Page 13 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management

Notes (b) Distributable profits in at least three years.
(c) Net worth of at least 1 crore in three years.
(d) If change in name, at least 50% revenue for preceding 1 year should be from the new
activity.
(e) The issue size does not exceed five times the pre-issue net worth.
To provide sufficient flexibility and also to ensure that genuine companies do not suffer
on account of rigidity of the parameters, SEBI has provided two other alternative routes to
company not satisfying any of the above conditions, for accessing the primary market.
Entry Norm II

(a) Issue shall be through book-building route, with at least 50% to be mandatorily
allotted to the Qualified Institutional Buyers (QIBs).
(b) The minimum post-issue face value capital shall be 10 crores or there shall be a
compulsory market-making for at least two years.
OR
Entry Norm III

(a) The 'project' is appraised and participated to the extent of 15% by FIs/Scheduled
commercial banks of which at least 10% comes from the appraiser(s).
(b) The minimum post-issue face value capital shall be 10 crores or there shall be a
compulsory market-making for at least 2 years.
In addition to satisfying the aforesaid eligibility norms, the company shall also satisfy the
criteria of having at least 1000 prospective allottees in its issue.

Did u know? Green Shoe Option
Green Shoe Option denotes 'an option of allocating shares in excess of the shares included
in the public issue'. It is an option allowing the issuing company to issue additional shares
when the demand is high for the shares when the flotation is on. SEBI guidelines allow the
issuing company to accept over subscription, subject to a ceiling, say 15% of the offer made
to public. In certain cases, the Green Shoe Option can be even more than 15%. It is extensively
used in international IPOs to stabilise the post-listing price of new issued shares. The
concept has been introduced in the Indian capital market and is used in initial public
offerings through book-building process. SEBI has allowed the use of the option with a
view to boost the investors' confidence and to put a check for speculative practices causing
short-term volatility in post listing price. The Green Shoe Option facility would bring in
price stability of initial public offerings.
Kinds of Offer Documents
An offer document means 'prospectus' in case of a public issue or an offer for sale and
'letter of offer' in case of rights issue, which is required to be filed with the Registrar of
Companies (ROC) and Stock Exchanges. An offer document covers all the relevant
information to help an investor in making wise investment decisions.
(a) Draft Prospectus: A company, before making any public issue of securities, shall file
a draft prospectus with SEBI, through an eligible merchant banker, at least 21 days
prior to the filing of prospectus with the Registrar of Companies. If any specific

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