Eligibility norms for making an IPO

SEBI has stipulated the eligibility norms for companies planning an IPO which are as follows:
 

a)	Net tangible assets of at least Rs 3 crore for three full years
b)	Distributable profits in at least three years
c)	Net worth of at least Rs. 1 crore in three years
d)	The issue size should not exceed 5 times the pre-issue net worth
e)	If there has been a change in the company’s name, at least 50% of the revenue for preceding one year should be from the new activity denoted by the new name

Alternative routes
Recognizing that many good companies, for one reason or the other, may not be able to comply with all the eligibility norms, two other alternative routes are available to such companies:

Alternative I:

(a)	Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers (QIBs). (b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years

OR
Alternative II:

(a)	The “project” is appraised and participated to the extent of 15% by FIs/Scheduled Commercial Banks of which at least 10% comes from the appraiser(s).
(b)	The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years. In addition to satisfying the aforesaid eligibility norms, the company shall also satisfy the criteria of having at least 1000 prospective allottees in its issue.

Exemptions to certain category of entities from the eligibility norms
The following categories of entities are eligible for exemption from entry norms.

	A banking company including a local area bank set up under the Banking Regulation Act, 1949
	A corresponding new bank set up under the Banking Companies Act, 1970
	An infrastructure company     Whose project has been appraised by a Public Financial Institution (PFI)     Not less than 5% of the project cost is financed by any of the PFI
	Rights Issue by a listed company

Minimum Public Shareholding Requirements
Clause 40A of the BSE Listing Agreement requires at least 25% of the post issue paid up capital to be with the ‘public’ (i.e. other than promoter and promoter group).

As per rule 19(2) (b) of the Securities Contract (Regulation) Rules, a minimum of 25% of each class of security must be offered to the public for subscription. However, at least 10% can be offered if the following 3 conditions are fulfilled:

	Minimum 2 MM securities (excluding reservations, firm allotment & promoter contribution) to be offered to the public
	Minimum offer size – Rs. 100 crores
	Issuance through book building with 60% QIB allocation

Continuous public shareholding since listing also needs to be maintained as per Clause 40A of the listing agreement.

The aforesaid requirement of maintaining minimum level of public shareholding on a continuous basis will not be applicable to government companies (as defined under Section 617 of the Companies Act, 1956), infrastructure companies (as defined under Chapter II Clause 14(4) of the SEBI ICDR Regulations 2009) and companies referred to the Board for Industrial and Financial Reconstruction.

Note: Section 617 of the Companies Act, 1956 defines Government company as follows - Government Company means any company in which not less than 51% of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary of a Government company as thus defined.