A shelf prospectus refers to a type of prospectus released by the company making various bond issues for raising funds. It primarily serves as an advertisement, notice, or any other document inviting the masses to subscribe for securities.
Significance of Shelf Prospectus for Public Ltd Company
- It is mandatory for public limited companies to release a prospectus prior to issuing securities. Such document can be released by any public ltd company raising funds via multiple issues of bonds. Entities that issue such a document must file an Information Memorandum via form PAS-2. Shelf prospectus prevents companies from issuing new prospectus every time they issue securities.
- A max of four issues of securities can be made by a public ltd company using a shelf prospectus.
- A shelf prospectus should be used by the company within a maximum of one year.
- A shelf prospectus can be fled only by entities issuing non-convertible debt bonds. As the name suggests, these bonds are non-convertible in nature and hence cannot be later converted into share capital.
- The process of procuring funds via a shelf prospectus is the same as procuring debt funds. The only additional requirement is to file an Information Memorandum.
- A considerable amount of public funds is involved when an entity goes for a public issue of binds. Thus, any public issue is regulated by the rules drafted by the Securities and Exchange Board of India (SEBI)
Entities mandated to issue shelf prospectus
The following kinds of entities have the authority to issue a shelf prospectus:
- Public Financial Institutions (PFIs): Public Financial Institutions are entities whose paid-up share is acquired by the Central Gov. to the extent of more than 51%. Life Insurance Corporation of India, Industrial Finance Corporation of India, and Industrial Finance Corporation of India are some examples of Public Financial Institutions
- Public Sector Banks: Public sector banks those banks where the direct holding of State/Central Gov. or other Public sector banks is 51 per cent or more.
- Non-banking Finance Companies: NBFCs are referred to a financial avenues that facilitate array of banking services but do not possess a banking license.
- Listed companies: A listed company is a type of company whose securities are listed with the National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and Calcutta Stock Exchange (CSE).
Conditions for issuing a shelf prospectus
Following are the conditions that the company must adhere to for issuing a shelf prospectus:
- The net worth of the entity must be over Rs.500 crores.
- The entity should have had generated profit during the last three years.
- The entity should have an arrangement for the dematerialization of securities with a SEBI-registered depository.
- The entity must have a SEBI-registered merchant banker in place for the subscription of securities.
- The entity should have appointed a debenture trustee in case debentures are issued.
- An entity should have secured a credit rating of AA or more from SEBI registered agencies for securities.
- The company’s promoters or directors should have a clean track record when it comes to complying with regulatory compliances.
- The company should not commit any error on account of the repayment of deposits during the preceding three years.
- The company should have maintained the integrity of its listing agreement in the past three years.
What is the role of the Information Memorandum?
Changes may occur in the company’s financial position post-filing of the shelf prospectus. These changes ought to be disclosed before the Registrar of Companies (ROC) through the filing of the Information Memorandum in form PAS-2.
Applicability of Information Memorandum
The company should file an information Memorandum on the 2nd, 3rd, and 4th of securities made under the shelf prospectus.
1 month prior to the issue.
The fee payable is INR 200 as per the relevant MCA notification
Option for Withdrawal
If the company had procured the money from the general public before changes were incorporated into its financial structure, the applicants ought to be informed of such changes.
Upon receiving this information, the applicants may wish their funds to be refunded. In those scenarios, the company should complete the refunding process in fifteen days.
Shelf prospectus definition and applicability as per Companies Act, 2013
(1) Any class or classes of companies, as per Securities and Exchange Board regulations, may file a shelf prospectus with the Registrar at the instance of the first offer of securities enclosed therein, which shall imply a timeline not surpassing one year as the duration of validity of such prospectus which shall state from the opening date of the initial offer of securities listed in that prospectus, & w.r.t second or subsequent offer of such securities issued at the stage of the validity period of that prospectus, no further prospectus is required.
(2) A company filing such a prospectus will be mandated to file an information memorandum enclosing all practical facts w.r.t new changes created, changes in the company’s financial position as have occurred between the initial offer of securities or the erstwhile offer of securities and the succeeding offer of same and such other changes as prescribed, with the Registrar within the given duration, before to the issuance of a second or subsequent offer of securities listed in the shelf prospectus:
Provided that where a company has received an application of securities’ allotment along with the advance payments of subscription prior to the making of any said change, the company shall prompt the changes to such applicants & if they intend to withdraw their application, the company shall refund all the received funds as a subscription within fifteen days thereof.
(3) Where the filing of information memorandum is done, every time an offer of securities is made as per subsection (2), such memorandum in addition to the shelf prospectus shall be considered to be a prospectus
Given the purposes of Section 31, the term “shelf prospectus” refers to a prospectus in respect of which securities are issued for subscription in one or more issues over a certain timeline without the issuance of a further prospectus.