Public Issue and Fund Raising Services in India

Companies require adequate capital to manage their daily operations, expand business activities, and fulfill working capital requirements. To meet these financial needs, businesses can raise funds through various sources such as public issues, debentures, bank financing, and other investment options.

The funding requirements of a company may vary depending on the nature of the project, business objectives, and financial planning. In India, the major sources of corporate fundraising can be categorized as follows:

• Public Issue

• Initial Public Offering (IPO)

• Further Public Offering (FPO)

• Offer for Sale (OFS)

• Rights Issue

• Bonus Issue

• Private Placement

• Preferential Issue

• Qualified Institutional Placement (QIP)

Public Issue Services

A Public Issue is one of the most widely used methods for raising capital from a large number of investors in India. Through this process, a company issues a prospectus inviting the general public to subscribe to its shares or securities by making an application for investment.

Public Issue allows companies to offer shares or convertible securities in the primary market to attract new investors and raise funds for business growth. Companies must follow applicable regulatory requirements and compliance procedures while conducting a public issue.

Initial Public Offering (IPO) Services for Unlisted Companies

An Initial Public Offering (IPO) is a process through which an unlisted company offers its shares to the public for the first time. An unlisted company is a public company whose shares are not traded on any recognized stock exchange.

The IPO process marks an important milestone for a company as it enables access to public investment and helps in raising funds through share subscriptions. Since the company enters the public market for the first time, IPO involves detailed planning, regulatory compliance, and disclosure requirements through the issuance of a prospectus.

Further Public Offering (FPO) Services for Listed Companies

A Further Public Offering (FPO) is a fundraising method used by an already listed company to issue additional shares to the public. A company that has completed its IPO and is listed on a stock exchange may opt for an FPO to raise additional capital and increase public investment.

Compared to an IPO, an FPO generally involves lower market uncertainty as investors already have access to information regarding the company’s financial performance, market presence, and growth potential.

Offer for Sale (OFS) Services

An Offer for Sale (OFS) allows existing shareholders of a company to sell a portion of their shareholding to the public with the approval and consultation of the Board of Directors (BOD).

In an Offer for Sale, the company’s prospectus serves as the Letter of Offer (LOI), providing necessary details regarding the transaction. The shareholders offering their shares are responsible for covering expenses related to the offer. Any dividend declared or paid on such shares after transfer is payable to the new shareholder.

Our Public Issue Advisory and Compliance Services assist companies with documentation, regulatory procedures, and professional guidance throughout the fundraising process.

Advantages of Public Issue Services

A Public Issue is an effective method of raising capital from investors and provides several benefits to companies looking to expand their business operations. The key advantages of Public Issues are as follows:

No Repayment Obligation of Capital

When a company raises funds through a Public Issue, it is generally not required to repay the invested capital to shareholders during the normal course of business. The repayment obligation arises only in specific situations, such as the winding-up or liquidation of the company.

No Fixed Interest Liability

Unlike debentures and debt financing, a Public Issue does not involve payment of a fixed rate of interest to investors. This helps companies manage their financial obligations more effectively.

Easy Transfer of Securities

Shares issued through a Public Issue offer greater flexibility in ownership transfer. Compared to debentures, equity securities can be transferred more easily, subject to applicable market regulations.

Better Liquidity for Investors

Publicly issued shares are generally more liquid than many other types of securities because they can be traded on recognized stock exchanges and converted into cash with greater ease.

Enhancement of Company Value and Reputation

Listing shares through a Public Issue on a recognized stock exchange can improve a company’s market reputation, brand value, and credibility. It also promotes transparency and builds greater confidence among investors and the general public.

Regulatory Framework for Public Issues in India

Public Issues in India are governed by various laws, rules, and regulations to ensure transparency, investor protection, and proper compliance. The major regulatory provisions include:

• Chapter III, Part I of the Companies Act, 2013

• Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018

• Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015

• The Securities Contracts (Regulation) Act, 1956

These regulations establish the compliance requirements for companies planning to raise funds through Public Issue, IPO, FPO, and other securities issuance methods.

