ipo planning
TRANSCRIPT
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IPO (Initial Public Offering) / Listing
Planning
Presented by
Affan SajjadACACell # 03219400788
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Presenter Profile
Passed CA exams in December 2004
Became Associate Member of ICAP in November 2005
Completed Articles from Ernst & Young (FRSH) from August 2001 to October 2005. Served Ernst & Young as Assistant Manager Audit from November 2005 to April
2006
Served KPMG as Assistant Manager Audit from July 2006 to November 2006
Moved to Industry by joining Agritech Limited (Formerly Pak-American FertilizersLtd.) as Manager Corporate Finance in December 2006.
Achievements: Qualified during Articles
Seconded to EY Saudi Arabia and USA during articles
Due Diligence and acquisition of Hazara Phosphate
Project financing for the expansion project
Listing of Agritech
Restructuring of long term loans of more than PKR 20 Billion Due diligence of Agritech and Hazara by local and international investors
Merger of Agritech & HPFL
Acquisition of Agritech by Banks consortium under debt swap arrangement
Handling lender base of more than 70 investors including banks, financial institution, mutual funds,international investors, individuals.
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Index
Introduction to Listing
Strategic Issues to be considered before going for Listing
Activities / Procedure to complete listing activity
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Listing through
Initial Public Offering
Inviting general public for subscription of new shares through prospectus.
Offer for Sale
A person who holds more than 10% in a company may offer for sale such shares totally or part
thereof to the general public through offer for sale document.
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Issues to be considered
Purpose Why Listing
Raising Funds
Repayment of Debts / Lowering leverage
Possible Acquisition / Expansion
Funding for loan based project
Funding for Equity based project
Others
Repute
Local & international recognition
Availability of market / quoted price
Easy to attract private equity
Diversify investor base
Easy to sale and purchase shares for Public
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Issues to be considered
Shareholding
What is the current shareholding structure
Are you issuing new shares
Who is targeted investor Equity investors / Institution / Public
What is the minimum limit to be issued to Public
What will be post IPO shareholding structure
In case of offer of sale by existing shareholding Need to justify disinvestment
Possible effect on shareholding / directorship / control
Capital Structure
Existing Debt to equity ratio & WACC
What will be the impact on debt to equity ratio and WACC
Loan agreement restricting change in shareholding
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Issues to be considered
Price
What should be the Offer price. Three scenarios (Issue could be at DISCOUNT, PAR, PREMIUM)
Prepare financial model for pricing
Prepare Valuation on DCF and Market based methods
Need to convince underwriters on IPO price
Conditions under Capital issue rules on public issue at premium
Profitable operational record of at least one year
Premium shall not exceed the premium charged to private placements
Fully underwritten
Underwriters not being associated companies
Underwriters shall include at least two financial institution Due diligence report by underwriters providing justification of premium
Employees getting preferential allocation shall be charged with same premium
Shares allocated on preferential allocation at par shall not be saleable for two years
Sample Due Diligence reportDue Diligence report of EPL
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Issues to be considered
Price
In case of Premium, Justification for Premium (Quantitative and Qualitative)
Quantitative Valuation as compared to peers / sector justifying premium
Qualitative factors justifying premium
Management track record Brand Value
Sector preference
Growth story
Cost advantage / technology
Strategic location
Premium Justification in Prospectus (Quantitative & Qualitative)EFL Prospectus
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Issues to be considered
Applicable Laws
Listing Regulations of Stock exchange
The Companies (Issue of Capital) Rules, 1996
Companies Ordinance
Securities and Exchange Ordinance
Guidelines available at SECP site
Legal requirements after listing
Code of corporate governance
Additional disclosure requirements under 4th schedule of co. ordinance
Tight scrutiny by auditors, SECP and KSE
Quarterly reporting and accounts printing
Vulnerable to hostile takeover
Investor relations
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Issues to be considered
Advisors / Intermediaries
Lead
Financial ( For underwriting, placements & Marketing)
Corporate (For statutory approval from KSE & SECP)
Others
Legal Advisor
Underwriters
Share registrar
Balloter
Bankers to the issue
Book runner
