IPO, PE funds, Exit normsARJUN PADMANABHAN

Conditions for IPO 1) Initial public offer if following conditions are satisfied:

i. Net tangible assets of at least 3 crore in preceding 3 years, with not more than 50% in uncommitted monetary assets

ii. Minimum average consolidated pre-tax operating profit of 15 crore in 3 out of preceding 5 years

iii. Net worth of at least 1 crore in each of the preceding 3 years

iv. Aggregate of proposed issue and all previous issues in the year in terms of issue size does not exceed 5 times its pre-issue net worth in the previous year

v. At least 50% of revenue for preceding year has been earned by it from the activity indicated by the new name, if change in name

Conditions for IPO 2) Else; IPO through Book-building Process in which issuer undertakes to allot at least 75% of the net public offer to QIBs and to refund full subscription money if it fails

3) No allotment if number of prospective allotees is less than 1k at the end of the subscription period

4) No IPO if any outstanding convertible securities / other right which would entitle any person with any option to receive equity shares

5) Equity shares may be Offered For Sale to public if they have been held by the sellers for a period of at least one year

Conditions for FPO 1) Further Public Offer if following conditions are satisfied:

i. Aggregate of proposed issue and all previous issues in the year in terms of issue size does not exceed 5 times its pre-issue net worth in the previous year

ii. At least 50% of revenue for preceding year has been earned by it from the activity indicated by the new name, if change in name

2) Else; FPO through Book-building Process in which issuer undertakes to allot at least 75% of the net public offer to QIBs and to refund full subscription money if it fails

Note: In order to enable more number of listed companies to raise further capital using the fast-track route, the Sebi has reduced the minimum public holding requirement to 1000 crore in case of FPO

Layering A company shall make investment through not more than two layers of investment companies

Non-Applicability

However, the above provisions shall not affect:

i. a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond two layers as per the laws of such country;

ii. a subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force

Note: In relation to a holding company, ‘layer’ means its subsidiary or subsidiaries

IPO Exit Restrictions• Indian companies must identify promoters of listing company for purposes of minimum contributions and promoter lock-in

• PE investors will be identified as promoters not only when they have majority stake but also where their holdings are higher than the original promoters

• Disclosures and postponed exit:

i. PE investors would have to reveal their fund structure, LPs (the investors in a fund), and information on companies where they own more than 10%

ii. In an IPO, the promoters must own at least 20% of the post-offering stock. This 20% will be locked in for 3 years and any additional contribution locked in for 1 year

iii. In addition, there is a 1 year lock-in period for the pre-offering share capital and the shares issued on a firm allotment basis

Note: Relaxations for Start-ups Diluted disclosure norms for start-up listing in the alternative trading platform Reduced lock-in period for investors to six months