SEBI ICDR Regulations, 2018
The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, commonly known as the SEBI ICDR Regulations, 2018, establish the regulatory framework for the issuance of securities, capital market activities, and listing of securities in India. The purpose of the SEBI ICDR Regulations is to safeguard investors’ interests, ensure proper disclosures, and enhance transparency in the capital market.
These regulations apply to public offers, rights issues, private placements, preferential issues, and other mechanisms for capital raising in India.
This detailed overview covers the important provisions, procedural requirements, and disclosures under the SEBI ICDR Regulations, 2018.
Key Definitions under SEBI ICDR Regulations, 2018
| Term | Definition |
|---|---|
| Issuer | A company or body corporate that issues securities, whether through a public offer, rights issue, or private placement. |
| Public Offer | An offer of securities to the public under the SEBI Act, 1992, through a public offering, rights issue, or a preferential issue. |
| Qualified Institutional Buyer (QIB) | A qualified institutional buyer recognized by SEBI, meeting the criteria as specified in the regulations. |
| Retail Individual Investor (RII) | Individual investors who are neither QIBs nor Non-Institutional Investors (NIIs) and apply for shares during a public issue with an amount not exceeding ₹2 lakh. |
| Anchor Investor | An institutional investor who agrees to purchase a certain percentage of the offered shares in a public issue and is allocated shares before the public issue opens. |
Key Provisions under SEBI ICDR Regulations, 2018
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Eligibility for Public Offering
Eligibility Criteria for Issuers: The issuer must meet certain financial criteria to be eligible for a public offer. These criteria include a minimum net worth, past profitability, and compliance with regulatory norms. In cases where the issuer is a new company under the Special Purpose Acquisition Company (SPAC) model, the eligibility requirements may differ.
Minimum Track Record: Issuers must have a track record of three years’ financial statements, which demonstrate a consistent performance record, unless the company is being listed through a SPAC.
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Public Issue and Pricing
Minimum Subscription Requirement: For a public offering to proceed, the minimum subscription should be 90% of the total offer size. If this condition is not met, the offer must be canceled, and the application money refunded to investors.
Price Band and Book Building: The issuer is required to provide a price band, with the final price determined through the book-building process. The book-building process allows investors to place bids at different price levels, and the final price is determined based on the demand for the shares.
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Disclosure Requirements under SEBI ICDR Regulations, 2018
Event Disclosure Requirement Timeline Draft Red Herring Prospectus (DRHP) Must include financial statements, risk factors, promoter and management details, business and financial information. At least 21 days before the offer opens. Public Offer The public offer document must contain financial details, details of the company’s management, business, and risk factors. Prior to the opening of the public offer. Prospectus/Red Herring Prospectus (RHP) The final prospectus must be filed with the Registrar of Companies (RoC) and made available on the issuer’s website. Before the offer closes. -
Lock-in Period for Shares
The lock-in period under the SEBI ICDR Regulations applies to shares issued through an IPO or rights issue:
Category Lock-in Period Promoter’s Shares 3 years from the date of listing of the shares on the stock exchange. Non-Promoter Shares 1 year from the date of listing for shares issued in an IPO. Anchor Investors 30 days from the date of allotment. -
Offer Structure
SEBI ICDR Regulations allow for both fixed price offerings and book-building mechanisms:
- Fixed Price Offering: The issuer decides on the price for the shares before the offer opens, and all investors must apply at the same price.
- Book Building Offering: In this process, the price range is set, and investors place bids within this range. The final price is determined after considering the demand for the shares.
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Role of Merchant Bankers and Underwriters
Merchant Bankers: They play a crucial role in the public offering process, including drafting the offer document, managing the offering process, and ensuring compliance with SEBI’s disclosure requirements. Merchant bankers are responsible for conducting due diligence and pricing the offer.
Underwriters: Underwriters ensure that the minimum subscription condition is met, and if the offer is under-subscribed, they will subscribe to the unsold portion of the shares.
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Rights Issues and Preferential Issues
Rights Issue: A rights issue is an offering of shares to existing shareholders. It allows shareholders to maintain their proportionate shareholding in the company.
Preferential Issue: A preferential issue involves offering shares to a selected group of investors. The shares may be allotted to institutional investors, qualified buyers, or others. A preferential issue is subject to shareholder approval and SEBI’s guidelines.
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Compliance Requirements for Listed Companies
Listed companies must comply with various reporting and filing obligations:
- Continuous Disclosure: Companies must disclose material events, financial performance, and any material information that may affect stock price.
- Quarterly and Annual Filings: Listed companies must submit quarterly and annual reports within the prescribed timeframes. The annual report must include a comprehensive review of financial results, corporate governance practices, and the board of directors’ report.
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Penal Provisions under SEBI ICDR Regulations, 2018
Violation Penalty Failure to comply with the offer procedure Monetary fines and suspension of trading for the issuer. Non-disclosure of material information Penalties may include fines, suspension, or delisting. Improper allotment of shares SEBI may suspend or cancel the offer and initiate an investigation. -
Reporting and Disclosure Requirements
Event-Based Disclosures
Regulation Trigger Time Period Made to 29(1) Acquirer + PAC acquiring 5% or more shares of the target company. 2 working days of acquisition SEBI and stock exchanges where the shares are listed 29(2) Acquirer + PAC holding 5% or more shares, changes in shareholding exceeding 2%. 2 working days of change SEBI and stock exchanges Continual Disclosures
Regulation Trigger Time Period Made to 30(1) Any person + PAC holding more than 25% shares Within 7 working days from FY end SEBI and stock exchanges 30(2) Promoter + PAC disclose aggregate shareholding Within 7 working days from FY end SEBI and stock exchanges Disclosures of Pledged/Encumbered Shares
Regulation Trigger Time Period Made to 31(1) Promoter + PAC pledging shares Within 7 working days from creation Stock exchanges and target company 31(2) Acquirer invoking/releasing pledge Within 7 working days Stock exchanges and target company
Conclusion
The SEBI ICDR Regulations, 2018, are an essential part of India’s regulatory framework for capital markets. These regulations help ensure transparency, fairness, and accountability in public offerings and other capital market activities. By requiring disclosures, imposing penalties for violations, and establishing clear procedures, SEBI aims to protect investors’ interests and maintain the integrity of India’s financial markets.
