CS Professional Corporate Funding and Listings in Stock Exchanges Question Paper

Question 1(a)
Define and discuss the conditions for Preferentiai Issue. When on issuer becomes ineligible to make a such issue ? (5 Marks)
Answer:
Definition: “Preferential issue” means an issue of specified securities by a listed issuer to any select person or group of persons on a private placement basis in accordance with Chapter V of SEBI (ICDR) Regulations, 2018 and does not include an offer of specified securities made through employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or depository receipts issued in a country outside India or foreign securities.

Conditions: A listed issuer may make a preferential issue of specified securities, if:

  • all equity shares allotted by way of preferential issue shall be made fully paid up at the time of the allotment.
  • a special resolution has been passed by its shareholders.
  • all the equity shares, if any, held by the proposed allottees in the issuer are in dematerialised form.
  • the issuer is in compliance with the conditions for continuous listing of equity shares as specified in the listing agreement with the recognised stock exchange where the equity shares of the issuer are listed, SEBI Listing Regulations, 2015 as amended, and any circular or notifications issued by SEBI thereunder;
  • the issuer has obtained the Permanent Account Number of the proposed allottees.

Issuers Ineligible to make a Preferential Issue [Regulation 159]:

  • An issuer shall not be eligible to make a preferential issue if any of its promoters or directors is a fugitive economic offender.
  • Preferential issue of specified securities shall not be made to any person who has sold or transferred any equity shares of the issuer during the six months preceding the relevant date.
  • Where any person belonging to promoter(s) or the promoter group has previously subscribed to warrants of an issuer but failed to exercise the warrants, the promoter(s) and promoter group shall be ineligible for issue of specified securities of such issuer on preferential basis for a period of one year from:
    • the date of expiry of the tenure of the warrants due to non-ex-ercise of the option to convert; or
    • the date of cancellation of the warrants, as the case may be.

Question 1(b)
State the guidelines issued by RBI (Reserve Bank of India) for large borrowers under the cash credit facility. (5 Marks)
Answer:

  • In respect of borrowers having aggregate fund based working capital limit of ₹ 1500 million and above from the banking system, a minimum level of ‘loan component’ of 40 percent shall be effective from April 1,2019.
  • Accordingly, for such borrowers, the outstanding ‘loan component’ (Working Capital Loan) must be equal to at least 40 per cent of the sanctioned fund based working capital limit, including ad hoc limits and TODs. Hence, for such borrowers, drawings up to 40 percent of the total fund based working capital limits shall only be allowed from the ‘loan component’.
  • Drawings in excess of the minimum ‘loan component’ threshold may be allowed in the form of cash credit facility.
  • The bifurcation of the working capital limit into loan and cash credit components shall be effected after excluding the export credit limits (pre-shipment and post-shipment) and bills limit for inland sales from the working capital limit.
  • Investment by the bank in the commercial papers issued by the borrower shall form part of the loan component provided the investment is sanctioned as part of the working capital limit.

Question 1(c)
Balance Sheet of X company as at 31st March, 2018 and its statement of changes in financial position for the year ending on 31 st March, 2019 are presented below :
CS Professional Corporate Funding and Listings in Stock Exchanges Question Paper 1
Calculate the working capital as on 31st March, 2019. (5 Marks)
Answer:
1(c) Calculation of Working Capital as on 31st March, 2019:
As per Balance Sheet of 31st March, 2018:
Working capital = Current Assets – Current Liabilities
Current Assets = Inventory + Amount Receivable + Cash = INR (2,370 + 1,300 + 530) = INR 4,400
Current Liabilities = Account payable = INR 2,140
Therefore, Working Capital = INR 4,400 – 2,140 = INR 2,260.

Particulars Amount (INR)
Working Capital as on 31st March, 2018 2,260
Add: Increase in Working Capital
(Changes in Financial Position for the year ended 31st March, 2019)
340
Working Capital as on 31st March, 2019 2,600

Attempt all parts of either Q. No. 2 or Q. No. 2A

Question 2(a)
Explain guidelines issued by SEBI on participation by the strategic investors in InvITs and REITs vide its circular dated 18th January, 2018. (5 Marks)
Answer:

  • SEBI vide its circular dated 18th January 2018 issued guidelines on participation by the strategic investors in InvITs and REIT’s.
  • This circular seeks to give clarifications on the participation by the ‘strategic investors’ in the public issue of the REITs and the InVITs.

