a) AVD Limited was incorporated on 1st April,2006. The Company got its shares listed at
Bombay Stock Exchange on 30th September, 2007. The Company at an Extra-Ordinary
General Meeting held on 31st October,2009, decided to go for public issue of equity
shares to an extent of Rs.300 crores. The net worth of the Company as per the audited
Balance sheets in the financial years 2007-08 and 2008-09 was Rs.50 crores and 60
crores respectively. During the financial year 2008-09 the Company had already issued
equity shares amounting to Rs.20 crores. There is no change in the name of the
Company or its business activities during the financial year 2008-09. Referring to the
guidelines issued by Securities and Exchange Board of India, advise the Company on the
following: (8 Marks)
(i) Whether the Company can go ahead with the public issue of equity shares as stated
above.
(ii) What would by your advice in case the net worth of the Company as per audited
balance sheets in the financial years 2007-08 and 2008-09 was Rs.20 crores and 30
crores respectively?
(iii) What would be the position in case the Company in question changed its name to
AJD Limited during the year 2008-09, three months before filing the offer document
and the revenue due to change of business activity suggested by the new name
during the financial year 2008-09 was 40% less than the total revenue for the
financial year 2007-08 reckoned from the date of filing the offer document?
FINAL EXAMINATION: NOVEMBER, 2009
Answer
(a) PUBLIC ISSUE OF SHARES BY A LISTED COMPANY:
As per the SEBI (DIP) Guidelines 2000 a listed Company shall be eligible to make a
public issue of equity shares or any other security which may be converted into or
exchanged with equity shares at a later date provided that the aggregate of the proposed
issue and all the previous issues made in the same financial year in terms of the size (i.e.
offer through offer document + allotment + promoters’ contribution through the offer
document), issue size not exceed 5 times its pre-issue net worth as per the audited
balance sheet of the last financial year. It is further provided that in case there is a
change in the name of the issuer Company within the last 1 year (reckoned from the date
of filing of the offer document), the revenue accounted for by the activity suggested by
the new name is not less than 50% of its total revenue in the preceding 1 full year
period).
Applying the above guidelines, the questions as asked in the problem can be answered
as under:
1. There are two conditions in the guidelines as stated above viz.i) that the aggregate
issue i.e. proposed + proposed + all the previous issues made in the same financial year
should not exceed 5 times the net worth of the Company; ii) there is no change in the
name of the issuer Company within the last 1 year. In the question the proposed issue
of Rs.300 crores + Previous issue in the same financial year is Rs.20 crores, making an
aggregate of Rs.320. Since the aggregate of the issue is more than 5 times of Net
Worth, i.e. more than Rs.300 crores , the proposed offer is not within the limit, Company
cannot proceed ahead with in the proposed issue of Rs.300 crores.
2. In the second case the net worth is only Rs.30 crores. 5 times of the net worth
comes to Rs.150 crores only. Since the aggregate of the proposed issue and the
previous issue during the same financial year is Rs.320 crores, which is exceeding
the limits of Rs.150 crores, as calculated above, the Company cannot proceed with
the public issue of shares as proposed in the second case.
3. In the third case the offer cannot be made since the current year revenue is less
than 50% of the total revenue of the previous year.
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