ipo listing final doc

8/3/2019 IPO Listing Final Doc

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Project on

HOW TO LIST COMPANY ON STOCK

EXCHANGE

PROCESS OF ISSUING IPO

Project Team:

Kunal Bhojane

Prakash Rajput

Samir Nimkar


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INDEX

SR.No. Topic Page No.

1 Why Companies Go For IPO 3

2Introduction

4

3 Preliminary 6

4 Flow of IPO Procedure 10

5 Category Of Investors in IPO 11

6 Life Cycle Of IPO 13

7 Eligibilty Norms For Companies Issuing Securities 15

8 IPO Pricing 21

9 Promoters Contribution and Lock-In Requirements 26

10 Pre-Issue Obligations 28

11 Contents of Offer Document 3412 Post-Issue Obligations 36

13 Green Shoe Option 40

14 Guideline on Advertisement 41

15 IPO Methods 43

16 Types Of Bookbuilding 45

17Guideline On Initial Public Offers Theough The Stock

Exchange On Line System(e-IPO)49


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1. Why Companies Go For IPO?

Usually it is not possible to buy shares in a private company. A potential investor

can approach the owners, but theyre not obliged to sell any shares. However, public

companies sell at least a portion of themselves to the public and they also trade on

stock exchanges. Public companies have thousands of shareholders and are subject

to strict rules and regulations. They must have a board of director and they must

report financial information every quarter. Public companies are regulated by

governing bodies. The stock is traded in the open market and any investor, who has

got money, can invest in them. The CEO and the owner can not prevent an investor

from buying stock.

Going public provides an opportunity to raise cash for the companies, while

opening many financial doors as well. Public companies can get better rates when

they issue debts because of the increased scrutiny involved. A public company can

always issue more stock, as long as there is market demand. Consequently,

mergers and acquisitions become easier to execute as stock can be issued as part

of the deal. Trading in the open markets also provides liquidity. This makes it

possible to implement things like employee stock ownership plans, which help to

attract top talent. Besides, being on a major stock exchange carries a considerable

amount of prestige.

However, there have many instances worldwide of companies coming with IPOs

just to make the founders rich. This trend was particularly witnessed during the

internet boom. In market talks, this is referred to as an exit strategy, implying there is

no desire involved to stick around and create value for shareholders. In these cases,

the IPO becomes the end of the road rather than the beginning. After all, an IPO is

entirely a sales job and if one can convince people to buy stock in the company, a lot

of money can be raised.


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2. Introduction

The decision to go public, or make an initial public offering (IPO) of equity,

represents an important landmark in a firms life cycle. A well-functioning IPO marketprovides exit options for stakeholders in young firms, access to low cost capital for

growing firms, and greater access to capital for future expansion of large firms. Flow

of capital to firms can stimulate growth in an economy. Thus, regulators are

interested in mechanisms that facilitate better functioning IPO markets.

Public issue:

When an issue / offer of securities is made to new investors for becoming a

part of shareholders family of the issuer it is called a public issue. Public issue can

be further classified into Initial public offer (IPO) and Further public offer (FPO).

1. Initial public offer (IPO):

IPO" stands for an Initial Public Offering" of securities. The term is usually

used when a business has decided to "go public" to raise substantial amounts of

capital by offering ownership interests in the company to the public at large.When an

unlisted company makes either a fresh issue of securities or offers its existing

securities for sale or both for the first time to the public, it is called an IPO. This

paves way for listing and trading of the issuers securities in the Stock Exchanges.

Advantages:

y Facilitates future funding

y

Enables valuation of the companyy Provides liquidity to existing shares.

y Increases visibility of the company

y Commands better pricing than placement with few investors.


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Disadvantages:

y Dilution of ownership stake

y Involves substantial expenses

y Need to make continuous disclosures

y Increased regulatory monitoring

y Takes substantial amount of management time and efforts.

2. Further public offer (FPO) or Follow on offer:

When an already listed company makes either a fresh issue of securities to

the public or an offer for sale to the public, it is called a FPO.


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3. Preliminary

These Guidelines have been issued by the Securities and Exchange Board of

India under Section 11 of the Securities and Exchange Board of India Act, 1992.

These Guidelines may be called the Securities and Exchange Board of India

(Disclosure and Investor Protection) Guidelines, 2000. These Guidelines shall come

into force from the date specified by the Board.

Definitions:

In these Guidelines, unless the context otherwise requires;

Abridged Letter of Offer in relation to a rights issue means the abridged

form of a letter of offer which satisfies the minimum requirements laid down in

Section IV of Chapter VI of the Guidelines).

Abridged Prospectus means the memorandum as prescribed in Form 2A

under Sub-section (3) of Section 56 of the Companies Act, 1956.

Act means the Securities and Exchange Board of India Act, 1992 (15 of

1992).

Advertisement includes notices, brochures, pamphlets, circulars, show

cards, catalogues, hoardings, placards, posters, insertions in newspaper, pictures,

films, cover pages of offer documents or any other print medium, radio, television

programmes through any electronic medium.

Application Supported by Blocked Amount (ASBA) means an

application for subscribing to an issue containing an authorisation to block the

application money in a bank account.

Board means the Securities and Exchange Board of India established

under provisions of Section 3 of the Act.


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Book Building means a process undertaken by which a demand for the

securities proposed to be issued by a body corporate is elicited and built up and the

price for such securities is assessed for the determination of the quantum of such

securities to be issued by means of a notice, circular, advertisement, document or

information memoranda or offer document.

Collection Centre means a place where the application for subscribing to

the public or rights issue is collected by the Banker to an Issue on behalf of the

issuer company.

Composite Issues means an issue of securities by a listed company on a

public cum rights basis offered through a single offer document wherein the

allotment for both public and rights components of the issue is proposed to be made

simultaneously.

Convertible Debt Instrument means an instrument or security which

creates or acknowledges indebtedness and is convertible into equity shares at a

later date, at or without the option of the holder of the instrument or the security of a

body corporate, whether constituting a charge on the assets of the body corporate or

not.

Credit Rating Agency means a body corporate registered under Securities

and Exchange Board of India (Credit Rating Agencies) Regulations, 1999.

Designated Financial Institution means the public financial institution

included in or notified under Section 4A of the Companies Act, Industrial

Development Corporation established by State Governments and financial

institutions approved under Section 36(1)(viii) of Income Tax Act, 1961.

Depository means a body corporate registered under Securities and

Exchange Board of India (Depositories and Participants) Regulations, 1996.

Designated Stock Exchange means a stock exchange in which securities

of the company are listed or proposed to be listed and which is chosen by the

company for purposes of a particular issue under these guidelines.


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Provided that where any of such stock exchanges have nationwide trading

terminals, the company shall choose one of them as the designated stock exchange.

Provided further that the company may choose a different exchange as a

designated stock exchange for any subsequent issue, subject to the above clause.

Fast Track Issue means a public issue or rights issue made by a listed

company which satisfies all the requirements of clause 2.1.2A.