‘Strategic investor’ means:

  • An infrastructure finance company registered with RBI as a NBFC;
  • A Scheduled Commercial Bank;
  • An international multilateral financial institution;
  • A systemically important NBFC with RBI;
  • A foreign portfolio investors;

who invest either jointly or severally not less than 5% of the total offer size of the InvIT or such amount as may be specified by SEBI with applicable provisions of the FEMA Act, 1999 and the rules or regulations or guidelines made there under.

Question 2(b)
Explain the provisions relating to maintenance of records by an investment manager pertaining to the activity of the InvIT. (5 Marks)
Answer:
The investment manager shall maintain records pertaining to the activity of the InvIT, wherever applicable, including:

  • all investments or divestments of the InvIT and documents supporting the same including rationale for such investments or divestments;
  • agreements entered into by the InvIT or on behalf of the InvIT;
  • documents relating to appointment of persons;
  • insurance policies for infrastructure assets;
  • investment management agreement;
  • documents pertaining to issue and listing of units including placement memorandum, draft and final offer document, in- principle approval by designated stock exchanges, listing agreement with the designated stock exchanges, details of subscriptions, allotment of units, etc.;
  • distributions declared and made to the unit holders;
  • disclosures and periodical reporting made to the trustee, SEBI, unit holders and the designated stock exchanges including annual reports, half yearly reports, etc.;
  • valuation reports including methodology of valuation;
  • books of account and financial statements;
  • audit reports;
  • reports relating to activities of the InvIT placed before the board of directors of the investment manager;
  • unit holders’ grievances and actions taken thereon including copies of correspondences made with the unit holder and SEBI, if any;
  • any other material documents.

Question 2(c)
Define briefly the following in context of Indian equity private funding: (5 Marks)
(1) Alternative Investment Fund
(2) infrastructure Fund
(3) Social Venture Fund
(4) Sponsor
(5) Venture Capital Fund
Answer:
1. “Alternative Investment Fund “means any fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which:

  • is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors; and
  • is not covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the SEBI’to regulate fund management activities.

2. “Infrastructure fund” means an Alternative Investment Fund which invests primarily in unlisted securities or partnership interest or listed debt or securitized debt instruments of investee companies or special purpose vehicles engaged in or formed for the purpose of operating, developing or holding infrastructure projects. “Infrastructure” shall be as defined by the Government of India from time to time.

3. “Social Venture Fund” means an Alternative Investment Fund which invests primarily in securities or units of social ventures and which satisfies social performance norms laid down by the fund and whose investors may agree to receive restricted or muted returns.

4. “Sponsor” means any person or persons who set up the Alternative Investment Fund and includes promoter in case of a company and designated partner in case of a limited liability partnership.

5. “Venture Capital Fund” means an Alternative Investment Fund which invests primarily in unlisted securities of start-ups, emerging or early-stage venture capital undertakings mainly involved in new products, new services, technology or intellectual property right based activities or a new business model and shall include an angel fund as defined under Chapter III-A of the SEBI (AIF) Regulations, 2012.

OR (Alternate question to Q. No. 2)

Question 2A(i)
Explain the conditions to become an Angle investor under SEBI (Venture Capital Fund) Regulations, 1996. (5 Marks)
Answer:
‘Angel Investor’ means any person who proposes to invest in an angel fund and satisfies one of the following conditions namely:

(a) an individual investor who has net tangible assets of at least two crore rupees excluding value of his principal residence, and who:

  • has early stage investment experience, or
  • has experience as a serial entrepreneur, or
  • is a senior management professional with at least ten years of experience.

(b) a body corporate with a net worth of at least ten crore rupees; or
(c) an Alternative Investment Fund registered under SEBI (AIF) Regulations or a Venture Capital Fund registered under the SEBI (Venture Capital Funds) Regulations, 1996.

