22-10-2014, 03:33 PM
INITIAL PUBLIC OFFERINGS
(IPOs)
1408002845-IPO.pdf (Size: 411.13 KB / Downloads: 1,335)
Why IPOs?
For Funding Needs
Funding Capital Requirements for Organic Growth
•Expansion through Projects
•Diversification
•Funding Global Requirements
•Funding Joint Venture and Collaborations needs
•Funding Infrastructure Requirements, Marketing Initiatives and
Distribution Channels
•Financing Working Capital Requirements
•Funding General Corporate Purposes
•Investing in businesses through other companies
•Repaying debt to strengthen the Balance Sheet
•Meeting Issue Expenses
For Non-funding Needs
•Enhancing Corporate Stature
•Retention and incentive for Employees through stock options
•Provide liquidity to the shareholders
SCRR- Rule 19(2)(b) - prior to
4.6.2010
Rule 19 (2)(b) provides that a company can get listed
with just 10 per cent holding with the public provided the
minimum net offer to the public is Rs 100 crore (Rs 1
billion), a minimum of 20 lakh (2 million) shares are
offered to the public in an IPO through book-building
method and allocation to qualified institutional buyers is
60 per cent of the size of an issue.
ISSUE OF CAPITAL AND DISCLOSURE
(REQUIREMENTS) REGULATIONS, 2009
Common Conditions for Public Issues and Rights Issues
Provisions as to Public Issue
Eligibility Requirements
Pricing in Public Issue
Promoters’ Contribution
Restriction on Transferability (Lock-in) of Promoters’
Contribution, etc.
Minimum Offer to Public, Reservations, etc.
Manner of Disclosures in the Offer Documents
General Obligations of Issuer and Intermediaries with respect
to Public
Issue and Rights Issue
Preferential Issue
Qualified Institutions Placement
Bonus Issue
Issue of Indian Depository Receipts
Key Internal Approvals from Board
and Shareholders
Board Meeting for the IPO including taking on record a potential
offer for sale through the IPO process and setting up an IPO
Committee
Approval/ authorization for Offer for Sale by Selling
Shareholder(s)
Call for a Shareholders meeting to approve the following
— Fresh issue of shares under Section 81 (1A) of the Companies
Act (including reservations, Greenshoe etc.)
— ESOP/ ESPS, if any
— Increase in authorised capital, if any
— Amendment in the Articles of Association of the Company
Appointment of intermediaries by the Board/ IPO Committee
— BRLMs/ Syndicate Members/ Stabilisation Agent
— Domestic and International Legal Counsel
— Registrars to the Issue
— Advertising and PR Agency
— Printers
— Escrow Collection Bank to the Issue
— IPO Grading agency
— Monitoring agency, if applicable
IPO Grading Process
IPO grading is a service aimed at facilitating the assessment of equity
issues offered to public and is mandatory as per SEBI Regulations
Aimed at providing an independent assessment of fundamentals to aid
comparative assessment
Intended to serve as an Information and Investment tool for investors
IPO grading does not take cognizance of the price of the security. It is
not an investment recommendation
The Issuer must first contact one of the grading agencies and mandate it
for the grading exercise. The agency would then follow the process
outlined below :
• Seek information required for the grading from the Issuer
• On receipt of required information, have discussions with the company’s
management and visit the company’s operating locations, if required
• Meetings with the promoters and independent directors separately
• Prepare an analytical assessment report
Present the analysis to a committee comprising senior executives of the
concerned grading agency. This committee would discuss all relevant
issues and assign a grade
Review SEBI observations and update their report if required.
Communicate the grade to the company along with an assessment
report outlining the rationale for the grade assigned
Though this process will ideally require 2 – 3 weeks for completion, our
initial interaction with Credit Rating Agencies indicates that it may be a
good idea for Issuers to initiate the grading process about 6 – 8 weeks
before the targeted IPO date to provide sufficient time for any
contingencies
IPO Grading is required prior to marketing of the IPO and needs to be
disclosed in the RHP and Prospectus
The Credit Rating Agencies have to forward the names and details of
IPOs graded by them on a monthly basis to SEBI / Stock Exchanges for
uploading on their website for public information
Fixed Price Issues
Offer Price: Price at which the securities are offered
and would be allotted is made known in advance to
the investors
Demand : Demand for the securities offered is known
only after the closure of the issue
Payment :100 % advance payment is required to be
made by the investors at the time of application.
Reservation: 50 % of the shares offered are reserved
for applications below Rs. 1 lakh and the balance for
higher amount applications.
Book Building Issues
Offer Price: A 20 % price band is offered by the issuer
within which investors are allowed to bid and the final price
is determined by the issuer only after closure of the
bidding.
Demand emand for the securities offered , and at various
prices, is available on a real time basis on the BSE website
during the bidding period
Payment :10 % advance payment is required to be made
by the QIBs along with the application, while other
categories of investors have to pay 100 % advance along
with the application.
Reservations : 50 % of shares offered are reserved for
QIBS, 35 % for small investors and the balance for all other
investors.
Book Building Process:
The Issuer who is planning an offer nominates lead merchant
banker(s) as 'book runners'.
The Issuer specifies the number of securities to be issued and the price
band for the bids.
The Issuer also appoints syndicate members with whom orders are to
be placed by the investors.
The syndicate members input the orders into an 'electronic book'. This
process is called 'bidding' and is similar to open auction.
The book normally remains open for a period of 5 days.
Bids have to be entered within the specified price band.
Bids can be revised by the bidders before the book closes.
On the close of the book building period, the book runners evaluate the
bids on the basis of the demand at various price levels.
The book runners and the Issuer decide the final price at which the
securities shall be issued.
Generally, the number of shares are fixed, the issue size gets frozen
based on the final price per share.
Allocation of securities is made to the successful bidders. The rest get
refund orders.