6896einitial public offer (ipo)

8/8/2019 6896einitial Public Offer (Ipo)

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INITIAL PUBLIC

OFFER

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INITIAL PUBLIC OFFER (IPO) Governing Laws

Before 1992, Public issues were governed by Chief Controller of Capital Issues (CCCI).In 1992, CCCI has been abolished and SEBI has beenformed.

Now IPO is governed by Followings:

1. The Companies Act 1956

2. SEBI (Disclosure & Investor Protection) Guidelines,2000

3. Securities Contracts (Regulation) Act, 1956

4. Listing norms/Guidelines of NSE/BSE

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PRE REQUISITES OF IPO Filing of draft offer document with SEBI through eligible Merchant Banker at least 30

days prior to filing of prospectus with ROC.Any company prohibited by Board can not make an issue of security.Filing of application with Stock exchange for listing and in principal approval is

required.Issue of securities in dematerialized form.Unlisted company can not make allotment pursuant to public issue unless prospective

allottees are less than 1000 in numbers.Shares can be offered to public either in the form of IPO or offer for sale.Any company issuing debt instrument which are to convertible or not into share on a

later date is required to obtain credit rating of investment grade from at least 2 creditrating agencies before filing the offer document with the SEBI,

the company is not a willful defaulters of RBI andNot defaulted in payment of interest or repayment of debentures issued to publicfor a period of more than 6 months.

There should not be any outstanding warrant or f inancial instrument giving right toholders an option to receive shares after IPO.

There should not be partly paid shares.Firm arrangement of 75% means of finance.Grading of IPO from at least one credit rating agency.Disclosure of all grading has been to made.Disclosure of all expenses incurred for obtaining grading for IPO.

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IPO- ELIGIBILITYIssue of Equity share or other securities to be converted into equity on

later date byan unlisted company:

A. Companies having track record must fulfill following conditions:

N et tangible assets of at least Rs.3.00 Crore in each of preceding 3full year (Full 12 months each) of which not more than 50% is heldin monetary assets; if excess, than the company must have firmcommitment to deploy such excess monetary assets in business orproject.- Clause 2.2.1(a)

Company must have track record of distributable profits for at least3 years out of immediately preceding 5 years. - Clause 2.2.1(b)

Company must have net worth of Rs.1 Crore in preceding 3 years(full 12 months each). - Clause 2.2.1(c)

If name of the Company has been changed in last 1 year, 50%income of the Company must be earned from the activity suggestedby new name. Clause 2.2.1(d)

Aggregate of proposed issue & all previous issues made during thatfinancial year does not exceed to 5 times to its pre issue net worthas per the last audited balance sheet. Clause 2.2.1(e)

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B. Companies not fulfilling conditions specified in Clause 2.2.1, have to fulfill followingconditions:

(i) Issue through book building process with at least 50% of net offer to public to beissued to QIB.

OrProject has been appraised & at least 15% participation by FI/Sched. Commercial

banks, of which at least 10% from appraiser & at least 10% of issue size from QIBs.

(ii) Minimum post issue face value of capital Rs.10.00 Crore.

OrCompulsory market making for at least 2 years from the date of listing subject to

following:Market maker undertake

to offer buy & sell quotes for a minimum depth of 300 shares.To ensure bid ask spread for their quotes shall not exceed at any time 10%.Inventory of market maker on each stock exchange shall be at least of 5% of theproposed issue.

In case of partnership firms are converted into Company, track record for distributableprofit shall be considered, if the accounts are revised in the format prescribed as percompanies Act and conforming all accounting standards.

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PRICINGCompanies are free to price its share or security to beconverted into shares at a later date are:

Listed companies for its Public/right issueUnlisted companiesInfrastructure CompaniesIPO by Banks (Subject to approval of RBI).

D IFFERE N TIAL PRICI NG :

Unlisted Company : Firm allotment may be made on higher pricethan the price officer to Public. If equity shares or securitiesconvertible into shares are issued to retail individual investor/retailindividual share holder, the same can be issued at lower price thanto other categories. The difference shall not exceed 10%.

Listed Company: Differential price may be charged in compositeissue of public and right offer.

Justification of differential price in the offer document.

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PRICING

PRICE BA ND :

For Fixed price issues, there may be price band of 20% at the time of filing offerdocuments

with SEBI.Price shall be freezed in the final offer documents and before filing it to ROC.

D EN OMI N ATIO N OF SHARE:

If issue price is more than Rs.500/- any face value denomination not less Re. 1/- and notin

decimal.If Issue price is less than Rs.500/-, face value shall be Rs.10/-Only one denomination at a given time.