Note: Early stage investment experience shall mean prior experience in investing in start-up or emerging or early-stage ventures and ‘serial entrepreneur’ shall mean a person who has promoted or co-promoted more than one start-up venture.

Question 2A(ii)
On 30th May, 2017 SEBI came out with a circular stating the disclosure requirements for issuance and listing of Green Debt Securities in India. Explain the Disclosure Document and other requirements in this context. (5 Marks)
Answer:
SEBI on 30th May, 2017 came out with a circular stating the disclosure requirements for issuance and listing of Green Debt Securities in India. The issuer of a Green Debt Securities shall make following disclosures:

(a) A statement on environmental objectives of the issue of Green Debt, Securities;

(b) Brief details of decision-making process issuer have followed/would follow for determining the eligibility of project(s) and/or asset(s) for which the proceeds are been raised through issuance of Green Debt Securities. An indicative guideline of the details to be provided is as under:

  • process followed/to be followed for determining how the project(s) and/or asset(s) fit within the eligible green projects categories;
  • the criteria making the project(s) and/or asset(s) eligible for using the Green Debt Securities proceeds; an
  • environmental sustainability objectives of the proposed green investment.

(c) Issuer shall provide the details of the system/procedures to be employed for tracking the deployment of the proceeds of the issue.

(d) Details of the project(s) and/or asset(s) or areas where the issuer, proposes to utilise the proceeds of the issue of Green Debt Securities, including towards refinancing of existing green project(s) and/or asset(s), if any.

(e) The issuer may appoint an independent third party reviewer/certifier, for reviewing/certifying the processes including project evaluation and selection criteria, project categories eligible for financing by Green Debt Securities, etc. Such appointment is optional and shall be disclosed in the offer document.

Question 2A(iii)
Differentiate between Hire Purchase and Hypothecation. (5 Marks)
Answer:
Difference between Hire-Purchase and Hypothecation

Hypothecation: It was not defined legally in India until it was defined by SARFAESI Act in 2002. It is a charge on any movable asset/property of a borrower for which bank has extended its finance. It is an equitable charge on the assets in favour of the financing bank where the asset is owned by the borrower as well as possession is with him on behalf of the bank. If a borrower fails to repay the finance extended for the movable asset the bank can repossess the asset with the consent of the borrower. If the borrower surrenders the asset to the bank, bank has a legal right to sell the asset without the intervention of the court and adjust the proceeds towards the loan dues. Under SARFAESI Act bank also has got the right to sell the movable asset of a defaulted borrower without the intervention of a court subject to following rules laid down in this regard.

Hire-Purchase: Under Hire Purchase Agreement, as explained above the ownership of the financed assets remains with the lender till it is purchased by the borrower at the end of the hire purchase period as per agreed terms between the financing agency and the borrower. Under Hire Purchase the financing entity may get the benefit of depreciation as well as ownership of the asset financed.

Question 3(a)
State the conditions pertaining to conversion of External Commercial Borrowings (ECBs) into Equity. (5 Marks)
Answer:
Conversion of ECBs including those which are matured but unpaid, into equity is permitted subject to the following conditions:

  • The activity of the borrowing company is covered under the automatic route for FDI or Government approval is received wherever applicable for foreign equity participation as per extant FDI policy.
  • The conversion, which should be with the lender’s consent and without any additional cost should not result in contravention of eligibility and breach of applicable sector cap on the foreign equity holding under FDI policy.
  • Applicable pricing guidelines for shares are complied with.
  • If the borrower concerned has availed of other credit facilities from the Indian banking system, including foreign branches/subsidiaries of Indian banks, the applicable prudential guidelines issued by the Department of Banking Regulation of Reserve Bank, including guidelines on restructuring are complied with.
  • Consent of other lenders, if any, to the same borrower is available or atleast information regarding conversions is exchanged with other lenders of the borrower.
  • For conversion of ECB dues into equity, the exchange rate prevailing on the date of the agreement between the parties concerned for such conversion or any lesser rate can be applied with a mutual agreement with the ECB lender. It may be noted that the fair value of the equity shares to be issued shall be worked out with reference to the date of conversion only.
  • In case of partial or full conversion of ECB into equity, the reporting to the Reserve Bank will be as under:
    • For partial conversion, the converted portion is to be reported in Form FC-GPR prescribed for reporting of FDI flows, while monthly reporting to RBI in Form ECB 2 Return will be with suitable remarks, viz, “ECB partially converted to equity”.
    • For full conversion, the entire portion is to be reported in Form FC-GPR, while reporting to RBI in Form ECB 2 Return should be done with remarks “ECB fully converted to equity”. Subsequent filing of Form ECB 2 Return is not required.
    • For conversion of ECB into equity in phases, reporting through Form FC-GPR and Form ECB 2 Return will also be in phases.