Green Shoe Option means an option of allocating shares in excess of the

shares included in the public issue and operating a post-listing price stabilizing

mechanism in accordance with the provisions of Chapter VIII-A of these Guidelines,

which is granted to a company to be exercised through a Stabilising Agent.

Guidelines means Securities and Exchange Board of India (Disclosure and

Investor Protection) Guidelines, 1999 and includes instructions issued by the Board.

Infrastructure Company means, a company wholly engaged in the

business of developing, maintaining and operating infrastructure facility.

Issuer Company means a company which has filed offer documents with

the Board for making issue of securities in terms of these guidelines.

Listed Company means a company which has any of its securities offered

through an offer document listed on a recognised stock exchange and also includes

Public Sector Undertakings whose securities are listed on a recognised stock

exchange.

Merchant Banker means an entity registered under Securities and

Exchange Board of India (Merchant Bankers) Regulations, 1992.

Mutual fund means a mutual fund registered with the Board under the

SEBI (Mutual Funds) Regulations, 1996.


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Networth means aggregate of value of the paid up equity capital and free

reserves (excluding reserves created out of revaluation) reduced by the aggregate

value of accumulated losses and deferred expenditure not written off (including

miscellaneous expenses not written off) as per the audited balance sheet.

Offer Document means Prospectus in case of a public issue or offer for

sale and Letter of Offer in case of a rights issue.

Offer for Sale means offer of securities by existing shareholder(s) of a

company to the public for subscription, through an offer document.

Preferential Allotment means an issue of capital made by a body

corporate in pursuance of a resolution passed under Sub-section (1A) of Section 81

of the Companies Act, 1956.

Public Issue means an invitation by a company to public to subscribe to

the securities offered through a prospectus.

Underwriting means an agreement with or without conditions to subscribe

to the securities of a body corporate when the existing shareholders of such body

corporate or the public do not subscribe to the securities offered to them.

Unlisted Company means a company which is not a listed company.


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4.Flow Of IPO Procedure

Appointment Procedure

1. Meeting of Board of Directors

2. Appointing of Merchant Bankers- Specialized financial Consultancy who looksafter Initial Public Offering

3. Appointing of Registrar and transfer agent done by Merchant Bankers

4. Banks- Appointed by Merchant Bankers

5. Appointing of Lawyer

Real Procedure

6. Book issued by Merchant bankers and submit it to SEBI which includes Reason of

Issuing, no of Shares, Financial Condition of the company, current Business,Management, Growth in Sectors and Risk factor

7. Prospectus- Issued to stock Market and registrars

8. Printing Of Forms

9. Appointment of Brokers

10. Marketing & Advertising

11. Brokers meeting in a Company

12. Road Shows or meetings

13. IPO starts 3-7 days opened14. IPO closed

Post IPO

15. Collection of Forms

16. Oversubscription or Undersubscription

17. Allotments Of shares

a. Pro data allotments

b. lottery system

18. Issue of share certificate

a. Letter of allotement

b. regret Leter

19. Refund cheque

20. Listing Of shares in NSE or BSE.


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5. Category of Investors in IPO

Qualified Institutional Bidders (QIBs):

y Financial Institutions, Banks, FII's and Mutual Funds who are registered with

SEBI are called QIB's. They usually apply in very high quantities.

y QIBs are mostly representatives of small investors who invest through mutual

funds, ULIP schemes of insurance companies and pension schemes.

y QIB's have an allocation of 50% of shares of the total issue size in Book Build

IPO's.

y QIB's are prohibited by SEBI guidelines to withdraw their bids after the close

of the IPOs.


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Retail Individual Investor (RII) & High Networth Individual (HNI):

RII (Retail Individual Investor):

y In retail individual investor category, investors can not apply for more then Rs

one lakh (Rs 1,00,000) in an IPO.

y Retail Individual investors have an allocation of 35% of shares of the total

issue size in Book Build IPO's.

y NRI's who apply with less then Rs 1,00,000/ are also considered as RII

category.

y Retail bidders are permitted to withdraw their bids until the day of allotment.

HNI (High Net worth Individual):

y If retail investor applies more then Rs 1,00,000/- of shares in an IPO, they are

considered as HNI

NIBs (Non- Institutional Bidders):

y Individual investors, NRI's, companies, trusts etc who bid for more then Rs 1

lakhs are known as Non-Institutional Bidders.

y They need not to register with SEBI like RII's.

y Non-institutional bidders have an allocation of 15% of shares of the total issue

size in Book Build IPO's.


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6. Life Cycle Of IPO

Issuer Company - IPO Process Initialization:

y Appoint lead manager as book runner.

y Appoint registrar of the issue & syndicate members.

Lead Manager's - Pre Issue Role - Part 1

y Prepare draft offer prospectus document for IPO.

y File draft offer prospectus with SEBI.

y Road shows for the IPO.

SEBI Prospectus Review:

y SEBI review draft offer prospectus.

y Revert it back to Lead Manager if need clarification or changes (Step

2).

y SEBI approve the draft offer prospectus, the draft offer prospectus is

now become Offer Prospectus.

Lead Manager - Pre Issue Role - Part 2:

y Submit the Offer Prospectus to Stock Exchanges, registrar of the issue

and get it approved.

y Decide the issue date & issue price band with the help of Issuer

Company.

y Modify Offer Prospectus with date and price band. Document is now

called Red Herring Prospectus.

y Red Herring Prospectus & IPO Application Forms are printed and

posted to syndicate members; through which they are distributed to

investors.

Investor Bidding for the public issue:

y Public Issue Open for investors bidding.


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y Investors fill the application forms and place orders to the syndicate

members (syndicate member list is published on the application form).

y Syndicate members provide the bidding information to BSE/NSE

electronically and bidding status gets updated on BSE/NSE websites.

y Syndicate members send all the physically filled forms and cheques to

the registrar of the issue.

y Investor can revise the bidding by filling a form and submitting it to

Syndicate member.

y Syndicate members keep updating stock exchange with the latest data.

y Public Issue Closes for investors bidding.

Lead Manager Price Fixing:

y Based on the bids received, lead managers evaluate the final issueprice.

y Lead managers update the 'Red Herring Prospectus' with the finalissue price and send it to SEBI and Stock Exchanges.

Registrar - Processing IPO Applications:

y Registrar receives all application forms & cheques from Syndicate

members.

y They feed applicant data & additional bidding information on computer

systems.

y Send the cheques for clearance.

y Find all bogus application.

y Finalize the pattern for share allotment based on all valid bid received.

y Prepare 'Basis of Allotment'.

y Transfer shares in the demat account of investors.

y Refund the remaining money through ECS or Cheques.

y Lead manager Stock Listing

y Once all allocated shares are transferred in investors dp accounts,

Lead Manager with the help of Stock Exchange decides Issue Listing

Date.

y Finally share of the issuer company gets listed in Stock Market.


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7. Eligibility Norms For Companies IssueingSecurities

Conditions for issue of securities

The companies issuing securities offered through an offer document shall

satisfy the following at the time of filing the draft offer document with SEBI and also

at the time of filing the final offer document with the Registrar of

Companies/Designated Stock Exchange.

