daily newspaper with
wide circulation at the place where the registered office of the issuer is
situated, on or before the issue opening date.
investors to invest only on the basis of information contained in the offer
issued by the issuer during the subscription period shall not make any
reference to the issue of non-convertible redeemable preference shares or be
used for solicitation
Abridged Prospectus and application forms
duty of the issuer and lead merchant banker to ensure that:
issuer is accompanied by a copy of the abridged prospectus;
the abridged prospectus shall not contain matters which are extraneous to the
contents of the prospectus;
the application form to enable the investors to fill in various details like
name, address, etc
Regulations, 2013 allow issuers to provide the facility of electronic mode for
subscription of applications.
preference shares may be at a fixed price or determined through book building
subscription. On non-receipt of the same, all application money are to be
refunded. Interest shall be levied @15% p.a. in case the application money are
refunded after 8 (eight) days from the last day of offer.
in such a case sufficient disclosures regarding underwriting arrangements shall
be made in the offer document.
companies to get Preference Shares listed, it opens up additional avenue for
listing, not only for Indian residents, but also for foreign investors. However,
the extant norms relating to foreign direct investment in India, does not allow
Indian companies to issue non-convertible preference shares to foreign
investors. In fact para 3.3.2 of the Consolidated FDI Policy issued by
Department of Industrial Policy and Promotion effective from April 5, 2013, any
issue of non-convertible preference shares shall be taken to be debt and
accordingly, norms relating to External Commercial Borrowings shall be
listing for all issuers making public offer.
investor is not less than Rs. 10 lakhs.
Schedule I of Regulations, 2013 like Memorandum and Articles of Association,
audited annual reports, date and parties to all material contracts. Detailed
information regarding the issuer to be also provided as in Schedule I.
REDEEMABLE PREFERENCE SHARES
Regulations, 2013 have also laid down conditions for trading of preference
shares whereby, the shares shall be traded and such trades shall be cleared and
settled in recognized stock exchanges. In case of OTCs, such trades shall be
reported on a recognized stock exchange.
has been empowered to:
undertake the inspection of the books of account, records and documents of the
issuer or merchant banker for purpose such as:
Act, Securities Contracts (Regulation) Act, 1956, Depositories Act, 1996,
Regulations, 2013 and allied rules if any.
inquire into affairs of the issuer in the interest of investor protection
directions like prohibiting issuer from dealing in securities, direction to
sell or divest securities, directing the issuer or the depository not to give
effect transfer or directing further freeze of transfer of securities.
issue clarifications or grant relaxations from application requirement.
is conspicuously missing in Regulations, 2013 is any penal provision. It is
thus, understood that penal provisions as in SEBI Act, 1991 will be applicable.
In the coming months, we can also expect RBI to come up with its own set of
regulations for banks as applicable under Regulations, 2013. The Regulations,
2013 however has given HNIs a reason to rejoice with SEBI giving them one more
avenue to invest. With regulations being issued and reports indicating that
Indian companies have raised over Rs 25,000 crore through preference share
issuance in the last three years,
this trend can be expected to catch up.
– Nivedita Shankar