Question 3(b)
From the following particulars, calculate the effective interest cost per annum to ABC Ltd., which is planning a CP (Commercial Paper) issue:

Issue price of a CP ₹ 97,350
Face Value ₹ 1,00,000
Maturity period 3 Months

Answer:
Effective Interest Cost Per Annum to ABC Ltd:
Given: Face Value = INR 1,00,000.
Issue Price of CP = INR 97,350.
Maturity Period = 3 months.
Yield = \(=\frac{\text { Face Value }-\text { Issue price of } \mathrm{CP}}{\text { Issue Price of CP }}^{*} \frac{12 \text { Months }}{3 \mathrm{Months}}\)

= INR (1,00,000 – 97350)/INR 97350 * 4 Months = 0.1089 = 10.8996

Question 3(c)
Advantages and disadvantages of taking loans against shares by promoters in a listed company. (5 Marks)
Answer:
Specified securities held by the promoters and locked in may be pledged as collateral security for a loan granted by a scheduled commercial bank or a public financial institution or a systemically important non-banking finance company or a housing finance company, subject to the following:

(a) if the specified securities.are locked-in in terms of clause (a) of Lock-in of specified securities held by the promoters, the loan has been granted to the issuer company or its subsidiary/subsidiaries for the purpose of financing one or more of the objects of the issue and pledge of specified securities is one of the terms of sanction of the loan.

(b) if the specified securities are locked-in in terms of clause (b) of Lock-in of specified securities held by the promoters and the pledge of specified securities is one of the terms of sanction of the loan.

However, in case of an IPO the provision as mentioned in point (b) regarding lock-in such lock-in shall continue pursuant to the invocation of the pledge and such transferee shall not be eligible to transfer, the specified securities till the lock-in period stipulated in these regulations has expired.

Question 4(a)
What do you mean by Foreign Currency Exchangeable Bonds (FCEB) ? Explain the pricing norms for issuing of FCEB under the Foreign Currency Exchangeable Bonds Scheme, 2008. (3 Marks)
Answer:
FCEB:
According to the “Issue of Foreign Currency Exchangeable Bonds (FCEBs) Scheme, 2018, FCEB means:

  • a bond expressed in foreign currency.
  • the principal and the interest in respect of which is payable in foreign currency.
  • issued by an issuing company, being an Indian company.
  • subscribed to by a person resident outside India.
  • exchangeable into equity shares of another company, being Offered company in any manner.
  • either wholly or partly or on the basis of any equity related warrants attached to debt instruments.
  • may be denominated.

Pricing of FCEB:
At the time of issuance of FCEB the exchange price of the offered listed equity shares shall not be less than the higher of the following two:

  • The average of the weekly high and low of the closing prices of the shares of the offered company quoted on the stock exchange during the six months preceding the relevant date; and
  • The average of the weekly high and low of the closing prices of the shares of the offered company quoted on a stock exchange during the two week preceding the relevant date.

Question 4(b)
Explain Continuous Listing in context of corporate debts. (3 Marks)
Answer:

  • All the issuer shall comply with the conditions of listing specified in the respective listing agreement for debt securities while making public issues of debt securities or seeking listing of debt securities issued on private placement basis.
  • Each rating obtained by the issuer shall be periodically reviewed by the registered credit rating agency and any revision in the rating shall be promptly disclosed by the issuer to the stock exchange(s) where the debt securities are listed.
  • Any change in rating shall be promptly disseminated to investors and prospective investors in such manner as the stock exchange may determine from time to time.
  • Debenture trustee must disclose the information to the investors and the general public by issuing a press release in any of the following events:
    (a) default by the issuer to pay interest on debt securities or redemption amount;
    (b) failure to create a charge on the assets;
    (c) revision of rating assigned to the debt securities.