FACTORS D ETERMI N I NG PRICE:

Financials of the Company N et worth, EPS, profit margin.Industry P/E Ratio.Standing of the Company in the relevant industryFuture prospect of the Industry as well as the CompanyBackground of the promoters.


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PROMOTERS CONTRIBUTION

In case of :U nlisted Companies: 20% of post issue capitalFor Offer for Sale : 20% of post issue capitalListed Companies: 20% of proposed issue or 20% of postissue capitalComposite issue: 20% of proposed issue or 20% of postissue capital (Right issue component shall be excluded fromPost Issue Capital) .

SEC U RITIES ELI G IBLE FOR PROMOTORS CO N TRIB U TIO N :Except following, all securities are eligible to form part of promoters contribution, if brought in by promoters:a. Issue of any share with in preceding 3 years out of revaluation of assets or capitalization of intangible assets.

b. Resulting from Bonus issue out of revaluation reserves orreserves without cash generation or against the shareswhich are not eligible to form part of promoters contribution.

c. Any securities acquired by promoters within one year at aprice lower than the offer price. (whether issued to acquiredby promoters otherwise) (If difference of the same has beenbrought out before opening of issue, than eligible).

d. Funds brought in with in one year, in case of companiesconverted from partnership firm and shares allotted at lowerprice than offer price. (If partners capital existed oncontinuous basis since more than one year, than eligible)

e. Application less than Rs.25000/- in case of individual andRs.100000/- in case of firm or body corporate.

f. Any private placement made by solicitation of subscriptionfrom unrelated person directly or through intermediary.

g. Contributors who have not given their specific consent forpromoters contribution and lock in period.

h. Pledged securities held by promoters.

Promoters contribution to be brought in before opening of Issue. [email protected] 8


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LOCK IN PERIODIn case of IPO, the locking period is as under:

Promoters contribution equal to 20% - start from date of allotment & end after 3years from the date of allotment or date of commencement of commercialproduction, whichever is later.

Promoters contribution in excess of 20% - 1 year

Pre issue share capital: In excess of promoters contribution equal to 20%, for 1year.

Basis of Lock in Last allotted share locked in first Omitted since 29.11.07.

Lock in of firm allotment security: For one year

Inter se transfer amongst promoter permissible.

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PRE ISSUE OBLIGATION & INTERMEDIARIES

APPOINTMENT OF LEAD MANAGER(S)Due diligence procedure by Lead Manager.Appointment of intermediaries

Lead Manager will appoint:a. Registrar to issueb. Legal Advisorc. Bankers to Issued. Underwriters

Filing of Offer Documents with SEBI & S/EDocuments to be submitted with Draft offer documents:

a. MOU between Lead Manager & Issuerb. Inter se allocation of responsibilitiesc. Due Diligence Certificated. Undertaking of promoters for their transactions.e. List of promoters group etc.f. Other documents,

Offer Documents to be made public for Minimum 21 Days.Pre issue advertisement.Dispatch of Issue Material.No Complaint Certificate after 21 days from the date of making prospectus in public.Agreement with DepositoriesReceipt of In principal approval from Stock Exchange (s) within 15 days from the date of filing.Collection centre Four Metro Cities and cities where stock exchanges in the region.Collection agents.Appointment of Compliance Officer

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MARKETING OF IPO AND ISSUE PROCESS

WH OLESALE MARKETING

Meetings with mutual funds, Private Equity players and FIIs.

Tie up for firm allotments

RETAIL MARKETING:

Road Shows and presentation

Meeting with leading brokers

Advertisement in Print & Electronic Media

Press Coverage

ISSUE PROCESS:

Issue remain open for minimum 3 days and maximum for 10 days.

Collection of application/ real time reporting of bids.

Periodical report by Lead Bankers.

Allotment of shares in consultation with stock exchanges and l ead manager(s).



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POST ISSUE OBLIGATIONS

Post issue monitoring reports: These reports shall be submitted with in 3 days from the due dates.Due dates:

- 3 rd day monitoring report - for book building portion 3 rd day from the date of allocation of book buildingportion-In other cases 3 rd day from the date of closure of issue.

- Final post issue monitoring report: 3 rd day from the date of listing or 78 days from the date of closure ofissue, whichever is earlier.

- Due diligence certificate with final report

Redressal of Investor Grievance related to refund, allotment and other grievences.

Coordination with intermediariesa. Underwritersb. Bankers to the issue

Basis of allotment

Post issue advertisement : giving detail about oversubscription, basis of allotment etc. within 10 daysfrom the date of



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LISTING WITH BSEA. In respect of Large Cap Companies with a minimum issue size of Rs. 10 crores and market capitalization

of not less than Rs. 25 crores.

