Issue Management and Capital Raising
The heaviest-weighted area: eligibility to raise capital, offer structure and allotment mechanics under the SEBI (ICDR) Regulations, 2018.
The framework
Appoint Category I lead managers, file the DRHP with SEBI, receive observations, file the RHP, run the bid, allot, and list (T+3). ICDR 2018 also governs rights issues, preferential allotments and QIPs.
Eligibility (Regulation 6)
- Net tangible assets of at least ₹3 crore in each of the preceding three years, with no more than 50% in monetary assets.
- Distributable profits in at least two of the last three years.
- Net worth of at least ₹1 crore in each of those years.
- An issuer failing these tests may use the alternative route: revenues from operations of at least ₹10 crore in each of the three preceding years, a 100% book-built issue, and a 75% QIB allocation.
Offer structure
- The net offer, after reservations, splits QIB 75%, non-institutional 15%, retail 10% in a book-built issue.
- Retail individual investor: application up to ₹2 lakh; UPI mandates permitted up to ₹5 lakh.
- Anchor investors are allotted within the QIB portion with 30-day and 90-day lock-ins.
Worked example
A company makes a net offer of 1 crore shares: QIB 75 lakh, NII 15 lakh, retail 10 lakh. The retail portion receives applications for 25 lakh shares - 2.5 times subscribed. Allotment is pro rata: 10/25 = 40% of the applied amount per retail applicant, subject to the minimum lot, with any rounding remainder settled by lottery.
Other routes
Rights issue under Section 62 with a letter of offer open at least 15 days; preferential allotment priced at the higher of the 26-week and 2-week VWAP; QIP restricted to listed issuers and institutional buyers.
Traps
- Computing percentages on the gross offer instead of the net offer.
- Assuming an OFS funds the company.
- Forgetting that rights issues skip the DRHP and SEBI observation route.
- Confusing the ₹2 lakh retail application limit with the ₹5 lakh UPI mandate limit.