Question 4(c)
Explain briefly the documents handled under Letter of Credit. (3 Marks)
Answer:
Documents handled under LCs are classified as:
Bill of Exchange: Bill of exchange is drawn by the beneficiary (exporter) on the LC issuing bank. When the bill of exchange is not drawn under a LC, the drawer of the bill of exchange (exporter), draws the bill of exchange on the drawee (importer).

Commercial Invoice: Commercial invoice is prepared by the benefi-ciary, which contains relevant details about goods in terms of value, quantity, weights (gross/net), importer’s name and address, LC number. Commercial invoice should exactly reflect the description of the goods as mentioned in LC. Other required details like shipping marks, and any specific detail as per the LC terms should also be covered.

Transport Documents: (Documents of title to the goods): When goods are shipped from one port to another port the transport document issued is called the bill of lading. Goods can be transported by means of airways, waterways, roadways and railways depending upon the situations.

Bill of Lading (B/L): B/L are the shipment document evidencing the movement of goods from the port of acceptance (in exporter’s country) to the port of destination (in importer’s country). It is a receipt signed and issued by the shipping company or authorized agent. It should be issued in sets (as per the terms of credit).

Question 4(d)
Write a note on Rupee Deemed Export Credit. (3 Marks)
Answer:

  • A deemed export transaction is one in which goods are supplied to a project in India itself which are funded by International/Multilateral agencies or where goods are supplied to units in SEZs or foreign shipping companies calling on Indian ports, supply of goods to foreign tourists etc. such that the proceeds of such goods supplied will be paid in foreign currencies.
  • Such transactions are treated as prima facie export transactions and enjoy incentives and other concessions given to normal export transactions
  • Pre-shipment and Post-shipment credit facilities granted to Rupee Deemed Export Credit transactions are similar to finance/credit extended under Rupee Export credit – Pre-shipment as well as Post-shipment as described herein.

Question 4(e)
“In a growing company, ESOPs are being used to retain talent.” Discuss. (3 Marks)
Answer:

  • Listed Companies can offer attractive Employee Stock Option (ESOP) or Employee Share Purchase Schemes (ESPS) to attract required talent pool and also to retain them. Being listed, the ESOP/ESPS may command good price gain and attraction to the employees.
  • ESOP & ESPS are used to attract talent as well as to retain the key employees and managerial personnel which is an important human capital for business.
  • In many Companies employee reservation in the IPO is considered as one of the incentive where employees will be able to acquire shares at a discount to the IPO price.
  • SEBI Regulation allows keeping specific reservation for employees. These initiatives encourage commitment and long-term motivation amongst the talent pool.

Part B

Question 5(a)
Explain the grievance redressal mechanism under Regulation 13 of SEBI (LODR) Regulations, 2015 for listed entities. (5 Marks)
Answer:
Regulation 13: Grievance Redressal Mechanism:

  • Adequate steps are taken for expeditious redressal of investors complaints.
  • Ensure that it is registered with SCORES platform or any other platform of SEBI for handing investors complaints electronically as specified by SEBI.
  • Statement on Investor complaints.
  • Submit statement to stock Exchange within 21 days from the end of quarter.
  • Statement should contain:
  • number of complaints pending at the beginning of the quarter;
  • received during the quarter;
  • resolved/disposed of during the quarter;
  • remaining unsolved at the end of the quarter;
  • to be placed before the Board of Directors on quarterly basis.

Question 5(b)
Explain ‘Designated Securities’ as per the SEBI Listing Regulations 2015. (5 Marks)
Answer:
These regulations shall apply to the listed entity who has listed any of the following designated securities on recognised stock exchange(s):

  • Securitised debt instruments.
  • Security receipts.
  • Units issued by mutual funds.
  • Indian depository receipts.
  • NCDs, NCRPs, Perpetual Debt, Perpetual NCRPs.
  • Specified securities listed on main board or SME Exchange or institutional trading platform.
  • Any other securities as may be specified by SEBI.

