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CMA Final · Strategic Performance Management and Business Valuation · Laws and Compliance in Business Valuation

Under SEBI's regulations on preferential issue of shares to a promoter by a listed company, which valuation requirement applies where the shares are frequently traded?

The issue price must not be lower than the floor price derived from the trading-price formula prescribed in SEBI's ICDR regulations for frequently traded shares. The board cannot set it freely, and neither book value nor face value is the benchmark, which protects existing shareholders from underpriced allotments.

  1. AThe issue price must not be lower than the floor price computed from the trading history prescribed in the regulationsCorrect
  2. BThe price is freely decided by the board without reference to market prices
  3. CThe issue price is always the book value per share
  4. DThe issue price must equal the face value

Explanation

For frequently traded shares, SEBI's ICDR rules set a minimum (floor) price based on the higher of averages of prices over specified periods before the relevant date. The board cannot fix it freely, and book or face value is not the benchmark.

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