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Issues to be considered
Initial - Cost
Initial Listing Fee of stock exchanges
Annual Listing Fee
SECP fee
Underwriting commission
Take-up commission
Ballotters and Share registrar charges
Commission to Bankers to issue
Brokerage to Members of the stock exchange Advisory fee of lead manager and book runner
Legal Fees
Printing and Publication cost (prospectus, Application form, Informationmemorandum, Notice)
Marketing Expenses
After Listing -Cost
Fee of stock exchanges & SECP
Quarterly Printing cost
Newspaper cost for notice and ads
Arrangement of AGM & EOGM Cost of meeting Code of corporate governance requirements
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Issues to be considered
Internally
Develop project team
Appoint Financial and Corporate advisor
IPO responsibility
Prospectus responsibility
Timetable Consideration
IPO marketing
Timelines
Nearly six months exercise containing various steps / approvals
Consider Proposed project / acquisition funding timelines
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Pivotal Milestones to complete Listing process
Underwriting agreements
Issuance of Prospectus (newspaper)
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Audited
Accounts Date
Not more than
6 months
Prospectuspublished in
newspaper
Subscription
Dates7 to 30 days
Pivotal Timelines to complete Listing process
June 30, 2011 Dec 31, 2011 Jan 30, 2012
Dec 31, 2011 June 30, 2012 July 30, 2012
Technical Knockout Point:
Audited accounts disclosed in prospectus should not be older than six (6) months from thedate of publication of prospectus (KSE listing regulation)
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Eligibility for Listing
Any public limited company or body corporate having minimum paid upcapital of two hundred million rupees (Rs.200 million) may apply for listing on
a stock exchange in Pakistan. (KSE listing regulation Chapter IV)
Section 2 of the Ordinance prohibits private limited companies to invitegeneral public for subscription of their securities including shares.
A foreign company having place of business in Pakistan can also apply forlisting on a stock exchange in Pakistan subject to approval of Federal
Government.
Technical Knockout Point:
No company shall be listed unless it has made public issue which is subscribed by not lessthan 500 applications. (KSE listing regulation chapter IV)
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Issue Size and Allocation of Capital (KSE listing regulations Chapter III A)
The size of issue and allocation to various categories of investors has been set as under:
In case post issue paid-up capital of the issuing company is up to Rs.500million, at least 50% of such capital shall be offered to the general public; and
In case capital of the issuing company is beyond Rs.500 million, public offershall be at least Rs.250 million or 25% of the post issue paid-up capital,
whichever is higher.
In case of offer for sale of shares by an existing shareholder, the offer size
shall be at least Rs. 100 million or 25% of the paid up capital of the companywhichever is lower.
Upto 5% of the issue size can be allocated to employees of the issuingcompany.
Upto 20% of the issue size can be allocated to overseas Pakistanis.
In case of Modarabas at least 70% of the issue size shall be allocated to
general public/retail investors. Keeping in view the appetite for IPOs, the offer price, nature of business of
the issuer and issuer's pattern of shareholding, the requirement of minimum
allocation to retail investors can be relaxed as deemed appropriate by SECP.
Allocation of shares to
(i) Sponsors in excess of 25% &
(ii) Under Pre IPO placement including employees of company / group companies
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Methods of Offering Shares
Fixed Price Method
Under this method the offer price is set by the issuer or the Offerer
Independent institutions / underwriters provide comfort to the prospective investors as far asthe offer price is concerned.
The basis of issue price is disclosed in the prospectus where the issuer gives detail about thequalitative and quantitative factors justifying the issue price.
Investors subscribe for the shares at the price already decided by the issuer.
Book Building Process
Book-Building is a mechanism of price determination through which indication of interest forinvestment in the shares offered by an issuer/Offerer is collected from Institutional Investors
and High Net worth Individual Investors through making of bids and a book is built which gives
a picture of demand for the shares at different price levels.
Floor Price is decided by the Issuer/ Offerer in consultation with the Book Runner
Strike Price is determined at the end of the bidding period on the basis of bids receivedthrough the Dutch Auction Method.
Under the Dutch Auction Method, Strike Price is the price at which bids for the entire sharesoffered for sale are made. Book Building portion of the offer is underwritten by the Book
Runner.