The minimum post-issue paid-up capital of the applicant company (hereinafter referred to as "theCompany") shall be Rs. 3 crores; andThe minimum issue size shall be Rs. 10 crores; andThe minimum market capitalization of the Company shall be Rs. 25 crores (market capitalizationshall be calculated by multiplying the post-issue paid-up number of equity shares with the issueprice).

B. In respect of Small Cap Companies other than a large cap company.

The minimum post-issue paid-up capital of the Company shall be Rs. 3 crores; andThe minimum issue size shall be Rs. 3 crores; andThe minimum market capitalization of the Company shall be Rs. 5 crores (market capitalization shallbe calculated by multiplying the post-issue paid-up number of equity shares with the issue price);andThe minimum income/turnover of the Company should be Rs. 3 crores in each of the precedingthree 12-months period; andThe minimum number of public shareholders after the issue shall be 1000.

A due diligence study may be conducted by an independent team of Chartered Accountants or Merchant Bankers appointed by the Exchange, the cost of which will be borne by the company.The requirement of a due diligence study may be waived if a financial institution or a scheduledcommercial bank has appraised the project in the preceding 12 months.



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LISTING WITH BSEPermission to use the name of the Exchange in an Issuer Company's prospectus:

The Exchange follows a procedure in terms of which companies desiring to list their securities offered

through public issues are required to obtain its prior permission to use the name of the Exchange in their prospectus or offer for sale documents before filing the same with the concerned office of the Registrar of Companies. The Exchange has since last three years formed a "Listing Committee" to analyse draftprospectus/offer documents of the companies in respect of their forthcoming public issues of securitiesand decide upon the matter of granting them permission to use the name of "Bombay Stock ExchangeLimited" in their prospectus/offer documents. The committee evaluates the promoters, company,project and several other factors before taking decision in this regard.

Allotment of Securities

As per Listing Agreement, a company is required to complete allotment of securities offered to thepublic within 30 days of the date of closure of the subscription list and approach the Regional Stock Exchange, i.e. Stock Exchange nearest to its Registered Office for approval of the basis of allotment.

In case of Book Building issue, Allotment shall be made not later than 15 days from the closure of theissue failing which interest at the rate of 15% shall be paid to the investors.

Trading Permission

As per SEBI Guidelines, the issuer company should complete the formalities for trading at all the Stock Exchanges where the securities are to be listed within 7 working days of finalization of Basis of Allotment.

A company should scrupulously adhere to the time limit for allotment of all securities and dispatch ofAllotment Letters/Share Certificates and Refund Orders and for obtaining the listing permissions of all theExchanges whose names are stated in its prospectus or offer documents. In the event of listingpermission to a company being denied by any Stock Exchange where it had applied for listing of itssecurities, it cannot proceed with the allotment of shares. However, the company may file an appealbefore the Securities and Exchange Board of India under Section 22 of the Securities Contracts(Regulation) Act, 1956.



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BOOK BUILDING

It is a process used for marketing a public offer of equity shares of a company. It is a mechanism where,during the period for which the book for the IPO is open, bids are collected from investors at variousprices, which are above or equal to the floor price. The process aims at tapping both wholesale andretail investors. The offer/issue price is then determined after the bid closing date based on certainevaluation criteria.

The Process:

The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'.The Issuer specifies the number of securities to be issued and the price band for orders.The Issuer also appoints syndicate members with whom orders can be placed by the investors.

Investors place their order with a syndicate member who inputs the orders into the 'electronic book'. Thisprocess is called 'bidding' and is similar to open auction.A Book should remain open for a minimum of 3 days and maximum for 10 days.Bids cannot be entered less than the floor price.Bids can be revised by the bidder before the issue closes.On the close of the book building period the 'book runner evaluates the bids on the basis of theevaluation criteria which may include -

Price Aggression Investor quality Earliness of bids, etc.

The book runner and the company conclude the final price at which it is willing to issue the stock andallocation of securities.Generally, the number of shares are fixed, the issue size gets frozen based on the price per sharediscovered through the book building process.Allocation of securities is made to the successful bidders.Book Building is a good concept and represents a capital market which is in the process of maturing.



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BOOK BUILDINGGuidelines for Book Building

Rules governing book building is covered in Chapter XI of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000.

Book building is a process by which demand of securities which are being offered, is elicited and price is determined.

