Rationalization Of Placement Document For Qualified Institutions Placement: Proposed Amendments

On May 2, 2025, SEBI released a Consultation Paper on Rationalization of Placement Document for Qualified Institutions Placement.[1] This consultation paper introduces significant proposals aimed at streamlining and refining the disclosures required in the Placement Document for Qualified Institutions Placement (QIP). The primary objective is to rationalize the information presented to qualified institutional buyers, ensuring it is comprehensive yet efficient. These proposed changes reflect a careful consideration of existing requirements versus what is truly essential for informed investment decisions, leading to revisions in various disclosure categories, all as detailed in Schedule VII of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

Key Disclosure Amendments

1. A crucial aspect of the Placement Document is the Capital Structure disclosure. Currently, it mandates a detailed breakdown of authorized, issued, and subscribed capital, including any outstanding convertible securities, alongside the paid-up capital before, after the issue, and following any conversions. The revised disclosure maintains these comprehensive details, ensuring the same level of granularity. Specifically, the Capitalisation Statement must clearly present total borrowings, total equity, and the borrowing/equity ratios both before and after the issue. This statement should be prepared based on the Consolidated Financial Statements (CFS) for the latest financial year or, if applicable, at the end of the stub period. Any changes in the share capital since the date of the financial information disclosure must be clearly explained. The rationale behind this consistency is to offer a precise explanation of any alterations in the company’s capital structure since the last public disclosure, thereby maintaining transparency for investors.
2. When it comes to Dividends, the existing requirement for disclosing dividends paid in the three years preceding the placement document’s date remains unchanged in the revised proposals. This continuity ensures that investors continue to have access to a consistent historical record of the company’s dividend distribution, which is a crucial factor in their assessment.
3. One of the more substantial amendments pertains to the presentation of Selected Financial and Other Information. Currently, issuers are required to provide a detailed extract of audited consolidated or unconsolidated financial statements for the last three financial years, encompassing auditor reports, balance sheets, income statements, schedules, equity changes, cash flows, accounting policies, notes, and subsidiary statements. The revised approach proposes including an extract of audited consolidated financial statements for the last financial year, along with a comparative prior full-year period, and the latest limited review financial statements, which should not be older than six months prior to the issue’s opening. Additionally, the latest quarterly results disclosed to the public can be incorporated. Specific financial metrics such as Total income from operations, Net profit/loss before and after tax and extraordinary items, Equity share capital, Reserves and surplus, Net worth, Basic and Diluted Earnings per share, Return on net worth, and Net Asset Value per Share are to be included. This rationalization aims to prevent the duplication of information already filed with stock exchanges, allowing for a summary in the placement document while referencing the comprehensive audited reports. This also provides flexibility for including additional financial details for foreign investors, without making it a mandatory part of Schedule VII.
4. One of the more prominent proposed alterations is for Management’s Discussion and Analysis of financial condition and results of operations. Under the proposed amendments, this section can be eliminated from the placement document. The rationale for eliminating this section is that, being such a thorough discussion, a Management’s Discussion and Analysis section is not usually relevant for rights and preferential issues, and therefore, can make the QIP document shorter.
5. In relation to an Industry and Business Description, the existing requirement for more comprehensive discussions of the issuer’s industry and its main business are yet again simplified. The revised disclosure requirements would only require a summary of the issuer’s main business and the industry it operates in. This revision is based on the principle that qualified institutional investors have typically a good understanding of such basic information concerning the companies they may be interested in investing. The organizational structure of the issuer is also the same in both the proposed amendments and existing requirements so that investors will still obtain a good understanding of the hierarchy in the company and the company’s reporting structure.
6. The existing disclosures for the Board of Directors and Senior Management cover personal particulars, including name and surname, date of birth, age, Director Identification Number, addresses, occupation, and expiry of their term of office. The revised disclosure regime indicates that particulars should be provided in Schedule VII, particularly in an effort to align better with Schedule VI in relation to IPOs and Rights Issues. This will help to remove any uncertainty and achieve consistency in disclosures across different forms of capital-raising activity. The references to the Latest Shareholding Pattern as provided to the Stock exchange(s) shall also be unchanged, to ensure that whenever an Investor accesses information about the Shareholding structure of the company, it is as recent as possible. The Taxation Aspects in relation to the Eligible Securities will also continue to be disclosed on a consistent basis, the same as any other Eligible securities, meaning there is no recommended change here either.
7. The Legal Proceedings disclosure is subject to significant rationalization. Currently, legal proceedings must be disclosed in accordance with the materiality policy framed under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The revised disclosure proposes a summary of outstanding litigations and legal proceedings in a tabular format, including quantifiable amounts where applicable, focusing on pending matters that could materially and adversely affect the issuer’s operations or financial position. This includes specific matters related to criminal liability, material violations of statutory regulations, and economic offenses where proceedings have been initiated against the issuer. A clear materiality threshold is defined as the lower of the issuer’s board-defined policy or litigation value exceeding 2% of turnover, 2% of net worth, or 5% of the average absolute profit/loss after tax over three years. This aims to rationalize the placement document by prescribing specific details and incorporating materiality thresholds from Schedule VI, thereby ensuring consistency and clarity.
8. Regarding Auditors, while the existing disclosure broadly requires information, the revised proposal specifies that the name, address, telephone number, and e-mail address of the Statutory Auditor(s) of the issuer must be provided. This adds a layer of specific contact information, ensuring that relevant parties can easily reach out to the auditors if needed. General information about the issuer also remains consistent, with no proposed changes, ensuring fundamental administrative and background details continue to be available. Furthermore, the provision for disclosing Other Material Information deemed appropriate for enabling investors to make an informed investment decision also remains unchanged, ensuring issuers retain the flexibility to provide any additional crucial details not explicitly covered by other categories.
9. Finally, the detailed disclosures required if the issuer, any promoter, or director has been declared a Wilful Defaulter or a Fraudulent Borrower will continue as per the existing framework. This includes information such as their name, the name of the bank making the declaration, the year of declaration, the outstanding amount at that time, and any steps taken for removal from the list. This critical disclosure ensures that investors are fully aware of any such adverse classifications.

Conclusion

The proposed changes to the qualified institutional placement document are an important step towards improving efficiency and clarity in capital-raising practices in the Indian securities market. By critically evaluating and streamlining the disclosure requirements extended to qualified institutional buyers, SEBI has taken the right approach by eliminating redundancy while ensuring that institutional buyers have all the necessary and material information to make informed investment decisions. These rationalizations are aimed at creating an enhanced regulatory environment that allows for more efficiency and transparency, which will ultimately help issuers and investors have greater confidence and ease of operation in the market.

[1] https://www.sebi.gov.in/reports-and-statistics/reports/may-2025/consultation-paper-on-rationalization-of-placement-document-for-qualified-institutions-placement_93777.html.

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