Types of Public Issues and Regulatory Requirements in India

A Public Issue is a method through which companies raise funds from the public by offering shares or securities in the primary market. The entry requirements and regulatory framework for public issues in India are governed by the Securities and Exchange Board of India (SEBI) through applicable rules and regulations.

The major types of Public Issues in India include:

• Initial Public Offering (IPO) for Unlisted Companies

• Further Public Offering (FPO) for Listed Companies

• Offer for Sale (OFS)

Conditions for Initial Public Offering (IPO)

An Initial Public Offering (IPO) allows an unlisted company to offer its shares to the public for the first time. Before proceeding with the IPO process, a company must fulfill certain eligibility criteria prescribed under SEBI regulations.

The major IPO requirements include:

• The company must have net tangible assets of at least ₹3 crore during the previous three financial years. Out of these assets, up to 50% may consist of monetary assets. However, this limit does not apply in the case of an Offer for Sale.

• The company must have an operating profit of at least ₹15 crore in any three out of the immediately preceding five financial years.

• The company must maintain a minimum net worth of ₹1 crore during the previous three financial years.

• If the company changes its name, at least 50% of the revenue generated during the previous financial year must come from the business activity represented by the new name.

• The issue size should not exceed five times the pre-issue net worth as per the audited financial statements.

If a company does not meet the above IPO eligibility requirements, it may still proceed with an Initial Public Offering by following the Qualified Institutional Buyer (QIB) route. Under this process:

• The issue must be conducted through the Book Building Process.

• At least 75% of the net offer must be allotted to QIBs.

• If the required allotment criteria are not achieved, the company must refund the subscription amount received.

Conditions for Further Public Offering (FPO)

A Further Public Offering (FPO) is issued by an already listed company to raise additional capital from the public. Before initiating an FPO, the company must comply with the following requirements:

• If the company has changed its name, at least 50% of the income earned in the previous financial year must be generated from the activity associated with the new name.

• The issue size must not exceed five times the pre-issue net worth based on the audited balance sheet of the previous financial year.

If a listed company does not satisfy these conditions, it may proceed through the QIB route, which requires:

• Conducting the issue through the Book Building Method.

• Compulsory allotment of at least 75% of the offered shares to Qualified Institutional Buyers (QIBs).

Intermediaries Involved in Public Issue Process

The successful completion of a Public Issue, IPO, or FPO process requires support from various market intermediaries. These professionals assist companies with compliance, documentation, investor management, and securities listing.

Merchant Bankers

Merchant Bankers play a vital role in managing the complete public issue process. Their responsibilities include preparing the prospectus, conducting due diligence, verifying disclosures, coordinating with regulatory authorities, and assisting in listing securities on recognized stock exchanges.

After reviewing and confirming the required information, merchant bankers issue the necessary compliance certificate to SEBI.

Underwriters

Underwriters provide financial assurance during the public issue process by subscribing to shares that remain unsubscribed by investors. They help companies reduce the risk associated with under-subscription of securities.

Registrar and Share Transfer Agents (RTA)

The Registrar and Share Transfer Agents manage investor applications, determine the basis of allotment, and handle activities such as issuing share certificates, processing refunds, and maintaining investor records.

Issue Bankers

Issue Bankers collect applications submitted by investors on behalf of the issuing company. These applications are then forwarded to the Registrar and Share Transfer Agent for further processing.

Stock Brokers and Sub-Brokers

Stock Brokers and Sub-Brokers assist companies in reaching potential investors and promoting share subscriptions. They receive commission from the issuing company for their services.

Depositories

Depositories are responsible for holding securities in electronic or dematerialized (DEMAT) form. They ensure safe and efficient management of investors’ securities.

The two major depositories in India are:

• CDSL (Central Depository Services Limited)

• NSDL (National Securities Depository Limited)

Professional assistance from experienced intermediaries helps companies complete their Public Issue Compliance, IPO Registration, FPO Process, and Securities Listing efficiently while meeting SEBI requirements.

Procedure for Initial Public Offering (IPO) in India

An Initial Public Offering (IPO) is a structured process through which an unlisted company offers its shares to the public for the first time to raise capital. The IPO process involves multiple stages, including regulatory approvals, documentation, pricing, investor participation, and stock exchange listing.

