New Filters: Banking and Finance (including Securities)

(2) Definitions and abbreviations:

1.     conventional or general terms;

2.     issue related terms;

3.     issuer and industry related terms; and

4.     abbreviations.

(5) Risk Factors:

Risk factors will be in relation to the following:

1.       issue and object of the issue; and

2.       risk material to the issuer and its business.

In each of the above, where applicable, along with the instances of occurrence of such risk in the past and financial or other impact thereof, if any, on the issuer and its business, the mitigation measures, if any, adopted to reduce or eliminate such risk will be disclosed.

Historically, Placement Documents mirrored the detailed risk disclosures made in IPO offer documents, typically covering; (a) business and operational risks; (b) financial risks; (c) legal and regulatory risks; (d) risks relating to the objects of the offer; (e) other internal risks of the company; and (f) external risk factors.

Following this amendment, external risk factors, including generic industry-related risks, may now be excluded from Placement Documents. However, disclosures under the other categories will continue to be required to enable investors to make an informed investment decision.

Further, since listed companies are already required to disclose all material business and operational risks along with mitigation measures and past instances in their annual reports, this amendment also serves to align disclosures made in the public domain with those provided in Placement Documents.

1.       purpose of the placement;

2.       break-up of the cost of the project for which the money is being raised;

3.       means of financing for the project; and

4.       proposed deployment status of the proceeds at each stage of the project.

“Objects of issue and use of issue proceeds”

Further, the guidance issued under NSE circular NSE/CML/2022/56 dated December 13, 2022, in relation to disclosures on the objects of the issue, will continue to remain applicable.

(8) Capitalisation statement:

1.    Capitalisation statement showing total borrowings, total equity, and the borrowing/ equity ratios before and after the issue is made will be incorporated. It will be prepared on the basis of the Consolidated Financial Statement for the latest financial year or when applicable at the end of the stub period. In case of any change in the share capital since the date as of which the financial information has been disclosed in the placement document, a note explaining the nature of the change will be given.

2.    Capital structure:

a)    Authorised, issued and subscribed capital, after suitable incorporation of the outstanding convertible securities (number of securities, description and aggregate nominal value);

b)   paid-up capital:

i)     before the issue;

ii)   after the issue;

iii) after conversion of convertible instruments (if applicable); and

iv)  share premium account (before and after the offer).

Further, while the Amendment Regulations now require disclosure only of the authorised and subscribed capital in Placement Documents, the obligation to provide the share capital build-up since incorporation continues under Sections 42 and 62 of the Companies Act, 2013 read with Form PAS-4.

Although the amendment simplifies the disclosure requirement relating to capital structure, a further alignment with Form PAS-4 may be necessary to fully achieve the objective of simplification and streamlining of Placement Documents.

1.     report of statutory auditor’s on the financial statements included in the preliminary placement document/placement document;

2.     balance sheets;

3.     statements of income;

4.     schedules to accounts;

5.     statements of changes in stockholders’ equity;

6.     statements of cash flows;

7.     statement of accounting policies; and

8.     notes to financial statements including the statement relating to subsidiary companies (in case of unconsolidated financial statements).

(10) Financial information of the issuer:

A summary of the financial position of the company as in 3 audited balance sheets immediately preceding the QIP offer including the following items:

1.    total income from operations;

2.    net profit/loss before tax and extraordinary items;

3.    net profit/loss after tax and extraordinary items;

4.    equity share capital;

5.    reserves and surplus;

6.    net worth;

7.    basic earnings per share;

8.    diluted earnings per share;

9.    return on net worth;

10.  net asset value per share; and

11.  cash flow statements.

It is pertinent to note that quarterly financial results disclosed to stock exchanges are usually limitedly reviewed financials and not audited. Pursuant to this amendment, only the financial line items of the last 3 fiscals are required to be disclosed in the Placement Documents. However, in practice, to enable investors to form a well-informed opinion, financial and operational non-GAAP (Generally Accepted Accounting Principles) measures , along with reconciliation with GAAP measures, may be required to be included for the stub period in the Placement Documents.

Therefore, while interim results (whether quarterly stock exchange filings or condensed consolidated financial statements under Ind-AS 34) are no longer mandatory, issuers could still choose to include them. This helps bridge the time gap between the last audited financials and the QIP launch, while also giving investors comfort through more current performance metrics.

This omission is consistent with SEBI’s move towards simplified, no-duplicative disclosures, on the basis that QIBs already have access to such information through periodic filings under the SEBI LODR Regulations.

(11) Business and Industry description:

A summary of the primary business of the issuer and the industry in which it operates.

This change eases the disclosure burden on issuers, who were earlier required to provide detailed descriptions of their business information that is, in any case, already available in the public domain, including annual reports.

However, as part of the QIP process, issuers typically continue to obtain a third-party industry report. These reports serve multiple purposes: (a) providing peer comparisons; (b) framing positioning statements for the issuer; and (c) outlining industry outlook. They also remain an important basis for discussions with investors, and issuers may still rely on them for disclosures in the Placement Documents.

(13) Board of directors and senior management:

Name, date of birth, age, director identification number, address, occupation and date of expiration of the current term of office of manager, managing director and other directors (including nominee directors and whole-time directors).

(16) Outstanding litigation and legal proceedings:

1.       summary of outstanding litigation and legal proceedings in a tabular format along with the amount involved, wherever quantifiable for the pending matters which, if they result in an adverse outcome, would materially and adversely affect the operations or the financial position of the issuer;

2.       pending matters as mentioned below:

a)      involving criminal liability on the part of the issuer;

b)      material violations of the statutory regulations by the issuer; and

c)      economic offences where proceedings have been initiated against the issuer; and

3.       for the purpose of determining materiality, the threshold will be lower of the threshold criteria mentioned below:

a)      as per the policy of materiality defined by the board of directors of the issuer and disclosed in the placement document; and

b)      litigation where the value or expected impact in terms of value, exceeds the lower of the following:

i)        2% of the turnover, as per the last audited consolidated financial statements of the issuer;

ii)      2%  of the net worth, as per the last audited consolidated financial statements of the issuer, except in case the arithmetic value of the net worth is negative; or

iii)    5% of the average of absolute value of profit or loss after tax, as per the last 3 audited consolidated financial statements of the issuer.

1.       all criminal, regulatory, statutory violations and economic offences involving the issuer entity are required to be disclosed;

2.       tax or civil matters involving the issuer entity are to be disclosed only in a summary form (typically the number of cases and the aggregate amount involved is included);

3.       Disclosure of criminal, civil, regulatory, statutory violations and economic offences involving directors, promoters, or subsidiaries is no longer mandatory (though these were previously included in Placement Documents).

4.       In addition, a summary table must be included for all legal proceedings which, if decided adversely, would materially and adversely impact the operations or financial position of the issuer. This would include all such legal matters which have been disclosed by the issuer to stock exchanges under Regulation 30 of the SEBI LODR Regulations.

While these amendments truncate disclosure of legal proceedings in Placement Documents, it is important to note that disclosure requirements under Form PAS-4 continue to apply. Accordingly, any litigation or legal action pending or instituted within the 3 years preceding the QIP by any Ministry, Department of the Government, or statutory authority against any promoter of the issuer company must still be included in the Placement Documents.

(21) The issuer may include additional details in the placement document wherever it may deem fit.

At the same time, the Amendment Regulations preserve flexibility by allowing issuers to include any additional disclosures they consider necessary.