Institutional placement programme


Institutional placement programme

Foreword
The article intends to study the provisions of Institutional Placement Programme (IPP) - a recently introduced mode of raising additional capital, in order to comply with minimum public shareholding requirements. (Readers are recommended to refer authors’ previous article on QIP, before reading this)
Background
The Ministry of finance had issued guidelines in 2009, which required the listed companies to raise their public shareholding to 25% and SEBI had asked them to reduce the promoter shareholding to a maximum level of 75% (excluding PSU) by June 2013. Later on, Securities and Exchange Board of India, through its press release provided the following alternative methods to comply with the above stipulations –
                               i.      IPP: IPP can only be used to raise minimum public shareholding requirements to 25%.
                            ii.      Offer for sale through SE: this is available to promoters of  top 100
                         iii.      Average market capitalization companies. But, not restricted to just those companies which need to meet the minimum public shareholding norms laid down by ministry and SEBI.
IPP   Vs   QIP

1.      IPP is of recent origin: IPP is governed by newly inserted chapter VIIIA where as QIP is dealt under chapter VIII of ICDR regulations.

2.      Pricing of issue: No restriction on price under the IPP route. Price band be declared atleast one day prior to the opening of the issue. The eligible seller (issuer/promoter/ promoter group as the case may be) shall announce a floor price or price band at least 1 day prior to the opening of institutional placement programme. QIP provisions lays down price calculation method (see article on QIP).
3.      Public shareholding: IIP is opted by listed companies that have not complied with minimum public holding requirements. QIP is meant for listed companies who are in compliance with minimum public holding requirements.
4.      Type of Offer: IPP is a Public offer. QIP is a private placement offer.
5.      Offer Size:  Under IPP, no single allottee shall be allotted more than  25 %  of the offer size. But in QIP its 50%.
6.      Minimum number of allottees : The number of QIBs to whom shares are allotted under QIP route shall not be less than:
                 (a) Two, where the issue size is <= Rs.250 crores
                 (b) Five, where the issue size is >= Rs.250 crores
But, the minimum number of allottees under IPP shall not be less than 10.
7.      Allotment to mutual funds/ insurance companies:  under IPP, minimum of 25% of eligible securities shall be allotted to mutual funds and insurance companies. Under QIP minimum 10% shall be allotted to mutual funds. If the mutual funds and/or insurance companies do not subscribe to said minimum percentage or any part thereof, such minimum portion or part thereof may be allotted to other qualified institutional buyers.
8.            Disclosures in placement document: The disclosures which are    required to be made in the IPP placement document include-

Ø  Disclosures under Schedule II of the Companies Act (disclosures relating to public offer) +
Ø  Disclosure under QIP as given below -
                                           i.      Disclaimer that no offer is being made to the public or any other class of investors.
                                         ii.      Details of Financial statements ie. Consolidated balance sheet & profit and loss account, CFS, Related party transactions etc.
                                      iii.      Merchant bankers to the placement and other advisors
                                        iv.      Details of securities to be issued eg. Convertible securities, equity shares etc.
                                          v.      Risk factors that is likely to affect our business eg. Increase in price of raw material would affect the business etc.
                                        vi.      Market price information ie. stock price high & close of previous FY ending March 31.
                                     vii.      Use of proceeds after deduction of  (estimated) mgt fees, offer fee, commissions etc.
                                   viii.      Capitalization & Indebtedness Statement
                                       ix.      The audited consolidated or unconsolidated financial statements prepared in accordance with Indian    GAAP.
                                         x.      Report of Independent Auditors on the Financial Statements.
                                       xi.      Management Discussion and Analysis of financial condition and results of operations
                                    xii.      Industry & Business description
                                  xiii.      Organizational structure and major shareholders
                                   xiv.      Board of directors and senior management
                                      xv.      Taxation aspects relating to the eligible securities
                                   xvi.      Legal proceedings against company and directors both as plaintiff & defendant – under Income tax, excise, customs, Cr. pc etc. which would materially affect the assets/revenue or financial position of the company.
                                 xvii.      Proceedings against promoters.
                              xviii.      Accountants
                                  xix.      General information eg.name of company, SE details, date of issue, details of shareholder approval, principal objects of company, consolidated financial position etc.
                                     xx.      Any material information that would enable the investors to take an informed decision.
Thus IPP requires extra disclosure under Schedule II of the Companies Act 1956.
Secretarial Compliances & striking provisions.
ü      The Company secretary shall ensure the following-
ü      Special Resolution (Sec 81(1A)) is passed at General Meeting
ü      In-principle approval from SE necessary is sought
ü      No allotment is made, either directly or indirectly, to any qualified institutional buyer who is a promoter or any person related to promoters of the issuer.
ü      The offer document is registered with ROC & a copy is filed with SEBI and SE through the lead merchant banker.
ü      Soft copy of the offer document is filed with the Board along with fee.
ü      The offer document is placed on the website of the concerned SE and of the issuer clearly stating that it is in connection with institutional placement programme and that the offer is being made only to the qualified institutional buyers.
ü      The merchant banker shall submit to the Board a due diligence
ü      Certificate as per Form A of Schedule VI of ICDR regulations.