The major steps involved in the IPO registration and issuance process in India are as follows:

Appointment of Investment Bank

The first step in the IPO process is appointing an experienced investment bank or merchant banker to provide professional guidance and manage the issue. The company enters into an underwriting agreement with the investment bank, which specifies important details such as:

• Number of securities to be issued

• Issue price and terms of securities

• Responsibilities of the parties involved

Investment banks assist the company throughout the IPO journey, including compliance, documentation, and coordination with regulatory authorities.

Registration with SEBI

The company must complete SEBI registration for IPO by submitting an application containing detailed information about its business operations, financial position, future plans, and proposed use of funds raised through the public issue.

The company is also required to provide a declaration regarding the utilization of IPO proceeds to ensure transparency and regulatory compliance.

Filing of Red Herring Prospectus (RHP)

Before launching an IPO, the company’s directors are required to file a Red Herring Prospectus (RHP) containing essential information about the company and the proposed share issue.

The RHP includes details such as:

• Estimated share price range

• Company information

• Financial details

• Risk factors associated with investment

It is called a Red Herring Prospectus because it is not considered the final prospectus and may not contain the final issue price.

Determination of IPO Pricing

The pricing of shares is decided by the issuing company in consultation with investment bankers based on market conditions, company valuation, and investor demand. SEBI does not determine the IPO share price.

Factors considered while deciding the IPO price include:

• Employee Pension Scheme

• Private Equity Investment

• Return on Net Worth

• Market valuation and business performance

A company can issue shares through two pricing methods:

Fixed Price Issue:
Shares are offered at a predetermined price decided by the company.

Book Building Issue:
Shares are offered within a specified price range, and investors submit bids according to their preferred price.

Opening of IPO Subscription

Once the IPO is launched, investors can submit applications through online and offline modes. The IPO application forms and prospectus are made available through designated banks and approved platforms.

Investors submit their applications along with the required payment details for subscribing to the shares offered by the company.

Completion of IPO Process and Listing

After the subscription period closes, the company finalizes the share allotment process based on investor demand and applicable regulations. The company must ensure that the IPO receives the required level of subscription.

The allotted shares are credited electronically to investors’ DEMAT accounts. After completing the allotment process, the company’s shares become eligible for trading on recognized stock exchanges.

Lock-in Requirements for Initial Public Offering

Under IPO regulations, promoters of a company are required to contribute at least 20% of the post-issue capital. The promoter contribution is subject to a lock-in period of three years.

The lock-in period for pre-issue capital is generally one year.

For determining the applicable lock-in period, the company considers relevant dates such as:

• Date of commencement of business

• Date of allotment of Public Issue shares

Proper compliance with IPO regulations, SEBI guidelines, and disclosure requirements is essential for successfully completing the Initial Public Offering process in India.

Duration of Initial Public Offering (IPO) in India

The duration of an Initial Public Offering (IPO) depends on the type of issue method selected by the company. The subscription period for different types of securities issues is as follows:

Fixed Price Issue

A Fixed Price Issue remains open for investors for 3 to 10 working days, during which they can submit applications for purchasing shares at the predetermined issue price.

Book Built Issue

A Book Built Issue remains open for 3 to 7 working days. During this period, investors can place bids within the price range specified by the company.

Rights Issue

A Rights Issue generally remains open for 15 to 30 days, allowing existing shareholders to subscribe to additional shares offered by the company.

Difference Between IPO and FPO

Both Initial Public Offering (IPO) and Further Public Offering (FPO) are methods of raising capital through public investment. However, they differ based on the company’s listing status, purpose, and risk factors.

Difference Between Public Issue and Private Placement

A Public Issue and Private Placement are both methods of raising funds through securities issuance. The key difference lies in the type of investors involved and the process followed.

A proper understanding of IPO, FPO, Public Issue, and Private Placement processes helps companies choose the most suitable fundraising method based on their financial goals, compliance requirements, and investment objectives.

Frequently Asked Questions