BSE's Book Building System

BSE offers the book building services through the Book Building software that runs on the BSE Private network.This system is one of the largest electronic book building networks anywhere spanning over 350 Indian cities through over 7000 Trader Work Stations via l eased lines, VSATs and Campus LANSThe software is operated through book-runners of the issue and by the syndicate member brokers. Through this book, thesyndicate member brokers on behalf of themselves or their clients' place orders.Bids are placed el ectronically through syndicate members and the information is coll ected on line real-time until the biddate ends.In order to maintain transparency, the software gives visual graphs displaying price v/s quantity on the terminals.

Initial Public OfferingsCorporates may raise capital in the primary market by way of an initial public offer, rights issue or private placement. AnInitial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be madethrough the fixed price method, book building method or a combination of both.

In case the issuer chooses to issue securities through the book building route then as per SEBI guidelines, an issuer companycan issue securities in the following manner:100% of the net offer to the public through the book building route.75% of the net offer to the publ ic through the book building process and 25% through the fixed price portion.



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DIFFERENCE IN FIXED PRICE OFFER AND BOOK BUILDING

Fixed Price process

Price at which the securities are.offered/allotted is known in advance to theinvestor.Demand for the securities offered is known onlyafter the closure of the issue .Payment if made at the time of subscriptionwherein refund is given after allocation

Book Building process

Price at which securities will be offered/allottedis not known in advance to the investor. Onlyan indicative price range is known.Demand for the securities offered can beknown everyday as the book is built.Payment only after allocation



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CONTENTS OF PROSPECTUS

Definitions & AbbreviationsRisk Factors & Proposals to address the risks thereofHighlightsPART II. General informationII. Capital structure of the companyIII. Terms of the present issueIV. Particulars of the issue

V. Description of industry and businessVI. Company, management and projectVII. Management discussion and analysis of the financial condition and results of theoperations as reflected in the financial statements.VIII. Financial of group companiesIX. Basis for issue priceX. Outstanding litigations or defaultsXI. Risk factors and Proposals to address the risks on the same, if any

PART III. General informationII. Financial informationIII. Statutory and other informationPART IIIDeclaration



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Fast Track Issue

Existing Listed Company issues further securities by way of public issue or by right issueand aggregate value of issue including premium is in excess of Rs. 50.00 Lacs andfulfilling following formalities:Shares of the company are listed with a stock exchange having nationwide terminals fora period of three years immediately preceding to the reference date.Average capitalization of public shareholding of the Company is at least of Rs.10000Crores for a period of one year upto the end of the quarter preceding the month in whichthe proposed issue is approved by Board of D irectors/Shareholders of the issuers.Company has redressed at least 95% grievances of the total shareholders/investorsreceived till the end of the quarter preceding the month.

Company has complied with all the compliance of listing agreement for a period of threeyears.Impact of auditors qualification if any, shall not affect the profit/loss by 5%.N o prosecution/show cause notice issued by SEBI is pending against the Company, itsdirectors or promoters.Entire promoters holding is in dematerialized form.

A listed issuer company satisfying all the requirements specified in this clause and filing

a red herring prospectus (in case of a book built issue) or prospectus (in case of a fixedprice issue) with ROC or letter of offer with D esignated Stock Exchange, as the case maybe, shall simultaneously with such filing or as soon thereafter as reasonably practicable,but in any case not later than the opening of the issue, file a copy thereof with the Board.



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Application supported by Blocked Amount (ASBA) : Application for subscribing an issue with anauthorization to block the amount in Bank account

ASBA Investor : an investor who iso a residential retail investoro not applying under any reservation,o bidding on cut off price with single option and not revising his bid and

o applying through SCSB banks.

Self Certified Syndicate Bank (SCSB): Banker to the issue registered with SEBI, which offers theservices of making ASBA.



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QIB

Qualified Institutional Buyers (QIBs) those institutional investors who are generally perceivedto possess expertise and the financial muscle to evaluate and invest in the capital markets.a Qualified Institutional Buyer shall mean:

a) Public financial institution as defined in section 4A of the Companies Act, 1956;

b) Scheduled commercial banks;

c) Mutual Funds;d) Foreign institutional investor registered with SEBI;

e) Multilateral and bilateral development financial institutions;

f) Venture Capital funds registered with SEBI.

g) Foreign Venture Capital investors registered with SEBI.

h) State Industrial Development Corporations.

i) Insurance Companies registered with the Insurance Regulatory and DevelopmentAuthority (IRDA).

j) Provident Funds with minimum corpus of Rs.25 crores

k) Pension Funds with minimum corpus of Rs. 25 crores "These entities are not required to beregistered with SEBI as QIBs. Any entities falling under the categories specified above areconsidered as QIBs for the purpose of participating in primary issuance process."
