Equity Issue

Ved Prakash TiwariIBS GURGAON

Factors to be Consider

•Eligibility Criteria:

Net Tangible assets of Rs. 3.00 Crore in each of the preceding 3 years. Track record of Distributable profits at least 3 out of 5 preceding years. The Company has a Networth of Rs. 1.00 Crore in preceding 3 years.

The proposed issue should not exceed 5 times of its Pre-issue

•Eligibility criteria: (Alternate route)

•Book building process and 50% of the offer to QIBs or

•15% participation in project by F/Is or Schedule Banks;

•10% of the Project cost from appraiser;

•10% of the Issue to QIBs.

•Minimum post issue face capital of Rs.10 Crores or

•Market making for 2 years and Minimum number of allottees atleast 1000

Initial Public Offer (IPO)

This is when an unlisted company makes either a fresh issue or offers sale of its existing securities or both for the first time to public.

• This Initial Public Offering can be made through the fixed price method, book building 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 company can 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 public through the book building process and 25% through the fixed price portion.

Price Discovery through Book Building

Book Building is basically a process used in Initial Public Offer (IPO) which helps to determine price and demand discovery.

It is a process used for marketing a public offer of equity shares of a company. It is a process where, during the period for which the book for the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price.

The offer/issue price is then determined after the last date of IPO based on certain evaluation criteria.

•Appointment of Underwriter-

The underwriters is appointed who commit to shoulder the liability and subscribe to the shortfall in case the issue is under-subscribed. For this commitment they are entitled to a maximum commission of 2.5 % on the amount underwritten.

•Appointment of Registrars:

•Registrars process the application forms, tabulate the amounts collected during the issue and initiate the allotment procedures.

•Appointment of the brokers to the issue:

Recognized members of the Stock exchanges are appointed as brokers to the issue for marketing the issue. They are eligible for a maximum brokerage of 1.5%.

•Appointment of Lawyers:

•Lawyers are appointed by company to ensure that all the agreements they enter are as per the rules and regulation.

•Draft Prospectus:

A draft prospectus is prepared giving out details of the Company, promoters background, Management, terms of the issue, project details, modes of financing, past financial performance, projected profitability and others, The lead manager has to verify and certify the facts stated in the draft prospectus and ensure that the company is not making any false claims. Which is to

be filed with SEBI 21 days before IPO, SEBI gives its observation and recommends necessary changes

•Filing of prospectus with the Registrar of Companies:

The prospectus along with the copies of the agreements entered into with the Lead Manager, Underwriters, Bankers, registrars and Brokers to the issue is filed with the Registrar of Companies of the state where the registered office of the company is located.

•Printing and dispatch of Application forms: The prospectus and application forms are printed and dispatched to all the merchant bankers, underwriters, brokers to the issue.

•Filing of the initial listing application:

A letter is sent to the Stock exchanges where the issue is proposed to be listed giving the details and stating the intent; of getting the shares listed on the Exchange. The initial listing application has to be sent with a fee of Rs. 7,500/-.

•Statutory announcement:•An abridged version of the prospectus and;• the Issue start and close dates are published in major English; dailies and vernacular newspapers.

•Processing of applications:

After the close of the Public Issue all the application forms are scrutinized, tabulated and then shares are allotted against these application

•Establishing the liability of the underwriter:

In case the Issue is not fully subscribed to, then the liability for the subscription falls on the underwriters who have to subscribe to the shortfall.

•Allotment of Shares: The Registrar finalizes the list of eligible allottees after deleting the invalid applications and ensures that the corporate action for crediting of shares to the demat accounts of the applicants is done and the dispatch of refund orders to those applicable are sent.

The Lead Manager coordinates with the Registrar to ensure follow up so that that the flow of applications from collecting bank branches, processing of the applications and other matters till the basis of allotment is finalized.

•Listing of the Issue:

The shares after having been allotted have to be listed compulsorily on the l stock exchange and optionally at the other stock exchanges.

•Escrow Account: An escrow account is a designated account, the funds in which can be utilised only for a specified purpose. In other words, the bankers to the issue keep the funds in the escrow account on behalf of the bidders.• These funds are not available to the company till the issue is completed and allocation is made.

Coal India Issue.

Indian IPO sector has seen a lot of action since the Coal India Limited filed for an initial public offering. The IPO was oversubscribed for 15 times signaling other government-owned companies to jump into the IPO market and make history

• Coal India IPO is the biggest IPO in India so far.• Coal India IPO succeeded due to the ever-increasing trust of investors in the Company –Coal India Ltd.• Steady improvements in Coal India Ltd’s performance and quality have been two major hallmarks of this IPO.• Both foreign and domestic investors have shown robust confidence as far as the company’s credibility is concerned.• The CIL IPO has received maximum bids up till now.• Indian Government has sold 631.6 million shares in the IPO so far.• Investors has borrowed heavy money to subscribe for the Coal IPO shares, the price band was kept between Rs. 225 to 245.

The best thing about the Coal India IPO is the pricing of the shares. The Government has announced that the price band for the offer of shares of Coal India will be Rs. 225-245 per share. •Coal India is offering a discount of 5% for retail investors which means that the price band will be Rs. 214 to 233. •At the FY 2010 consolidated & diluted PE of Rs. 15.56, Coal India’s PE (after retail discount) works out to 15 at the higher end of the price band.

REASONS FOR SUCCESSFUL IPO OF COAL INDIA LTD.