Filing of offer document

No issuer company shall make any public issue of securities, unless a draft

Prospectus has been filed with the Board through a Merchant Banker, at least 30

days prior to the filing of the Prospectus with the Registrar of Companies (ROC).

Provided that if the Board specifies changes or issues observations on the

draft Prospectus (without being under any obligation to do so), the issuer company

or the Lead Manager to the Issue shall carry out such changes in the draft

Prospectus or comply with the observations issued by the Board before filing the

Prospectus with ROC.

Provided further thatthe period within which the Board may specify changes

or issue observations, if any, on the draft Prospectus shall be 30 days from the date

of receipt of the draft Prospectus by the Board.

Provided further that where the Board has sought any clarification or

additional information from the Lead Manager/s to the Issue, the period within which

the Board may specify changes or issue observations, if any, on the draft Prospectus

shall be 15 days from the date of receipt of satisfactory reply from the Lead

Manager/s to the Issue.


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Provided further thatwhere the Board has made any reference to or sought

any clarification or additional information from any regulator or such other agencies,

the Board may specify changes or issue observations, if any, on the draft Prospectus

after receipt of comments or reply from such regulator or other agencies.

Provided further thatthe Board may specify changes or issue observations, if

any, on the draft Prospectus only after receipt of copy of in-principle approval from all

the stock exchanges on which the issuer company intends to list the securities

proposed to be offered through the Prospectus. No listed issuer company shall make

any rights issue of securities, where the aggregate value of such securities, including

premium, if any, exceeds Rs. 50 lacs, unless a draft letter of offer has been filed with

the Board, through a Merchant Banker, at least 30 days prior to the filing of the letter

of offer with the Designated Stock Exchange (DSE).

Provided that if the Board specifies changes or issues observations on the

draft Letter of Offer (without being under any obligation to do so), the issuer

company or the Lead Manager to the Issue shall carry out such changes in the draft

Letter of Offer or comply with the observations issued by the Board before filing the

Letter of Offer with DSE.

Provided further thatthe period within which the Board may specify changes

or issue observations, if any, on the draft Letter of Offer shall be 30 days from the

date of receipt of the draft Letter of Offer by the Board.

Provided further that where the Board has sought any clarification or

additional information from the Lead Manager/s to the Issue, the period within which

the Board may specify changes or issue observations, if any, on the draft Letter of

Offer shall be 15 days from the date of receipt of satisfactory reply from the Lead

Manager/s to the Issue.

Provided further thatwhere the Board has made any reference to or sought

any clarification or additional information from any regulator or such other agencies,

the Board may specify changes or issue observations, if any, on the draft Letter of

Offer after receipt of comments or reply from such regulator or other agencies.


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Provided further thatthe Board may specify changes or issue observations, if

any, on the draft Letter of Offer only after receipt of copy of in-principle approval from

all the stock exchanges on which the issuer company intends to list the securities

proposed to be offered through the Letter of Offer.

Initial Public Offerings by Unlisted Companies:

There are three entry norms for unlisted companies:

Entry Norm I (commonly known as Profitability Route):

An unlisted company may make an initial public offering (IPO) of equity

shares or any other security which may be converted into or exchanged with equity

shares at a later date, only if it meets all the following conditions:

(a) The company has net tangible assets of at least Rs. 3 crores in each of

the preceding 3 full years (of 12 months each), of which not more than 50% is held in

monetary assets:

Provided thatif more than 50% of the net tangible assets are held in monetary

assets, the company has made firm commitments to deploy such excess monetary

assets in its business/project;

(b) The company has a track record of distributable profits in terms of Section

205 of the Companies Act, 1956, for at least three (3) out of immediately preceding

five (5) years;

Provided further that extraordinary items shall not be considered for

calculating distributable profits in terms of Section 205 of Companies Act, 1956;

(c) The company has a net worth of at least Rs. 1 crore in each of the

preceding 3 full years (of 12 months each);

(d) In case the company has changed its name within the last one year,

atleast 50% of the revenue for the preceding 1 full year is earned by the company

from the activity suggested by the new name; and


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(e) The aggregate of the proposed issue and all previous issues made in the

same financial year in terms of size (i.e., offer through offer document + firm

allotment + promoters contribution through the offer document), does not exceed

five times its pre-issue networth as per the audited balance sheet of the last financial

year.

Entry Norm II (Commonly known as QIB Route) :

An unlisted company not complying with any of the conditions specified in Clause

2.2.1 may make an initial public offering (IPO) of equity shares or any other security

which may be converted into or exchanged with equity shares at a later date, only if

it meets both the conditions (a) and (b) given below:

(a) (i) The issue is made through the book-building process, with at least (50%

of net offer to public) being allotted to the Qualified Institutional Buyers

(QIBs), failing which the full subscription monies shall be refunded.

(b) (i) The minimum post-issue face value capital of the company shall be Rs.

10 crores.

OR

(ii) There shall be a compulsory market-making for at least 2 years from

the date of listing of the shares, subject to the following:

Market makers undertake to offer buy and sell quotes for a minimum depth of

300 shares;

Market makers undertake to ensure that the bid-ask spread (difference

between quotations for sale and purchase) for their quotes shall not at any time

exceed 10%:

The inventory of the market makers on each of such stock exchanges, as on

the date of allotment of securities, shall be at least 5% of the proposed issue of the

company.


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Entry Norm III (commonly known as Appraisal Route):

(a) The project has at least 15% participation by Financial Institutions/

Scheduled Commercial Banks, of which at least 10% comes from the appraiser(s). In

addition to this, at least 10% of the issue size shall be allotted to QIBs, failing which

the full subscription monies shall be refunded.

And

Compulsory market making for at least 2 years from the date of listing

Offer buy/sell quotes minimum depth 300 shares,Bid/ask spread not to exceed

10%,Inventory of market maker on each stock exchange as on allotment date 5%

issue.

Exemption from Eligibility Norms

The provisions of clauses 2.2 and 2.3 shall not be applicable in case of:

i) a banking company including a Local Area Bank (hereinafter referred to as

Private Sector Banks) set up under sub-section (c) of Section 5 of the Banking

Regulation Act, 1949 and which has received license from the Reserve Bank of

India;

or

ii) a corresponding new bank set up under the Banking Companies

(Acquisition and Transfer of Undertaking) Act, 1970 Banking Companies (Acquisition

and Transfer of Undertaking) Act, 1980, State Bank of India Act 1955 and State

Bank of India (Subsidiary Banks) Act, 1959 (hereinafter referred to as public sector

banks);

iii) an infrastructure company:

a) whose project has been appraised by a Public Financial Institution

(PFI) or Infrastructure Development Finance Corporation (IDFC) or


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Infrastructure Leasing and Financing Services Ltd. (IL&FS) or a bank which

was earlier a PFI; and

b) not less than 5% of the project cost is financed by any of the

institutions referred to in sub-clause (a), jointly or severally, irrespective of

whether they appraise the project or not, by way of loan or subscription to

equity or a combination of both;


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8. IPO Pricing

The determination of initial public offering price depends on several things, like

market condition, growth rate of the company, profitability to name a few.Thedetermination of Initial Public Offering price depends heavily upon the company and

market conditions. It is the price at which the underwriter offers the new issues to

public. The underwriters keep several factors in their mind while setting the public

offering price. These are financial statements of the company, that is, if or not it is

profitable, company's growth rates, public trends, current market conditions, investor

confidence to name a few. Sometimes the underwriters go for a road shows, widely

recognized as the "dog and pony show", to create a hype about their issues. The

determination of initial public offering price also depends on the success of those

road shows.

