navin final

8/8/2019 Navin Final

1/24

IPO and Book Building

BY:

NAVIN JAINPGDM IV

0908019


2/24

IPO and Book Building

The first public offer of securities by a company after

its inception is known as an Initial Public Offering

(IPO).

IPO dilutes the ownership stake and diffuses

corporate control as it provides ownership to

investors in the form of equity shares.

It can be used as both an exit strategy and a

financing strategy.


3/24

Reasons for Going Public

To raise funds for financing capital expenditure needs like expansion, diversificationetc.

To finance increased working capital requirement

As an exit route for existing investors

For debt financing

Advantages

The IPO provides avenues for funding future needs of the company.

It provides liquidity for the existing shares.

The reputation and visibility of the company increases.

Additional incentive for employees in the form of the company's stocks. This alsohelps to attract potential employees.

It commands better valuation for the company.


4/24

Disadvantages

The profit earned by the company should be shared with itsinvestors in the form of dividends.

An IPO is a costly affair: Around 15 - 20 % of the fundrealised is spent on raising the same.

In an IPO, the company has to disclose results of

operations and financial position to the public and theSecurities and Exchange Board of India (SEBI).

The company has to invest substantial management timeand effort.


5/24

Eligibility Norms

ForUnlisted Companies

It should have a pre-issue net worth of a minimum amount of Rs.1 crore in 3 out of the preceding 5 financial years. In addition, the

company should compulsorily meet the minimum net worth levelduring the two immediately preceding years.

It should have a track record of distributable profits as given insection 205 of the Companies Act, 1956, for at least 3 years inthe preceding 5-year period.

The issue size (i.e. offer + firm allotment + promoters'Contribution through the offer document) should not exceed anamount equal to five times its pre-issue net worth.


6/24

Eligibility Norms

ForListed Companies

It must have a track record of distributable profits

in compliance with Section 205 of the Companies

Act, 1956 for at least 3 of the 5 immediatelypreceding years.

It must have a pre-issue net worth of not less than

Rs. 1 crore in 3 out of the 5 preceding years, with

the minimum net worth to be met during the

immediately preceding 2 years.


7/24

The IPO Process in India

The IPO process in India consists of the

following steps:

Appointment of merchant banker and other

intermediaries

Registration of offer document

Book Building

Marketing of the issue Post-issue activities


8/24

The IPO Process in India

Appointment ofMerchant Bankerand OtherIntermediaries One of the crucial steps for successful implementation of

the IPO is the appointment of a merchant banker.

A merchant banker should have a valid SEBI registration tobe eligible for appoint-ment.

A merchant banker can be any of the following - leadmanager, co-manager, underwriter or advisor to the issue.Certain guidelines are laid down in Section 30 of the SEBI

Act, 1992


9/24


10/24


11/24

BOOK-BUILDING PROCESS

Conducting awareness Campaign :

Book-Runner conducts awareness campaigns which in-cludeadvertising, road shows and holding conferences.

Demand creation and getting feedback:

Syndicate members create demand and feedback to theBook-Runner.

Building up orders : Book-Runner builds up "Book" after receiving the orders from

the mem-bers of the syndicate. Book-Runner is required tomaintain a record of the same in details.


12/24


Closing the Book: Book-Runner is required to close the "Book" in consultation with the

issuing company and determine the size of the placement portion.

The issue comprises two parts

(a) placement portion and

(b) public issue portion.

Placement portion is that portion of the issue which is offered to publicthrough the syndicate by way of book- building process.

Finalize the allocation and entering procurement agreement: Book-Runner finalizes the allo-cation to syndicate members and enters

into a procurement agreement with them.

Procurement agreement is signed between the issuer and syndicatemembers for the "placement portion".

The agreement will broadly provide for: (i) aggregate amount of subscription to be produced by the syndicate

members,

(ii) payment of investor application money by the syndicate member by acertain date, i.e.,one-day before public issue opens, and

(iii) procurement and selling commissions payable.


13/24


Filing final Prospectus with Registrar:

Final prospectus is filed with Registrar of Companies (ROC) along withprocurement agreements within two-days of the determination of the offerprice and receipt of acknowledge card from SEBI.

Opening for Subscription for placement portion : Placement portion opens for subscription after the filing of final prospectus

with the ROC.

Collection of Application money:

The placement portion closes a day before the opening of the public portion. Book Runner is required to collect application moneys one day prior to

opening of the issue from the subscribers to the placement portion.

Allotting and Listing: Allotment and listing of issues (shares, debentures or bonds) under placement

portion.

Public portion opens.

Allotment and listing of public portion is made on the 1st day from closureof issue.

Allotment of Net Offer to public is made as per the existing statutory

requirements which is 30 days.