Question 5(c)
Discuss the role of US Securities and Exchange Commission in regulating Securities Market. (5 Marks)
Answer:

  • The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
  • The laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it.
  • The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors and mutual funds.
  • SEC is concerned primarily with promoting the disclosure of important market-related information, maintaining fair dealing, and protecting against fraud.

Question 5(d)
ABC Ltd. is considering a right issue by issuing one share against two shares to raise funds to finance a new project requiring ₹ 4.5 Crore. The Floatation cost will be 10% of funds raised. The Company currently has 18 Lakh shares outstanding and the current price of its share is ₹ 100. The subscription price has been fixed at ₹ 50 per share. Calculated the value of a right. (5 Marks)
Answer:
Value of Right:

Value of Right = Number of New Shares/Total Number of all shares (Market Price – Issue Price of new share)
= INR 9,00,000/27,00,000 (110 – 50)
= INR 20.

Working:
Number of New Shares: 1 share for every two shares = INR 18,00,000/2 = 9,00,000.
Total Number of All Shares = 18,00,000 (existing shares) + 9,00,000 = 27,00,000 shares
Market price= Current Price (1 + floating cost) = INR 110
Subscription Price (Issue Price) = INR 50.

Attempt all parts of either Q. No. 6 or Q. No. 6A

Question 6(a)
State the principles governing Corporate Governance in protecting the interest of Minority Shareholders. (5 Marks)
Answer:
Principles Governing Corporate Governance and Protection of Minority Shareholders [Regulation 4(2) of SEBI (LISTING OBLIGATIONS AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2015]:

Rights of shareholders: The listed entity shall seek to protect and facilitate the exercise of the following rights of shareholders:

  • right to participate in and to be sufficiently informed of, decisions concerning fundamental corporate changes.
  • opportunity to participate effectively and vote in general shareholder meetings.
  • opportunity to ask questions to the board of directors, to place items on the agenda of general meetings, and to propose resolutions, subject to reasonable limitations.
  • effective shareholder participation in key corporate governance decisions such as the nomination and election of members of board of directors.
  • exercise of ownership rights by all shareholders, including institutional investors.
  • adequate mechanism to address the grievances of the shareholders.

Timely information: The listed entity shall provide adequate and timely information to shareholders including but not limited to the following:

  • sufficient and timely information concerning the date, location and agenda of general meetings as well as full and timely information regarding the issues to be discussed at the meeting.
  • capital structures and arrangements that enable certain shareholders to obtain a degree of control disproportionate to their equity ownership.

Equitable treatment: The listed entity shall ensure equitable treatment of all shareholders including minority and foreign shareholders, in the following manner:

  • All shareholders of the same series of a class shall be treated equally.
  • Effective shareholder participation in key corporate governance decisions, such as the nomination and election of members of board of directors, shall be facilitated.
  • The listed entity shall devise a framework to avoid insider trading and abusive self-dealing.
  • Processes and procedures for general shareholder meetings shall allow for equitable treatment of all shareholders.

Disclosure and transparency1 The listed entity shall ensure timely and accurate disclosure on all material matters including the financial situation, performance ownership, and governance of the listed entity, in the following manner:

  • Information shall be prepared and disclosed in accordance with the prescribed standards of accounting, financial and non-financial disclosure.
  • Channels for disseminating information shall provide for equal, timely and cost efficient access to relevant information by users.

Role of stakeholders in corporate governance: The listed entity shall recognise the rights of its stakeholders and encourage co-operation between listed entity and the stakeholders, in the following manner:

  • Stakeholders shall have the opportunity to obtain effective redress for violation of their rights.
  • Stakeholders shall have access to relevant, sufficient and reliable information on a timely and regular basis to enable them to participate in corporate governance process.
  • The listed entity shall devise an effective whistle blower mechanism enabling stakeholders including individual employees and their representative bodies to freely communicate their concerns about illegal or unethical practices.

Question 6(b)
Discuss the benefits of listing on international Stock Exchange. (5 Marks)
Answer:
Benefits of Listing on International Stock Exchange:
1. Increased Market Liquidity: International listing enables companies to trade its shares in numerous time zones and multiple currencies. This increases the issuing company’s liquidity and gives it more ability to raise capital.

