Page 16 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 1: Introduction to Capital Market

with merchant banker, subject to giving full disclosures of the parameters which have Notes
considered while deciding the issue price. The basis of issue price is disclosed in the offer
document where the issuer discloses in detail about the qualitative and quantitative factors
justifying the issue price.
Price Band

The issuer company can mention a price band of 20% (cap in the price band should not be
more than 20% of the floor price) in the offer document filed with SEBI and actual price can
be determined at a later date before filing the offer document with ROC.
Differential Pricing of an issue where one category is offered at a price different from the
other category is called 'differential pricing'. "The SEBI (Disclosure and Investor Protection)
Guidelines, 2000 allows the differential pricing only if the securities to applicants in the
firm allotment category is at a price higher than the price at which the net offer to the
public means the offer made to the Indian public, and does not include firm allotments or
reservations or promoters' contribution."

Task Think about the advantages and disadvantages of the pricing and enlist
each of them.
Lock-in Period
'Lock- in' indicates the freeze on transfer of shares. SEBI (Disclosure and Investor Protection)
Guidelines, 2000 have stipulated lock-in requirement as to specified percentage of shares
subscribed by promoters with a view to avoid unscrupulous floating of securities and to
ensure the promoters involved in the issue continue have controlling a interest in the
company, which can be subjected to legal compliances. The lock-in requirement provisions
of the said guidelines are summarised below:
Lock-in of Minimum Specified Promoters Contribution in Public Issues
(a) In case of any issue of capital to the public the minimum promoter contribution
shall be locked in for a period of three years.
(b) The lock-in shall start from the date of allotment in the proposed public issue and
the last date of the lock-in shall be reckoned as three years from the date of
commencement of commercial production or the date of allotment in the public
issue, whichever is later.
(c) "The date of commencement of commercial production" means the last date of the
month in which commercial production in a manufacturing company is expected to
commence as stated in the offer document.
Lock-in of Excess Promoters' Contribution
(a) In case of public issue by unlisted company, if the promoter's contribution in the
proposed issue exceeds the required minimum contribution, such excess contribution
shall also be locked-in for a period of one year.
(b) In case of public issue by a listed company, participation by promoters in proposed
public issue in excess of the required minimum percentage shall also be locked-in
for a period of one year.
(c) In case the promoter meets a shortfall in the firm allotment category, such subscription
shall be locked-in for a period of one year.

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