Process of Fixing the Price:

Initial Public Offering Price is determined through several phases. These are

discussed below.

Firstly, the company and its underwriters determine a price range within which

they are going to set their stock's price.

Then the underwriter puts together a prospectus which comprises the price

range. That prospectus is submitted to the Securities and Exchange Commission

(SEC).

The next phase of pricing starts just before the day of offering. In this phase

the company and its underwriter fix the final price at which the public can buy the

issue.

Finally the phase of observation. That is, the company will observe its value

assessment by the market after the issue starts trading.

IPO Grading:

IPO grading is the grade assigned by a Credit Rating Agency registered with

SEBI, to the initial public offering (IPO) of equity shares or other convertible

securities.


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represents a relative assessment of the fundamentals of the IPO in relation to the

other listed equity securities. Disclosure of IPO Grades, so obtained is mandatory

for companies coming out with an IPO.

Grade assigned by a Credit Rating Agency registered with SEBI.

Some of the factors considered for grading by the rating agencies, while arriving at

an IPO grade:

Business Prospects and Competitive Position

i. Industry Prospects

ii. Company Prospects

Financial Position

Management Quality

Corporate Governance Practices

Compliance and Litigation History

New ProjectsRisks and Prospects

IPO Grades

Grade 1:Poor fundamentals

Grade 2:Below-average fundamentals

Grade 3:Average fundamentals

Grade 4:Above-average fundamentals

Grade 5:Strong fundamentals

Requirement to obtain the grade for the IPO:-

IPO grading can be done either before filing the draft offer documents with

SEBI or thereafter. However, the Prospectus/Red Herring Prospectus, as the case

may be, must contain the grade/s given to the IPO by all CRAs approached by the

company for grading such IPO.


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Cost of the IPO grading process:-

The company desirous of making the IPO is required to bear the expenses

incurred for grading an IPO.

Grading not optional:-

IPO grading is not optional. It is mandatory. Any issuer who decides to offer

shares through an IPO, is required to obtain a grade for the IPO from at least one

Credit Rating Agency.

Rejection option for the issuer:-

IPO grade/s cannot be rejected. Irrespective of whether the issuer finds the

grade given by the rating agency acceptable or not, the grade has to be disclosed asrequired under the DIP Guidelines. However the issuer has the option of opting for

another grading by a different agency. In such an event all grades obtained for the

IPO will have to be disclosed in the offer documents, advertisements etc.

In case , delay in IPO grading process:-

IPO grading is intended to run parallel to the filing of offer document with SEBI

and the consequent issuance of observations. Since issuance of observation by

SEBI and the grading process, function independently, IPO grading is not expected

to delay the issue process.

The factors of evaluation of IPO grade:-

The IPO grading process is expected to take into account the prospects of the

industry in which the company operates, the competitive strengths of the company

that would allow it to address the risks inherent in the business and capitalize on the

opportunities available, as well as the companys financial position.

While the actual factors considered for grading may not be identical or limited

to the following, the areas listed below are generally looked into by the rating

agencies, while arriving at an IPO grade:


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a. Business Prospects and Competitive Position

i. Industry Prospects

ii. Company Prospects

b. Financial Position

c. Management Quality

d. Corporate Governance Practices

e. Compliance and Litigation History

f. New ProjectsRisks and Prospects

It may be noted that the above is only indicative of some of the factors considered in

the IPO grading process and may vary on a case to case basis.

Consideration of price at which securities are offered :-

IPO grading is done without taking into account the price at which the security

is offered in the IPO. Since IPO grading does not consider the issue price, the

investor needs to make an independent judgment regarding the price at which to bid

for/subscribe to the shares offered through the IPO.

Details of the gradingprocess:-

All grades obtained for the IPO along with a description of the grades can be

found in the Prospectus. Abridged Prospectus, issue advertisement or any other

place where the issuer company is making advertisement for its issue. Further the

Grading letter of the Credit Rating Agency which contains the detailed rationale for

assigning the particular grade will be included among the Material Documents

available for Inspection at the Registered office of the Company.

Interpretation of the IPO Grades:-

The grades are allocated on a 5-point scale, the lowest being Grade 1 and

highest Grade 5. The meaning of these grades has been explained under Question 1

in this FAQ.


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IPO Grading help in deciding about investing in an IPO:-

IPO Grading is intended to provide the investor with an informed and objective

opinion expressed by a professional rating agency after analyzing factors like

business and financial prospects, management quality and corporate governance

practices etc. However, irrespective of the grade obtained by the issuer, the investor

needs to make his/her own independent decision regarding investing in any issue

after studying the contents of the prospectus including risk factors carefully.

Role of SEBI in IPO grading exercise:-

SEBI does not play any role in the assessment made by the grading agency.

The grading is intended to be an independent and unbiased opinion of that agency.

IPO Grading given by CRAs is a parameter for SEBI to issue its

Observations:-

The grading is intended to be an independent and unbiased opinion of a

rating agency. SEBI does not pass any judgment on the quality of the issuer

company. SEBIs observations on the IPO document are entirely independent of the

IPO grading process or the grades received by the company.

Credit rating agencies registered with SEBI:-

As on date, the following five credit rating agencies are registered with SEBI.

1. Crisil limited

2. Fitch ratings India private limited

3. Icra limited

4. Care (credit analysis & research limited)

5. Brickwork ratings India private limited


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9. Promoters Contribution And Lock-inRequirements

PART I PROMOTERS CONTRIBUTIONPromoters Contribution in a Public Issue by Unlisted Companies

In a public issue by an unlisted company, the promoters shall contribute not

less than 20% of the post issue capital.

y This provision ensures that promoters of the company have some minimum

stake in the company for a minimum period after the issue or after the project

for which funds have been raised from the public is commenced.

PART II - LOCK-IN REQUIREMENTS

Lock in of Minimum Specified Promoters Contribution in PublicIssues

y Promoters contribution to be brought in at least one day prior to issue

opening date and to be kept in Escrow account.

y Lock in for period of 3 years & to start from the date of allotment or date of

commencement of commercial production which ever is later.

y Lock in of excess promoters contribution will be one year.

y Securities issued last to be locked in first.

y Entire pre issue capital other than locked in as minimum promoters

contribution shall be locked in for one year.

y Locked in shares by promoters may be pledged with bankers provided pledge

of shares is one of the conditions.

y Inter se transfer of securities amongst promoters may be transferred subject

to continuation of lock-in in the hands of transferee for remaining period.

