IPO Investing

Eligibility norms for making an IPO


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

Entry Norm I (Profitability Route)

a) Net tangible assets of at least Rs. 3 crore in each of the preceding three full years of which not more than 50% are held in monetary assets. However, the limit of 50% on monetary assets shall not be applicable in case the public offer is made entirely through offer for sale.

b) Minimum of Rs. 15 crore as average pre-tax operating profit in at least three years of the immediately preceding five years.

c) Net worth of at least Rs. 1 crore in each of the preceding three full years.

d) 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

e) The issue size should not exceed 5 times the pre-issue net worth


Alternative routes

To provide sufficient flexibility and also to ensure that genuine companies are not limited from fund raising on account of strict parameters, SEBI has provided the alternative route to the companies not satisfying any of the above conditions, for accessing the primary market, as under:


Entry Norm II (QIB Route)

Issue shall be through book building route, with at least 75% of net offer to the public to be mandatory allotted to the Qualified Institutional Buyers (QIBs). The company shall refund the subscription money if the minimum subscription of QIBs is not attained.


For FPO’s

A listed issuer making a public issue (Further Public Offer i.e. FPO) is required to satisfy the following requirements:

(a) If the company has changed its name within the last one year, at least 50% revenue for the preceding 1 year should be from the activity suggested by the new name.


(b) The aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed five times its pre-issue net worth as per the audited balance sheet of the preceding financial year.

Any listed company not fulfilling these conditions shall be eligible to make a public issue (i.e. FPO) by complying with QIB Route as specified for IPOs i.e. issue shall be through book building route, with at least 75% to be mandatory allotted to the Qualified Institutional Buyers (QIBs).


There is no entry norm for a listed company making a rights issue.

 

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Information provided herein is purely for dissemination of information and creating awareness among the investors about various aspects of investing. Although due care and diligence has been taken, the Institute of Company Secretaries of India (ICSI) shall not be responsible for any loss or damage resulting from any action taken by a person on the basis of the contents hosted on the website. It may also be noted that laws/regulations governing the markets are continuously evolving, hence an investor should familiarize himself with the latest laws/ regulations by visiting the relevant websites or contacting the relevant regulatory body.