Today when I was reading through the SEBI (ICDR) Regulations 2009, I came across a interesting mechanism of SEBI called Fast Track Issue (FTI) and immediately I started reading in detail about this. Till I read about FTI, whenever I read many procedural steps and conditions I use to feel like OMG just to read it is so difficult how the big companies will plan in early to get on time funds by compliance with all the rules, regulations and procedural requirements every time for issuing securities in public. And I was also thinking Is this the way capital markets in developed countries drafted rules and regulations for the big companies to raise huge funds from the public. And I just realized that I am too late in finding answers to my questions beacuse here you go.
This article is an attempt to share my knowledge which I gained on the Fast Track Issue mechanism issued by the SBI.
What is Fast Track Issue (FTI)?
Fast Track issue is a faster and cost effective method of raising capital by listed companies. Means the listed companies can access the Indian Primary market for raising the capital through public issue without complying anything contained in the standard regulations i.e., regulation 6, 7, 8 related to filing of documents and forms specified in the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009. Usually, there are lots of FORMS to be submitted under ICDR regulations 6, 7 and 8 and then amend the prospectus based on the observations made by the SEBI. So to reduce all these lengthy entry norms or conditions SEBI has introduced Fast Track mechanism for issuing securities which would allow listed companies to raise funds more quickly.
Can all the listed companies raise capital through FTI?
Answer is NO
Then who are all eligible to raise funds through FTI?
The listed companies who satisfy the following requirements can avail this benefit:
1. Listed on BSE or NSE, for at least three years immediately preceding the date of filing of the offer document.
2. Issuer has redressed at least 95% of the complaints received from the IDR holders before the end of 3 months period immediately preceding month of date of filing the letter of offer with the designated stock exchange. In short, excellent track record in redressing Shareholders / Investor Grievances.
3. Average market capitalization ≥ 3000 Crores or more during last one year
4. Issuer is in Compliance with the provision of deposit agreement and listing agreements applicable in all the jurisdictions
5. Promoter group shares are necessarily held in dematerialized form
6. Annualized Trading Turnover of shares ≥ 2% of the weighted average number of listed shares during the previous one year
7. Auditors Qualifications in the audited accounts, if any, not to exceed 5% of the Net Profit / Net Loss after Tax
8. No prosecution proceedings or show cause notice issued by SEBI is pending against the company / its promoters / whole time directors
This mechanism will benefit only the listed companies which satisfy the above mentioned requirements. This mechanism will save lot of time of cost of the companies which are really big and need to raise money urgently.
The similar kind of mechanism is already prevailing in US markets that allow companies to raise millions of dollars within hours and across various markets.
What are the simplified procedural steps?
Listed companies, which meet the requirements, would be eligible for rationalized disclosures as well as simplified procedural requirements as follows:
a. The stock exchanges will give an 'in principle approval' based on the board resolution or shareholders' resolution, approving the raising of capital and making of the issue
b. These listed companies can proceed with further public offer (FPO) or rights issue by filing a copy of red herring prospectus/prospectus with the ROC or letter of offer with designated stock exchange. The prospectus and letter of offer will be prepared by the lead managers (LM) as per the provisions of the Companies Act and SEBI Regulations.
FTA means an offer of specified securities by a listed issuer to the public for subscription and includes an offer for sale of specified securities to the public by any existing holders of such securities in a listed issuer.
a. The LM may proceed with the issue after getting 'in principle approvals' from the stock exchanges, subject to the waiting period, if any, as per the Companies Act requirements.
b. LM shall ensure that any further material developments in the issue are promptly disseminated to the public at large by way of public notice.
Friends, I hope this article helped you all in enhancing your knowledge. Please feel free to share your thoughts and suggestions.