Lock-in of Excess Promoters Contribution

In case of a public issue by unlisted company, if the promoters contribution in

the proposed issue exceeds the required minimum contribution, such excess

contribution shall also be locked in for a period of (one year).


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10. Pre-issue Obligations

Appointment of Merchant Bankers

A Merchant Banker shall not lead manage the issue if he is a promoter or a

director or associate of the issuer company.

Provided that a merchant banker holding the securities of the issuer company

may lead manage the issue if;

a. the securities of the issuer company are listed or proposed to be listed on

the Over the Counter Exchange of India (OTCEI) and;

b. the Market Makers have either been appointed or are proposed to be

appointed as per the offer document.Provided further that a merchant banker who is an associate of the issuer

company may be appointed as a merchant banker for the issue, if it is involved only

in the marketing of the issue.

Appointment of other Intermediaries

1. BRLM (Book Running Lead Manager):

The lead merchant bankers appointed by the Issuer Company are referred to

as the Book Running Lead Managers. The names of the Book Running Lead

Managers are mentioned in the offer document of the Issuer Company.

Lead managers are independent financial institutions appointed by the

company going public to manage the IPO. They are the main body responsible for

most of the IPO processing.

Companies planning for IPO (also known as Issuer Company) first

approaches or appoint lead managers. Lead managers examine company

documents including financial documents, documents relating to litigation like

commercial disputes, patent disputes, disputes with collaborators, etc. and other

materials, in connection with the finalization of the draft red herring prospectus for

the IPO.


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Lead manages are responsible to write the Red Herring Prospectus (RHP)

and get it approve by SEBI. SEBI contact lead managers for any irregularities or

lapses in RHP and ask them to clarify, add or review certain sections of the

document.

Lead managers certifies to SEBI that all the disclosers made in Draft Red

Herring Prospectus are true, correct, adequate and comply with SEBI guidelines to

help investors in making a well-informed decision.

Issuer Company with the help of lead manger, appoints underwriters or

syndicate members for the IPO. Lead managers are responsible for examining the

worth of underwriters and there capabilities to buy the shares and assure the same

to SEBI.

In brief Lead Managers responsibilities include, initiate the IPO processing,

write draft herring prospectus and get it approve by SEBI, help company in selling

the IPO Shares and road shows, help company in finalize the issue price, issue

opening & closing dates, listing date etc.

Lead Managers are also known as Book Running Lead Manager and Co-

Book Running Lead Managers. Issuer Company can appoint more then one lead

manager to manage big IPO's i.e. Reliance Power IPO came in Jan 2008 had 10

Book Running Lead Managers.

2. Registrar to Issue:

IPO Registrars are independent financial institutions registered with stock

exchanges and appointed by the company going public for mainly to keep record of

the issue and ownership of company shares.

Responsibility of a registrar at the time of IPO involves, processing of IPO

applications, allocate shares to applicants based on SEBI guidelines, process

refunds and transfer allocated shares to investors demat accounts.

Investors can contact the Registrar to the Issue in case of any pre-Issue or

post-Issue related problems such as non-receipt of letters of allotment, credit of

allotted shares in the respective beneficiary accounts, refund orders etc.


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Investor should provide following detail to the registrar for quick resolution of

queries: The full name of the sole or First Bidder, Bid cum Application Form number,

Bidders Depository Account Details, number of Equity Shares applied for, date of bid

form, name and address of the member of the Syndicate where the Bid was

submitted and cheque or draft number and issuing bank thereof. Name and contact

information of IPO registrar is published in the IPO forms, Issue prospectus etc.

Functions:

y Processing of IPO applications,

y Allocate shares to applicants based on SEBI guidelines,

y Process refunds and transfer allocated shares to investors demat accounts.

y Investors can contact the Registrar to the Issue in case of any pre-Issue or

post-Issue related problems .

Investor should provide following detail to the registrar for quick resolution of queries:

y The full name of the sole or First Bidder,

y Bid cum Application Form number,

y Bidders Depository Account Details,

y Number of Equity Shares applied for,

y Date of bid form, name and address of the member of the Syndicate

y Cheque or draft number and issuing bank thereof.

y Name and contact information of IPO registrar is published in the IPO forms,

Issue prospectus etc.

3. Syndicate Member:

y

Syndicate members are commercial or investment banks responsible forunderwriting IPO's.

y They work as intermediaries for Issuer Company and the buyers of the IPO

stocks.


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Responsibility Of Syndicate Members:

y Circulate copies of the RHP to potential investors.

y Accepting the bids, payments and application forms for the public issue.

y Entering the bidding detail into the electronic bidding system

y Generating a Transaction Registration Slip ("TRS") for each price and

demand option and give the same to the bidder.

y The Bidder can make the revision to the bid any number of times during the

Bidding Period.

At the time of registering each Bid, the members of the Syndicate enters the

following details of the investor in the on-line system:

y Name of the investor.

y Investor Category Individual, Corporate, NRI, FII, or Mutual Fund etc.

y Numbers of Equity Shares bid for.

y Bid Amount.

y Bid cum Application Form number.

y Whether Margin Amount has been paid upon submission of Bid cum

Application Form.

y Depository Participant Identification Number and Client Identification Number

of the beneficiary account of the Bidder.

4. Underwriters:

y Under-writing is a insurance against the risk of under subscription.

y The under-writers are the people having good net-worth i.e. having good paid

up share capital and free reserve.

y They are allowed to do underwriting in the public up to 20 times of their net-

worth.

y No company gives to an under-writer more than 5% of their public issue.

y Registered Lead Merchant Banker always select the under-writers to issue

and their name is mentioned in the offer document

y The Lead Merchant Banker has to satisfy himself that the assets of the

underwriter are sufficient to meet the under-writing commitment.

y For under-writing, the underwriters are paid underwriting commission which is

5% in case of shares and 2.5% in case of issue of debentures.


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y Underwriting obligations would not be restricted to the minimum subscription

level but to the whole issue, where applicable.

No Complaints Certificate

After a period of 21 days from the date the draft offer document was made

public, the Lead Merchant Banker shall file a statement with the Board:

By giving a list of complaints received by it; a statement by it whether it is

proposed to amend the draft offer document or not, and; highlight those

amendments.

Mandatory Collection Centres

The minimum number of collection centres for an issue of capital shall be:

the four metropolitan centres situated at Mumbai, Delhi, Calcutta and Chennai all

such centres where the stock exchanges are located in the region in which the

registered office of the company is situated.

The issuer company shall be free to appoint as many collection centres as it

may deem fit in addition to the above minimum requirement.

In addition to the provisions of clause, in respect of issues where Application

Supported by Blocked Amount is applicable, all designated branches of Self Certified

Syndicate Banks shall be deemed as mandatory collection centres.

Authorised Collection Agents

The issuer company can also appoint authorised collection agents in

consultation with the Lead Merchant Banker subject to necessary disclosures

including the names and addresses of such agents made in the offer document.

