This article is written by Ms Kamakshi, a 4th years law student from REVA university
A prospectus is a type of prospectus issued by a company that issues multiple bonds to raise capital. A prospectus is a notice, advertisement or other document inviting the public to subscribe to securities. A company must issue a prospectus before issuing securities. A prospectus may be issued by a public company that raises funds through multiple bond issues. A company issuing a prospectus must file a PAS-2 Form Information Memorandum. The advantage of the offering prospectus is that we do not need to issue a new prospectus each time we issue securities. One prospectus can be used for up to four securities issuances. Shelf brochures must be used within a maximum of one year.
A prospectus may only be filed by a company that issues non-convertible debt securities (debt securities that cannot later be converted into equity). The procedure for prospectus financing is the same as for debt financing. The only additional requirement is the submission of an Information Memorandum.
When companies try to issue public bonds, they need a large amount of public funds. All public offerings are therefore subject to the rules and regulations of the Securities and Exchange Board of India (SEBI).
Applicability
The following types of companies are authorized to issue shelf brochures:
A public financial institution (PFI) (PFI) is a company in which 51% or more of the paid-up shares are owned by the central government. Examples include Life Insurance Corporation of India, Infrastructure Development Finance Company Limited, Industrial Credit and Investment Corporation of India Limited, Industrial Finance Corporation of India, Industrial Development Bank of India. )
public sector bank
non-bank financial company
Listed Companies [Securities of listed companies are listed on the Bombay Stock Exchange (BSE), the National Stock Exchange (NSE) or the Calcutta Stock Exchange (CSE)]
conditions
These are the conditions that a company that decides to publish a shelf brochure should meet.
The company’s net worth must be at least Rs.500 crores. The company should have had distributable profits in the last three years. Provisions should be made for the dematerialization of securities. The contract must be made with an administrator registered with SEBI. A commercial banker must be appointed for this issuance. Merchant bankers must be registered with SEBI. A bond manager must be appointed at the time of issuance of bonds. Must get credit. Securities issued must have a minimum credit rating of AA- (credit ratings are only accepted from credit rating agencies registered with SEBI). No company director or promoter should have faced regulatory action. The company must not fail to repay deposits in the last three years. The company must have fulfilled a listing agreement within the last three years.
What is an Information Memorandum?
After the prospectus is filed, the company’s financial condition may change. Companies must notify the Registrar of Companies (ROC) of these changes. To do this, you must submit an Information Memorandum on Form PAS-2. Form PAS-2 must be submitted with a certificate from ROC, SEBI, and NSE or BSE. The company must file this memorandum together with the second, third and fourth securities issued under the same prospectus. Must be filed at least one month prior to security issuance. The applicable fee is ₹200 as per the applicable MCA notice. If the company receives funds from the applicant before the amendment is issued, the company must notify the applicant. If the applicant wishes to cancel the subscription after being notified of the change, the company has 15 days for him to refund the amount.
Who can issue shelf brochures?
Some points about companies that can issue shelf brochures have already been mentioned above. The types of entities that can be sent are:
Listed company whose shares are traded on the stock exchanges of India
public sector bank
Non-bank financial institution (NBFC)
Public financial institution (51% owned by the government)
How do investors benefit from the prospectus?
The offering prospectus provides investors with assurance that the issued securities are trustworthy as they are subject to protective authorities. H. SEBI, happened. Investors can find the following details about the company in the prospectus: B. its promoters and directors; Such information helps investors assess risks before investing in securities. You can also consider whether investing in securities is consistent with your risk tolerance and investment objectives. As an investor, you should consider gathering and evaluating such details before investing.
What are the criteria for companies to publish shelf brochures?
To be eligible to issue shelf brochures, businesses must meet the following criteria:
The market value of the company must be at least INR 500 crore.
Bonds must have a credit rating of AA- or higher.
The company must provide his SEBI with a contract confirming the electronicization of securities.
The company in question must have a consistent record of debt repayment. Company founders and directors should not take pending regulatory action against them.
Securities and Issuance Prospectus
Generally, companies seeking to raise capital through the sale of bonds or shares must file an offering memorandum. However, its functionality is not limited to this. A company looking to raise capital by issuing more shares can also file an offering memorandum. In addition, an issuance memorandum is required for the issuance of mutual funds. A mutual fund prospectus contains information about the fund’s risks, objectives, investment strategy, fees, and more. Prospective investors should read this prospectus before investing in a mutual fund in order to make an informed decision.
What are the shelf brochure requirements? The details to be included in the prospectus will vary from security to security. Accordingly, the information in the prospectus may vary. However, there are certain pieces of information that a company must provide in its prospectus in order to issue securities.
The company should provide basic details such as its name, financial details and a brief background of the company. In addition, you must specify the type of securities you are offering and whether you intend the offering to be private or public. In addition, the company must provide information regarding the number of securities, the names of the company’s clients, and the lead manager or syndicate of the securities offered.
Advantages of Shelf Outlook
A prospectus will be approved by SEBI only if it is certain that the securities offered by the company are credible and do not create a high risk profile for investors. Approval of the prospectus means investors can consider investing in the security because it means the security is collateralized by an entity in good standing to provide investors with good returns. increase. However, we also recommend carefully analyzing shelf brochures before investing.
A prospectus provides all possible details to an investor wishing to invest in a security. Ensure investors have all the information they need to conduct in-depth fundamental analysis of the company and ensure they are investing in low-risk securities. The prospectus also states why the company is issuing securities, so investors can analyze their funding objectives. For example, it is always better for a company to raise money to fund future operations and expansions than to pay off debt.
The information provided by the company in the prospectus will be verified and verified by SEBI before he approves its issuance. Investors, too, can research and analyze every detail and invest only in fundamentally sound companies that can be profitable and deliver superior long-term returns.
Submitting a prospectus to SEBI provides transparency and security to investors. Help investors make informed decisions. Investors should consider reading the issuing company’s prospectus in order to make an informed decision.