2. Market Segmentation: Market segmentation is the practice of dividing a large market into clear segments with similar needs. International listing enables firms to divide foreign investor markets into segments which are easy to access. Companies seek to list internationally because they anticipate gaining from a lesser cost of capital. This arises because their stocks become more available to foreign investors. Their access to these stocks may otherwise be restricted due to international investment barrier.

3. Capital needs and growth opportunities: Companies in emerging markets need to use international listing to raise capital to continue to grow beyond their home market.

4. Wider shareholder base: International listing provides access to a larger pool of potential investors (both retail and institutional). Wider shareholder base are less risky.

5. Better Investor Protection: Companies need to comply with the provisions of all the regulatory aspects of the listing of those^countries where sought to be listed. Investors will therefore find themselves more protected and comfortable to invest in these companies.

6. Secure Clearing: A stock exchange provides a reliable and secure clearing mechanism. Listing on a foreign stock exchange is possible only after creating robust and advance clearing system.

7. Other benefits: Higher visibility/brand awareness, increased opportunities for mergers and acquisitions, entering markets with better investment protection reduces costs and creates bonding (a signal of corporate governance).

Question 6(c)
List out the event based compliance calendar under Regulation 29 as per SEBI Listing Regulations, 2015. (5 Marks)
Answer:
Event based compliance calendar under Regulation 29 of SEBI Listing Regulations, 2015:

  • Regulation 28( 1): In-principle approval of recognized stock exchange(s) before issuing securities.
  • Regulation 29(2)(b) to (f): Prior intimation of Board meeting for Buy-back, Dividend, Raising of Funds, Voluntary Delisting etc. at least two working days in advance, excluding the date of the intimation and date of the meeting.
  • Regulation 29(2)(a): Prior intimation of Board meeting for Financial Results at least five days in advance (excluding the date of the intimation and date of the meeting).
  • Regulation 29(3): Prior intimation of Board Meeting for alteration in nature of securities etc. at least eleven working days in advance.

Question 6(d)
State the principles Governing disclosures under the Listing Obligations and Disclosure Requirements, 2015.
Answer:
Principles Governing Disclosures [Regulation 4(1) of SEBI \(LODR) Regulations, 2015]: The listed entity shall abide by the following principles, while making disclosures to the stock exchanges or its website or through any other medium:

  • Information shall be prepared and disclosed in accordance with applicable standards of accounting and financial disclosure.
  • The listed entity shall implement the prescribed accounting standards in letter and spirit in the preparation of financial statements taking into consideration the interest of all stakeholders and shall also ensure that the annual audit is conducted by an independent, competent and qualified auditor.
  • The listed entity shall refrain from misrepresentation and ensure that the information provided to recognised stock exchange(s) and investors is not misleading.
  • The listed entity shall provide adequate and timely information to recognised stock exchange(s) and investors.
  • The listed entity shall ensure that disseminations made under provisions of these regulations and circulars made thereunder are adequate, accurate, explicit, timely and presented in a simple language.
  • The listed entity shall abide by all the provisions of the applicable laws including the securities laws and also such other guidelines as may be issued from time to time by the Board and the recognised stock exchange(s) in this regard and as may be applicable.
  • The listed entity shall make the specified disclosures and follow its obligations in letter and spirit taking into consideration the interest of all stakeholders.
  • Channels for disseminating information shall provide for equal, timely and cost efficient access to relevant information by investors.
  • Filings, reports, statements, documents and information which are event based or are filed periodically shall contain relevant information.

OR (.Alternate question to Q. No. 6)

Question 6A.
Explain the following :
(i) Advertisement in Newspapers by a listed company in terms of Regu-lation 47 under SEBI (LODR) Regulations, 2015. (5 Marks)
Answer:
Regulation 47: Advertisements in Newspapers:

→ To publish the following information in the newspaper:
(a) notice of meeting of the board of directors where financial results shall be discussed;

(b) financial results, along-with the modified opinion(s) or reservation(s), if any, expressed by the auditor;

(c) if the listed entity has submitted both standalone and consolidated financial results, publish consolidated financial results along-with

  • Turnover,
  • Profit before tax and
  • Profit after tax, on a stand-alone basis, as a foot note and a reference to the places, such as the website of listed entity and stock exchange(s), where the standalone results are available;

(d) statements of deviation(s) or variation(s) on quarterly basis, after review by audit committee and its explanation in directors report in annual report;

(e) notices given to shareholders by advertisement.