The modalities of selection and appointment of collection agents can be made

at the discretion of the Lead Merchant Banker.


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The lead merchant banker shall ensure that the collection agents so selected

are properly equipped for the purpose, both in terms of infrastructure and manpower

requirements.

The collection agents may collect such applications as are accompanied by

payment of application moneys paid by cheques, drafts and stock invests.

The authorised collection agent shall not collect application moneys in cash.

The applications collected by the collection agents shall be deposited in the

special share application account with designated scheduled bank either on the

same date or latest by the next working day.

The application forms along with duly reconciled schedules shall be forwarded

by the collection agent to the Registrars to the Issue after realisation of cheques and

after weeding out the applications in respect of cheques return cases, within a period

of 2 weeks from the date of closure of the public issue.

The offer documents and application forms shall specifically indicate that the

acknowledgement of receipt of application moneys given by the collection agents

shall be valid and binding on the issuer company and other persons connected with

the issue.

The investors from the places other than from the places where the

mandatory collection centres and authorised collection agents are located, can

forward their applications along with stockinvests to the Registrars to the Issue

directly by Registered Post with Acknowledgement Due.

The applications received through the registered post shall be dealt with by

the Registrars to the Issue in the normal course.


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Appointment of Compliance Officer

An issuer company shall appoint a compliance officer who shall directly liaise

with the Board with regard to compliance with various laws, rules, regulations and

other directives issued by the Board and investors complaints related matter. The

name of the compliance officer so appointed shall be intimated to the Board.

Abridged Prospectus

The Lead Merchant Banker shall ensure the following:

i) Every application form (including Application Supported by Blocked Amount

forms) distributed by the issuer Company or anyone else is accompanied by a copy

of the Abridged Prospectus.

ii) The application form (including Application Supported by Blocked Amount

forms) may be stapled to form part of the Abridged Prospectus. Alternatively, it may

be a perforated part of the Abridged Prospectus.

iii) The Abridged Prospectus shall not contain matters which are extraneous tothe contents of the prospectus.

iv)The Abridged prospectus shall be printed in a font size as specified in

clause.

v) Enough space shall be provided in the application form to enable the

investors to file in various details like name, address, etc.


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11. Offer Documents Contents

The Offer document shall contain the following:

SECTION I - CONTENTS OF THE PROSPECTUS

The prospectus shall contain all material information which shall be true and

adequate so as to enable the investors to make informed decision on the

investments in the issue.

The prospectus shall also contain the information and statements specified in

this chapter and shall as far as possible follow the order in which the requirements

are listed in this chapter and summarised in Schedule.

1. Cover Pages

2. Front Cover Pages

3. Back Cover Pages

4. Table of Contents

5. Definitions and Abbreviations

6. Risk Factors

7. Introduction

8. About the Issuer Company

9. Financial Statements

10. Legal and Other Information

11. Other Regulatory and Statutory Disclosures

12. Offering Information

13. Description of Equity Shares and Terms of the Articles of

14. Association

15. Other Information


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SECTION II - CONTENTS OF ABRIDGED PROSPECTUS

1. General Instructions

2. General Information

3. Capital Structure of the issuer company

4. Terms of the Present Issue

5. Particulars of the Issue

6. Company, Management and Project

7. Basis for Issue Price

8. Outstanding Litigations and Defaults (in a summarised tabular form)

9. Material Development

10. Expert opinion obtained, if any.

11. Signatories to the Offer Document.

SECTION III - CONTENTS OF THE LETTER OF OFFER

1. Cover Pages

2. General information

3. Capital structure of the company

4. Terms of the present issue

5. Particulars of the issue

6. Company, management and project

7. Financial performance of the company for the last five years

8. Statutory and other information

9. Undertaking by Directors


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12. POST- ISSUE OBLIGATIONS

Post - Issue Monitoring Reports

Irrespective of the level of subscription, the post-issue Lead Merchant Banker

shall ensure the submission of the post-issue monitoring reports as per formats

specified in Schedule.

These reports shall be submitted within 3 working days from the due dates.

The due date for submitting Post Issue Monitoring report in case of public

issues by listed and unlisted companies:

a) 3 day monitoring report in case of issue through book building route, for

book built portion:

The due date of the report shall be 3rd day from the date of allocation in the

book built portion or one day prior to the opening of the fixed price portion whichever

is earlier.

b) 3 day monitoring report in other cases, including fixed price portion of book

built issue:

The due date for the report shall be the 3rd day from the date of closure of the

issue.

c) Final post issue monitoring report for all issues:

The due date for this report shall be the 3rd day from the date of listing or 78

days from the date of closure of the subscription of the issue, whichever is earlier.

Redressal of Investor Grievances

The Post - Issue Lead Merchant Banker shall actively associate himself with post-

issue activities namely, allotment, refund, despatch and giving instructions to Self

Certified Syndicate Banks and shall regularly monitor redressal of investor

grievances arising there from.)


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Co-ordination with Intermediaries

(i) The Post-issue lead merchant banker shall maintain close coordination with

the Registrars to the Issue and arrange to depute its officers to the offices of various

intermediaries at regular intervals after the closure of the issue to monitor the flow of

applications from collecting bank branches (and /or Self Certified Syndicate Banks,)

processing of the applications including(Application form for Applications Supported

by Blocked Amount) and other matters till the basis of allotment is finalised, despatch

security certificates and refund orders completed and securities listed.

(ii) Any act of omission or commission on the part of any of the intermediaries

noticed during such visits shall be duly reported to the Board.

Underwriters

a) i) If the issue is proposed to be closed at the earliest closing date, the

lead Merchant Banker shall satisfy himself that the issue is fully subscribed before

announcing closure of the issue.

ii) In case, there is no definite information about subscription figures, the issue

shall be kept open for the required number of days to take care of the underwriters'

interests and to avoid any dispute, at a later date, by the underwriters in respect of

their liability.

b) In case there is a devolvement on underwriters, the lead Merchant Banker

shall ensure that the underwriters honour their commitments within 60 days from the

date of closure of the issue.

c) In case of undersubscribed issues, the lead merchant banker shall furnish

information in respect of underwriters who have failed to meet their underwriting

devolvements to the Board in the format specified at Schedule.


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Bankers to an issue

The post-issue Lead Merchant Banker shall ensure that moneys received

pursuant to the issue and kept in a separate bank (i.e. Bankers to an Issue), as per

the provisions of section 73(3) of the Companies Act 1956, is released by the said

bank only after the listing permission under the said Section has been obtained from

all the stock

Post-issue Advertisements

Post-issue Lead Merchant Banker shall ensure that in all issues,

advertisement giving details relating to oversubscription, basis of allotment, number,

value and percentage of all applications including Applications Supported by Blocked

Amount , number, value and percentage of successful allottees for all applications

including Applications Supported by Blocked Amount , date of completion of

despatch of refund orders /instructions to Self Certified Syndicate Banks by the

Registrar, date of despatch of certificates and date of filing of listing application is

released within 10 days from the date of completion of the various activities at least

in an English National Daily with wide circulation, one Hindi National Paper and a

Regional language daily circulated at the place where registered office of the issuer

company is situated.