Detail procedure of issue/offer of shares through Book Building is given in the Appendix-4 ofthe Listing Regulations of the Stock Exchanges.
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Listing Incentives
Tax credit for enlistment: Where a taxpayer being a company opts forenlistment in any registered stock exchange in Pakistan, a tax credit equal to
15% of tax payable shall be allowed for the tax year in which said company is
enlisted. (sec 65C of income tax ordinance)
Government of Pakistan through the Finance Act, 2011 has announced a taxholiday for five years (till June 2016) for newly established industrial
undertakings, BMR and expansion provided such projects are financed
entirely through equity. For detail Sections 65D and 65E of the Income Tax
Ordinance, 2001 may be consulted. To be benefitted of this incentive, the
companies may raise equity through the capital market for financing their
projects.
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Activities / Procedures to Complete IPO
/ Listing Activity
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Steps to Complete IPO / Listing Activity (I)
1. Preliminary work on Scheme / structure of transaction.
2. Creating Financial Model showing future financial performance and position andimpact of this transaction.
3. Company Valuation on the basis of Financial Model. Also finalizing the issue pricewith the transaction advisor.
4. Preparing Teaser for the transaction
5. Holding BOD meeting for passing resolution for IPO / listing
6. Underwriting
7. Private placements / Pre IPO placements
8. Appointment of bankers to issue for collecting of subscription money andapplications
9. Appointment of Balloter and Share Registrar
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Steps to Complete IPO / Listing Activity (II)
10. Obtaining clearance from CDC and NCCPL and ensuring declaration of thecompany shares as an Eligible Security
11. Prepare Offer for Sale document / prospectus
12. Due Diligence report by underwriter
13. Audited Accounts and certificates from Auditors
14. Filing of listing application with KSE with relevant documents
15. Filing of application with SECP with relevant documents
16. Approval of OFSD / prospectus and listing application by KSE and SECP
17. File application with KSE and SECP for obtaining clearance for date of publicationof OFSD / prospectus and date of opening and closing of subscription list
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Steps to Complete IPO / Listing Activity (III)
18. Publication of OFSD / prospectus
19. Presentation to KSE members
20. Printing of Share certificates and application forms
21. Subscription dates
22. File necessary return as to subscription received with the KSE, SECP and bankersto issue within 3 working days of closure of subscription
23. Balloting within 10 days of closure of subscription
24. Determination of successful applicants and filing of Ballot register with the KSE,SECP and bankers to issue
25. Call a board meeting immediately after ballot to approve the allotment toapplicants determined successful in the ballot
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Steps to Complete IPO / Listing Activity (IV)
26. Refund of subscription money to the rejected and unsuccessful applicants within
10 days of ballot and transfer subscription money of successful applicants to thecompanys main account.
27. File return of allotment with the Registrar of Companies within 30 days ofallotment
28. Transfer of shares to successful candidate within 30 days of closure of subscriptionlist.
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Timelines
Audited
Accounts Date
Not more than
6 months
Prospectuspublished in
newspaper
Subscription
Dates7 to 30 days
Activities during thisperiod
IPO MarketingPrinting of Application forms &
other requisite documents
Activities during thisperiod
Appointment of Financial &
Corporate advisor
Preparation of Financial Model
,Valuation, IM, Prospectus
Underwriting Agreements
Private placementsDue diligence report
Audited AccountsAuditors Certificates
Appointment of Banker to
issue, Balloter & Share
registrar
Approval from KSE & SECP
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Application to KSE (I)
List of documents to be filed to KSE is given in Appendix 1 of Listing regulations. Summary
of documents are given below
Copy of the
certificate of incorporation
certificate of commencement of business.
conversion certificate from private to public company; if applicable.
certificate for change of name of the company, if applicable.
Board resolution Feasibility report of new project
Information memorandum
Material contracts (underwriting, placements, projects, financing)
Title deeds of land
CDC eligibility
Printed share certificate
Soft copy of draft prospectus
Scanned copy of MOA & AOA
Scanned copy of audited accounts last 5 years
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Application to KSE (II)
List of documents to be filed to KSE is given in Appendix 1 of Listing regulations.