14/24

Statutory Requirements

The issue should exceed Rs. 100 crores;

One of the Lead Managers to the issue should be appointed as theBook-Runner to theissue;

The issue should be bifurcated into two parts, viz., (a) "Placementportion" and (b) "Net offer to public". Underwriting for 'net offer to public'is mandatory. Such Runner can also retain the option of requiring underwriters to the 'net

offer to public' to pay in advance all moneys in respect of their underwritingcommitment by the 11* day of issue closure;

A Draft Prospectus is to be submitted to SEBI without a price or price-band. Such draft prospectuses to be circulated to eligible investors witha price-band arrived at by the Book Runner in consultation with theissuer;


15/24


The participants in the book-building process are Institutionalinvestors and institutional buyers eligible for "firm allotment"; andSEBI registered intermediaries eligible to act as underwriters;

Syndicate members should forward orders to the Book-Runner,who is required to maintain a record called "BOOK" of the same;

Issue price is determined by the Book-Runner in consultationwith the issuer company. Issue price for 'placement portion' and'net offer to public' should be the same.

The final prospectus should be filed with. Registrar of Companieswithin two days for determination of the offer price and receipt ofacknowledgment card from SEBI;


16/24


The Book-Runner is required to collect application moneys forthe placement portion one day prior to opening of the issue.

It is collected from the subscribers. Collection of advanceapplication moneys by the eleventh day from closure of the issue

from the underwriters to the net offer to public in case of under-subscription

Allotment is made on the 2nd day of closure of issue with regardto net offer to public is made as per the existing statutoryrequirements;

Listing of placement portion is done with the Stock Exchanges onthe 11th day from closure of issue.

Listing of net offer to public issue as the existing statutoryrequirement which is now reduced to 30 days.


17/24

Principal Documentation

The principal documentation required for the book-buildingprocess is

Mandate Letter: It is a letter issued by the issuer company to the Book Running

Lead Manager (Book-Runner) and authorising the Book Runnerto form syndicate and co-ordinate syndi-cate for procuring

subscription for the 'placement portion'.

Prospectus : Prospectus is also referred to as the offering circular or

information memo-randum, prepared as per statutoryrequirements under the Companies Act, 1956 and Securities and

Exchange Board of India (SEBI) Guidelines for Disclosure andInvestor Protection.

As part of the marketing exercise, a "red herring"or preliminaryprospectus with a price band is required to be circulated tosyndicate members and investors. Based on the "red herring",investors give "Indica-tions ofInterest"(IOIs).


18/24

Principal Documentation

Procurement Agiament:

Procurement is signed between the issuer and thesyndicate members for the "placement portion".

Procurement agreement will broadly provide for:

aggregate amount of subscription to be produced by thesyndicate member;

payment of investor application money by the syndicatemember by a certain date i.e., one-day before public issueopens;

procurement and selling commissions payable.


19/24

Underwriting agreement:

It is entered into between the issuer-company andunderwrit-ers to the "net offer to public".

The format follows the model underwriting agreementprescribed by SEBI.

Standard Bidding Form :

It is the indication of interest. Syndicate members will berequired to submit all indications of interest (IOIs) on astandard form to ensure uniformity in bidding and accuracy.

The standard bidding form indicates the:

identity of the investor;

desired number of shares and;

price sensitivity/range.


20/24

Benefits of Book Building

Book-building is a process of fixing price for an issue onfeedback from potential investors on how they are willing to bidto pick-up issues and instruments.

The process of book-building is advantageous to the issuer-company as the pricing of issue would be more realistic as thefinal price is decided about 11 to 12 days before the opening ofthe issue. Book building also offers access to capital morequickly than the public issue.

As the issue is pre-sold, there would be no uncertaintiesrelating to the fate of the issue involved.


21/24


The issuer-company saves advertising and brokerage commissions.

Issuers can choose investors by quality.

Investors have a voice in the pricing of issues.

They have a greater certainty of being allotted what they demand.Investors need not lock up huge amounts of capital with the issuer asthey pay at the end of the process.

The issue price is market-determined.

As it is market-determined, it is a distant possibility that the marketprice of the shares would fall lower than the issue price.

Hence the investor is less likely to suffer from erosion of hisinvestment on listing.


22/24

Benefits of Book Building Optimal demand-based pricing is possible.

Efficient capital raising with improved issue procedures, leading to areduction in

(a) issue costs,

(b) paper work and

(c) lead times.

Flexibility to increase/decrease price and/or size of offering theissues is possible.

Transparency of allocations is made.

Upgraded information flow of issues, lead managers, syndicatemembers and investors is made possible.

Book-building process inspires 'investors confidence' leading to alarger investor universe.


23/24


Book-building process creates liquidity andbuoyant after-market.

As the syndicate members will get firm

allocation, the investors to that extent areassured of allotment.

Immediate allotment and listing of placement

portion of securities


24/24

THANK YOU

navin final

Documents