Post-issue Lead Merchant Banker shall ensure that issuer company/ advisors/

brokers or any other agencies connected with the issue do not publish any

advertisement stating that issue has been oversubscribed or indicating investors

response to the issue, during the period when the public issue is still open for

subscription by the public. Advertisement stating that "the subscription to the issue has been closed"

may be issued after the actual closure of the issue.


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Basis of Allotment

In a public issue of securities, the Executive Director/Managing Director of the

Designated Stock Exchange along with the post issue Lead Merchant Banker and

the Registrars to the Issue shall be responsible to ensure that the basis of allotment

is finalised in a fair and proper manner.


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13. Green Shoe Option

Legally, referred to as an over-allotment option, a provision contained in an

underwriting agreement which gives the underwriter the right to sell investors more

shares than originally planned by the issuer. This would normally be done if the

demand for a security issue proves higher than expected.

A green shoe option can provide additional price stability to a security issue,

since the underwriter has the ability to increase supply and smooth out price

fluctuations if demand surges too high.

An issuer company making a public offer of equity shares can avail of the

Green Shoe Option (GSO) for stabilizing the post listing price of its shares.

A company desirous of availing the option granted by this Chapter, shall in the

resolution of the general meeting authorizing the public issue, seek authorization

also for the possibility of allotment of further shares to the stabilizing agent (SA) at

the end of the stabilization period in terms of clause.

The company shall appoint one of the (merchant bankers or Book Runners,

as the case may be, from amongst) the issue management team, as the stabilizing

agent (SA), who will be responsible for the price stabilization process, if required.

The SA shall enter into an agreement with the issuer company, prior to filing

of offer document with SEBI, clearly stating all the terms and conditions relating to

this option including fees charged / expenses to be incurred by SA for this purpose.

The SA shall also enter into an agreement with the promoter(s) or pre-issue

shareholders who will lend their shares under the provisions of this Chapter,

specifying the maximum number of shares that may be borrowed from the promoters

or the shareholders, which shall not be in excess of 15% of the total issue size.)


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14. Guidelines On Advertisement

The Lead Merchant Banker shall ensure compliance with the guidelines on

Advertisement by the issuer company. Guidelines on Advertisements

An issue advertisement shall be truthful, fair and clear and shall not containany statement which is untrue or misleading.

Any advertisement reproducing or purporting to reproduce any information

contained in a offer document shall reproduce such information in full and disclose

all relevant facts and not be restricted to select extracts relating to that item.

An issue advertisement shall be considered to be misleading, if it contains

Statements made about the performance or activities of the company in the absence

of necessary explanatory or qualifying statements, which may give an exaggerated

picture of the performance or activities, than what it really is. An inaccurate portrayal

of past performance or its portrayal in a manner which implies that past gains or

income will be repeated in the future.

An advertisement shall be set forth in a clear, concise and understandable

language. Extensive use of technical, legal terminology or complex language and the

inclusion of excessive details which may distract the investor, shall be avoided.

An issue advertisement shall not contain statements which promise or

guarantee rapid increase in profits. An issue advertisement shall not contain any

information that is not contained in the offer document. No models, celebrities,

fictional characters, landmarks or caricatures or the likes shall be displayed on or

form part of the offer documents or issue advertisements. Issue advertisements shall

not appear in the form of crawlers (the advertisements which run simultaneously with

the programme in a narrow strip at the bottom of the television screen) on television.

In case of issue advertisement on television screen:

The risk factors shall not be scrolled on the screen; and the advertisement

shall advise the viewers to refer to the red herring prospectus or other offer

document for details.)

No advertisement shall include any issue slogans or brand names for the

issue except the normal commercial name of the company or commercial brand

names of its products already in use.

No slogans, expletives or non-factual and unsubstantiated titles shall appear

in the issue advertisements or offer documents.


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If any advertisement carries any financial data, it shall also contain data for

the past three years and shall include particulars relating to sales, gross profit, net

profit, share capital, reserves, earnings per share, dividends and the book values. All

issue advertisements in newspapers, Magazines, brochures, pamphlets containing

highlights relating to any issue shall also contain risk factors given equal importance

in all respects including the print size. No issue advertisement shall be released

without giving Risk Factors in respect of the concerned issue.

No advertisement shall be issued stating that the issue has been fully

subscribed or oversubscribed during the period the issue is open for subscription,

except to the effect that the issue is open or closed. No announcement regarding

closure of the issue shall be made except on the last closing date. If the issue is fully

subscribed before the last closing date as stated in the offer document, the

announcement should be made only after the issue is fully subscribed and such

announcement is made on the date on which the issued is to be closed.

Announcement regarding closure of issue shall be made only after the Lead

Merchant Banker is satisfied that at least 90% of the issue has been subscribed and

a certificate has been obtained to that effect from the Registrar to the Issue. No

incentives, apart from the permissible underwriting commission and brokerage, shall

be offered through any advertisements to anyone associated with marketing the

issue. In case there is a reservation for the NRIs, the issue advertisement shall

specify the same and indicate the place in India from where the individual NRI

applicant can procure application forms.


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15. IPO Methods

1. Fixed Pricing Method:

The mechanics of determining the offer price during the CCI regime was to

offer share at a fixed price. Here, the firm & the merchant banker decided an offer

price without taking into account the investors feedback. Fixed price offerings were

made to uniformed investors. Moreover, there was a long time lag from the date of

pricing to the date the issue opened and to the date trading commenced. This raises

the possibility of price fluctuation in the intervening period. Empirical evidence

supports the view that fixed price-offering results in high cost of capital for firms dueto under pricing of shares for attracting subscription.

2. Fair Price Method:

The pricing pattern changed in the free pricing era. This era was

characterized by unrealistic & abrupt pricing structure, which stripped the radiance of

the capital market. Investors shied away from the market after burning their fingers in

those premium issues now being quoted only below their issue price but even below

their par value.

3. Bookbuilding Method

Bookbuilding is essentially a process used by companies raising capital

through Public Offerings-both Initial Public Offers (IPOs) or Follow-on Public Offers (

FPOs) to aid price and demand discovery. It is a mechanism where, during the

period for which the book for the offer is open, the bids are collected from investors

at various prices, which are within the price band specified by the issuer. The

process is directed towards both the institutional as well as the retail investors. The

issue price is determined after the bid closure based on the demand generated in the

process.


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Stages:

y The Issuer who is planning an offer nominates lead merchant banker(s)

as 'book runners'.

y The Issuer specifies the number of securities to be issued and the price

band for the bids.

y The Issuer also appoints syndicate members with whom orders are to

be placed by the investors.

y The syndicate members input the orders into an 'electronic book'. This

process is called 'bidding' and is similar to open auction.

y The book normally remains open for a period of 5 days.

y

Bids have to be entered within the specified price band.y Bids can be revised by the bidders before the book closes.

y On the close of the book building period, the book runners evaluate the

bids on the basis of the demand at various price levels.

y The book runners and the Issuer decide the final price at which the

securities shall be issued.

y Generally, the numbers of shares are fixed; the issue size gets frozen

based on the final price per share.

y Allocation of securities is made to the successful bidders. The rest get

refund orders.