Summary of documents is given below
Auditor Certificate
On private placements
U/s 53 read with clause 28(1) of sec 2 of past 1 of 2nd schedule (Profit& Loss, Asset & liabilities, Rate of dividend of 5 years, subsidiary also)
On EPS for last 5 years
On break up value on the basis of latest audited accounts
Consents / NOC of the
Underwriters
Balloter to issue (should not be associated company)
Auditors
Experts / legal advisor
CEO, Director, Company Secretary
Bankers to issue
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Application to KSE (III)
List of documents to be filed to KSE is given in Appendix 1 of Listing regulations.
Summary of documents is given below
CIB reports of
Sponsors, Directors (Not nominee directors)
Company
Associated companies (on the basis of director ship)
List of
Directors / shareholders subscribing under private placement
Employees allocated share out of current issue
Persons allocated share on account of preferential treatment, whereshares issued at premium (Not saleable for two years.)
All documents should be certified by Company Secretary & CEO.
Documents relating to regulatory authorities should by certified from regulatory authorities.
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A company which owns a loan based project and purposes to raise capital
through public offer for the first time shall comply with the following conditions.
The size of capital to be issue shall be in accordance with financialplan approved by an institution financing the project
The company's auditors shall certify that sponsors subscription hasbeen received in full and at least eighty per cent therefore has been
utilized in the project
The stock exchange concerned shall verify that at least thirty percentof the plant & machinery has been installed and last consignment of
P&M, where required has been shipped to the company
The sponsor shall, at all times retain at least 25% of the capital of the
company
Loan based project (Capital Issue rules sec 3)
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A company which owns an equity based project and purposes to raise capital
through public offer for the first time shall comply with the following conditions.
The fixed capital expenditure shall be entirely financed by equity
The project shall be appraised by the financial institution or commercialbank or investment bank
The appraisal report shall be accompanied by a certificate from thecompany auditors confirming that
The capital allocated to sponsors, foreign and local investors, if anyhas been fully paid
The land for the project has been acquired, LC have been establishedand shipment schedule of P&M have been finalized by the suppliers
The issue shall be fully underwritten and the underwriters, not beingassociated companies, shall include at least two financial institutions,
including commercial bank & investment bank and the underwriters shall
evaluate the project in their independent due diligence report.
The sponsor shall retain at least 25% of the capital of the company for aperiod of 5 years form the date of public subscription.
Equity based projects (Capital issue rules sec 3)
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List of documents to be filled with application to SECP.
Clearance letter from Stock exchange Hard & Soft copy of Prospectus / OFSD with last page signed by directors
Affidavit from CEO & CFO on accuracy of disclosure certified by oathcommissioner
Processing Fee
Undertaking from Balloter, Transfer agent & Underwriter that they fulfill
conditions of rule 4 of Balloter, transfer agent & underwriters rules 2001
Consent of Pre IPO investors
Undertaking regarding no buy back agreement from underwriters
Certified Form 29
Confirmation that issued capital does not consist of shares issued againstintangible assets
Affidavit from CEO, Directors, Company secretary, CFO that they havedisclosed all legal proceedings
Application to SECP
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Documents / Publications in IPO / Listing
Teaser
Information Memorandum (IM)
Financial Model containing impact of IPO
Underwriting Agreements
Pre IPO placement Agreements
Due diligence report
Prospectus
Abridged Prospectus
Application in English and Urdu
Notice
Ad in Newspaper
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Documents / Publications in IPO / Listing
Teaser
Opportunity Introduction Business overview Summary of Financial history Future growth plan Pakistan economy and sector insight
Investment Highlights Contact details
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Documents / Publications in IPO / Listing
Information Memorandum (IM)
Term Sheet Executive summary Pakistan economy insight Sector insight Company business overview Investment Highlights
Equity Market Historical financials Financial projection Valuation & offer price Analysis on key variables Risk factors and there mitigants
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Documents / Publications in IPO / Listing
Due Diligence report ( to be issued by underwriters)
Background Transaction summary Company & Business overview BOD & management profile Justification of premium Financial overview
Valuation Market based DCF based
Underwriting rationale Investment highlight
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Thank you
In case of any question / feedback, feel free to contact.
Affan Sajjad
Cell # 03219400788
[email protected]@hotmail.com