IPO, PE funds, Exit

norms
ARJUN 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