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16. TYPES OF BOOKBUILDING

The issue of securities through Book building can be done in either of thefollowing two ways.

y 75% Book building

y 100% Book building

In 75 % Book building, the issue securities can be categorized in to

I. The placement portion

II. The public portion the net offer to the public.

The placement portion is the portion of the issue offered to the public through

the syndicate by way of Book building process. The syndicate is made of entities like

underwriters, merchant bankers, financial institutions, broker & high net worth

individuals. i.e. all investors are free to have a share in the public portion but they

can do so through the syndicate members.

The public portion refers to the offer to the public. By and large, it is

responded to by retail offerings. The price arrived at in the Book building method is

applicable to the public offer.


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[9.1 75% Book building process]

The 75% Book building route is available to all corporate which are otherwise

eligible to make an issue to the public. The issue size shall not be less than 100

crore & underwriting shall be mandatory to the extent of the net offer to the public.

The prospectus should indicate the price band within which the securities are being

offered to the subscription. The SEBI allows partial Book building with only 75% of

the total issue allotted for the Book building portion the remaining 25% has to be

compulsorily offloaded in general market at a fixed price discovered during the Book

building process.

The SEBI has granted issuers the permission to go for 100% Book building

without offloading any portion of the issue in the market. A 100 % Book building

issue implies that the entire issue completed in a single stage, without having to

make a mandatory fix price offering. The size of the issue has to be at least Rs 25crore & issue has to be fully underwritten. The Book building portion shall be allotted

in demat form only. Book building shall be for portion other than the promoters

contribution. The 100% Book building comes from the stipulation of proportionate

allotment to various categories of investors 50% to qualified institutional investors,

35% retail segment, & 15 % to non institutional segment. In 100% Book building the


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lead manager has to focus on nationwide centers to collect bids due to retail

participation in the bid, where as in partial Book building lead manager focuses on

only three or four centers to collect bids.

Below is the detail process flow of a 100% Book Building Initial Public Offer IPO.

This process flow is just for easy understanding. The steps provided below are most

general steps involve in the life cycle of an IPO. Real processing steps are more

complicated and may be different.

I. Issuer Company - IPO Process Initialization

1. Appoint lead manager as book runner.

2. Appoint registrar of the issue.

3. Appoint syndicate members.

II. Lead Manager's - Pre Issue Role - Part 1

1. Prepare draft offer prospectus document for IPO.

2. File draft offer prospectus with SEBI.

3. Road shows for the IPO.

III. SEBI Prospectus Review

1. SEBI review draft offer prospectus.

2. Revert it back to Lead Manager if need clarification or changes (Step 2).

3. SEBI approve the draft offer prospectus, the draft offer prospectus is now become

Offer Prospectus.

IV. Lead Manager - Pre Issue Role - Part 2

1. Submit the Offer Prospectus to Stock Exchanges, registrar of the issue and get it

approved.

2. Decide the issue date & issue price band with the help of Issuer Company.

3. Modify Offer Prospectus with date and price band. Document is now called Red

Herring Prospectus.

4. Red Herring Prospectus & IPO Application Forms are printed and posted to

syndicate members; through which they are distributed to investors.


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V. Investor Bidding for the public issue

1. Public Issue Open for investors bidding.

2. Investors fill the application forms and place orders to the syndicate members

(syndicate member list is published on the application form).

3. Syndicate members provide the bidding information to BSE/NSE electronically

and bidding status gets updated on BSE/NSE websites.

4. Syndicate members send all the physically filled forms and cheques to the

registrar of the issue.

5. Investor can revise the bidding by filling a form and submitting it to Syndicate

member.

6. Syndicate members keep updating stock exchange with the latest data.

7. Public Issue Closes for investors bidding.

VI. Lead Manager Price Fixing

1. Based on the bids received, lead managers evaluate the final issue price.

2. Lead managers update the 'Red Herring Prospectus' with the final issue price and

send it to SEBI and Stock Exchanges.

VII Registrar - Processing IPO Applications

1. Registrar receives all application forms & cheques from Syndicate members.

2. They feed applicant data & additional bidding information on computer systems

3. Send the cheques for clearance.

4. Find all bogus application.

5. Finalize the pattern for share allotment based on all valid bid received.

6. Prepare 'Basis of Allotment'.

7. Transfer shares in the demat account of investors.

8. Refund the remaining money though ECS or Cheques.

VIII. Lead manager Stock Listing

1. Once all allocated shares are transferred in investors dp accounts, Lead Manager

with the help of Stock Exchange decides Issue Listing Date.

2. Finally share of the issuer company gets listed in Stock Market.


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17. Guideline On Initial Public OffersThrough The Stock Exchange On Line

System(e-IPO)

A company proposing to issue capital to public through the on-line system of

the stock exchange for offer of securities shall comply with the requirements as

contained in this Chapter in addition to other requirements for public issues as given

in these Guidelines, wherever applicable.

Agreement with the Stock exchange:

The company shall enter into an agreement with the Stock Exchange(s)

which have the requisite system of on-line offer of securities. The agreement

mentioned in the above clause shall specify inter-alia, the rights, duties,responsibilities and obligations of the company and stock exchange (s) inter se. The

agreement may also provide for a dispute resolution mechanism between the

company and the stock exchange.

Appointment of Brokers:

The stock exchange, shall appoint brokers of the exchange, who are

registered with SEBI, for the purpose of accepting applications and placing orders

with the company. For the purposes of this Chapter, the brokers, so appointed

accepting applications and application monies, shall be considered as collection

centres. The broker/s so appointed, shall collect the money from his/their client for

every order placed by him/them and in case the client fails to pay for shares

allocated as per the Guidelines, the broker shall pay such amount. The

company/lead manager shall ensure that the brokers having terminals are appointed

in compliance with the requirement of mandatory collection centres, as specified in

clause The company/lead manager shall ensure that the brokers so appointed are

financially capable of honouring their commitments arising out of defaults of their

clients, if any. The company shall pay to the broker/s a commission/fee for the

services rendered by him/them. The exchange shall ensure that the broker does not

levy a service fee on his clients in lieu of his services. Appointment of Registrar to

the Issue company shall appoint a Registrar to the Issue having electronic

connectivity with the Stock Exchange/s through which the securities are offered

under the system. Listing The company may apply for listing of its securities on an


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exchange other than the exchange through which it offers its securities to public

through the on-line system. Responsibility of the Lead Manager The Lead Manger

shall be responsible for co-ordination of all the activities amongst various

intermediaries connected in the issue / system. The names of brokers appointed for

the issue along with the names of the other intermediaries, namely, Lead managers

to the issue and Registrars to the Issue shall be disclosed in the prospectus and

application form.