Ms. TEENA KAPOOR a 3rd year law student from Gitarattan International Business School college
INTRODUCTION
Before knowing the meaning of a shelf prospectus, you need to understand the meaning of a prospectus from a financial point of view. A prospectus is a legal document submitted to SEBI by a company containing all information regarding the issue of securities. Each company must submit a prospectus before raising funds. It contains detailed information about the company, release, price, date and features.
Among the various types of prospectuses, shelf prospectuses are issued by companies that plan to issue several bonds to raise money from the public. Shelf prospectuses can only be issued by publicly listed companies, and this is done by filing a Memorandum of Information in the PAS-2 format.
A shelf prospectus can only be issued by a company if the company is financed through non-convertible debt. Non-convertible debt bonds cannot be converted into equity. Shelf prospectus issuance allows a company to issue securities four times to raise funds.
The information provided in the Shelf Guide may vary depending on your company and funding requirements. However, most shelf prospectuses include information about the company’s background, financial summary, security type, issue size, issue price, number of securities, risk profile, sector analysis, and more.
MEANING
Section 31: Shelf prospectus.
*31. (1) Any class or classes of companies, as the Securities and Exchange Board may provide by regulations in this behalf, may file a shelf prospectus with the Registrar at the stage of the first offer of securities included therein which shall indicate a period not exceeding one year as the period of validity of such prospectus which shall commence from the date of opening of the first offer of securities under that prospectus, and in respect of a second or subsequent offer of such securities issued during the period of validity of that prospectus, no further prospectus is required.
(2) A company filing a shelf prospectus shall be required to file an information memorandum containing all material facts relating to new charges created, changes in the financial position of the company as have occurred between the first offer of securities or the previous offer of securities and the succeeding offer of securities and such other changes as may be prescribed, with the Registrar within the prescribed time, prior to the issue of a second or subsequent offer of securities under the shelf prospectus:
Provided that where a company or any other person has received applications for the allotment of securities along with advance payments of subscription before the making of any such change, the company or other person shall intimate the changes to such applicants and if they express a desire to withdraw their application, the company or other person shall refund all the monies received as subscription within fifteen days thereof.
(3) Where an information memorandum is filed, every time an offer of securities is made under sub-section (2), such memorandum together with the shelf prospectus shall be deemed to be a prospectus.
Explanation.—For the purposes of this section, the expression “shelf prospectus” means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus.
Who Can Issue Shelf Prospectus?
Some points have already been mentioned above about a company which can issue a shelf prospectus. Now, here are the types of entities that can file one:
A publicly listed company that has its shares trading on stock exchanges in India
Public sector banks
Non-banking financial corporations (NBFC)
Public financial institution (the government owns 51% of shares of these companies)
What Are the Criteria for a Company to Issue a Shelf Prospectus?
A company has to meet the following criteria to be eligible to issue a shelf prospectus:
The company must have a market value of ₹500 crore and above.
The bonds must have a credit rating of AA- and more.
A company has to submit an agreement with SEBI confirming dematerialization of securities.
The concerned company must have a consistent record of repayment of debts.
The promoters and directors of the company should not have any pending regulatory actions against them.
Conclusion
A prospectus is a document submitted by a company looking to offer securities for purchase with regulator SEBI, which details numerous financial information about the company and the securities they are offering. The details of a shelf prospectus will vary based on the type of security that is being offered, however, an initial prospectus provides brief information about the security and the company, while a final prospectus offers a more in-depth assessment. An added benefit of a shelf prospectus is that it has a shelf life of up to four security offerings, meaning the company needn’t file a different prospectus every time they wish to offer security. In this article, we have explored what is shelf prospectus, and how it is beneficial for investors. As an investor, it is essential to thoroughly assess securities and the company you are purchasing them from.
Criteria for Companies to Publish Shelf Guides
A company must have the right to raise capital through bonds. The criteria for companies that may issue shelf guides are:
Business value must be at least Rs 5,000 crores.
The company must provide an agreement with SEBI for the dematerialization of the securities.
A company must ensure that the bonds it issues have a credit rating of AA- or higher.
There must be no pending regulatory actions against the company’s promoters or directors. A company must be consistent in its debt amortization.
Benefits of Shelf Prospects
A shelf prospectus is only approved by SEBI when it is sure that the securities being offered by the company are credible and won`t create a high-risk profile for the investors. Since the approval of the shelf prospectus means that the securities are backed by a well-positioned company to offer good returns to investors, investors can consider investing in the securities. However, it is also good to analyze the shelf prospectus in detail before investing.
The shelf prospectus offers every detail possible to the investor who is looking to invest in the securities. It ensures that the investors have all the information possible to do a detailed fundamental analysis of the company and ensure they are investing in low-risk securities. The shelf prospectus also mentions why the company is issuing the security, so investors can analyze the purpose of the financing. For example, it is always better for a company to finance future operations or expansion rather than paying down debt.
Details included by the company in the completed guide are checked and double-checked by SEBI before the release is approved. Investors can also study and analyze every detail and invest only in companies that are fundamentally sound and can become profitable, providing good returns over time.
REFERENCES
https://www.indiainfoline.com/knowledge-center/ipo/what-is-shelf-prospectus
https://www.indiafilings.com/learn/shelf-prospectus/
COMPANIES ACT 2013
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