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Accounting for Companies – II

Notes 13.2.8 SEBI Guidelines for Issue of Securities

SEBI has issued a set of guidelines to be complied with by all companies listed or proposing
to be listed on Stock Exchange for making issue of capital any time after promulgation of the
Securities and Exchange Board of India Act, 1992. Subsequently, SEBI has also issued a number
of clarifications on these guidelines from time to time.
The guidelines issued by SEBI provide that companies are free to price their issues subject to
adequate disclosure. The onus, therefore, is on investors to evaluate whether the price at which a
company issues its shares, is fair or not. SEBI, while vetting the draft prospectus, merely ensures,
on the basis of the information furnished to it, that adequate disclosures have been made in
the offer document so that the investors can make informed investment decisions. However,
the SEBI guidelines also contain stipulation as to minimum promoters’ contribution and lock-in
period thereof. It is to ensure that the interests of the promoters of the issuing company are fairly
tied up with the interests of outside investors.
The SEBI guidelines require that the issuing company, which decides to price its issue at
a premium, gives justification for the issue price in their prospectuses or the letters of offer.
However, the guidelines do not provide any guidance for such justification. Appendix ‘B’ gives
some cases of disclosures made by some companies, to give an indication of prevailing practices
in this regard.
The SEBI guidelines also require the net asset value of the issuing company, as per its last audited
balance sheet, to be disclosed in the offer document.
SEBI Guidelines in Case of Takeover of Listed Companies
SEBI has laid down guidelines for open offer to the public in case of substantial acquisition of
shares or takeover of a listed company. The guidelines, inter-alia, lay down the pricing norms to
be followed in case of a takeover.
!

Caution It is often necessary to value equity shares of companies for the purpose of fixation
of price at which the same should be issued in the primary market.

Self Assessment

Fill in the blanks:
6. The guidelines issued by ............... provide that companies are free to price their issues
subject to adequate disclosure.
7. The SEBI guidelines also contain ............... as to minimum promoters’ contribution and
lock-in period thereof.
8. Bankers value ............... because against them they advance loans.
9. Generally, banks give ............... against quoted shares and therefore it is reasonable to base
their value on market quotations.
10. Where the ............... has to be paid on the sale of shares, the actual selling price will be taken
for its calculation.
11. For the purposes of the Indian Stamp Act, ..............., the words ‘average price’ means
perhaps the market price.
12. The SEBI guidelines require that the ............... company, which decides to price its issue at a
premium, gives justification for the issue price in their prospectuses or the letters of offer.

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