The important provisions are given below-

Ø      No Partly paid shares shall be issued.
Ø      Bids are to be accepted through ASBA facility only.
Ø      The eligible seller may be promoter/issuer company/promoter group. The promoter or promoter group who are offering their eligible securities should not have purchased and/ or sold the eligible securities of the company in the twelve weeks period prior to the offer and they should undertake not to purchase and / or sell eligible securities of the company in the twelve weeks period after the offer.

Ø      The issue shall be kept open for 1 to 2 days. The aggregate demand schedule shall be displayed by stock exchange(s) without disclosing the price.

Ø      A qualified institutional buyer who does not hold any shares in the issuer company and who has acquired the rights in the capacity of a lender shall not be deemed to be a person related to promoters.

Ø      For the purpose of  IPP,  a qualified institutional buyer who has any of the following rights shall be deemed to be a person related to the promoters of the issuer:-
(a) rights under a shareholders’ agreement or voting agreement entered into with promoters or persons related to the promoters;
(b) veto rights; or
(c) right to appoint any nominee director on the board of the issuer.

Ø      Allotment under IPP may be through any of the following methods –
(a) proportionate basis;
(b) price priority basis; or
(c) criteria as mentioned in the offer document.

Ø      Where the issue has been oversubscribed, an allotment of not more than ten per cent. of the offer size shall be made by the eligible seller.
Ø      Withdrawal of offer: The eligible seller shall have the right to withdraw the offer in case it is not fully subscribed.

{Authors’ note: Where a company has no minimum public shareholding (ie. 25%), then it can increase the same through IPP, provided the public shareholding shall not increase at more than 10%. That means, the company would have to resort to other methods of reducing promoters holding, where public shareholding fails to touch 25% even after IPP}.

  Conclusion
The IPP route appears to be a good attempt from the part of Govt. to increase retail shareholders ‘participation and to reduce the possibilities for price manipulations. As the public shareholding rise, the control of promoters over the company would reduce and that would secure an active market for shareholders of the company, where the market value of shares of the company would be decided by free play of demand and supply. IPP could also be viewed as an intelligent move from the part of Government to achieve its divestment strategy. Although, IPP could be adopted by companies to touch the minimum public shareholding stipulated by the ministry, the limited threshold of 10% would turnout to be a hurdle. For eg. the companies which have present public shareholding of only 12 %  would have to resort to other methods of reducing promoters holding, as the public shareholding wont touch 25% even after IPP.  Some company law experts disagree with IPP, arguing that it has nothing which benefits the common retail shareholder (ie. individuals), as the buyers of shares under IPP are QIB’s. As future professionals we shall view IPP first and foremost as a policy of the government to strip promoters’ holdings in shares so that interests of the retail investors would be protected to some extent.

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Source: ICDR Regulations, amendments, sample placement docs.

The views expressed are personal.
Disclaimer:  The persons reading &/ downloading this article are recommended to refer bare act, rules and regulations on the subject for more clarity. The author &/publisher could not be held liable for any loss/damage on account of any omissions/errors in the article.  


Prepared by Victor  J. Uruvath,  CS Professional programme Kerala, Thrissur.
Collected by. Santhosh Thomas Thaikkadan, CS Professional Programme, Kerala, Thrissur