  • Reference to be given in the newspaper publication, to link of the website of listed entity and stock exchange(s), where further details are available.
  • Publish the information in the newspaper simultaneously with the submission of the same to the stock exchange(s).
  • Financial results shall be published within 48 hours of conclusion of the meeting of board of directors at which the financial results were approved.
  • The information shall be published in at least one English language national daily newspaper circulating in the whole or substantially the whole of India and in one daily newspaper published in the language of the region, where the registered office of the listed entity is situated.

Question 6A(ii)
Continual disclosures under Regulation 7(2) of (Prohibition of Insider Trading) Regulations, 2015. (5 Marks)
Answer:
Continual Disclosures under Regulation 7(2) of SEBI (Prohibition of Insider Trading) Regulations, 2015:

  • Every promoter, employee and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the
    securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value as may be specified.
  • Every company shall notify the particulars of such trading to the stock exchange on which the securities are listed within two trading days of receipt of the disclosure or from becoming aware of such information. (Transaction type include buy/sales/pledge/revoke/Invoke).
    Timeline: Within 2 trading days of such transaction.

Question 6A(iii)
Statutory disclosures on a company website in terms of Listing Regulations. (5 Marks)
Answer:
Every website of a listed Company must contain statutory disclosures in terms of listing regulations which are enumerated as follows:

Financial Information: Each Company shall upload unaudited financial results for each quarter of the financial year and also the audited financial results for the financial year for past 3 years. Annual accounts of the subsidiary companies are also required to be uploaded. Annual reports of the Company for past 3 financial years also are required to be uploaded.

Policies: Listed Companies shall disclose certain management policies on the website of the Company such as:

  • Code of conduct for Board of Directors & Senior Management.
  • Code of conduct in terms of Insider Trading Regulations.
  • Code of practices & procedures for fair disclosures of unpublished price sensitive information.
  • Appointment letters to Independent Directors.
  • Familiarization programme for Independent Directors.
  • Whistle Blower Policy.
  • Policy related to disclosure of material events to the stock exchanges. (Materiality Policy).
  • Policy of Related Party Transaction.
  • Material subsidiary policy.
  • Risk Management Policy.
  • Archival Policy.
  • Policy for disclosure of material information.
  • Internal Financial Control.
  • Dividend Policy (Top 500 Companies with reference to Market Capitalisation).
  • Policy against sexual harassment.

Other disclosure requirements: Details of unclaimed dividend Scrutinizers Report for the latest financial year Details of compulsory transfer of shares to IEPF Suspense Account Board Committees Board Meeting Notice.

Question 6A(iv)
Regulation 43A regarding Dividend Distribution Policy. (5 Marks)
Answer:
Regulation 4 3A: Dividend Distribution Policy:
→ Top 500 Listed entities based on market capitalization shall formulate a dividend distribution policy.

→ Dividend Distribution Policy shall be disclosed in their annual reports and on their websites.

→ The dividend distribution policy shall include the following parameters:
(a) the circumstances under which the shareholders of the listed entities may or may not expect dividend;
(b) the financial parameters that shall be considered while declaring dividend;
(c) internal and external factors that shall be considered for declaration of dividend;
(d) policy as to how the retained earnings shall be utilized;
(e) parameters that shall be adopted with regard to various classes of shares.

→ If the listed entity proposes to declare dividend on the basis of parameters in addition to clauses (a) to (e) or proposes to change such additional parameters or the dividend distribution policy contained in any of the parameters, it shall disclose such changes along with the rationale for the same in its annual report and on its website.

→ Listed entities other than top 500 may disclose their dividend distribution policies on a voluntary basis in their annual reports and on their websites.

Corporate Funding and Listings in Stock Exchanges Notes