Professional Documents
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Initial Public Offer (Ipo)
Initial Public Offer (Ipo)
OFFER
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Governing Laws –
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Filing of draft offer document with SEBI through eligible Merchant Banker at least 30
days prior to filing of prospectus with ROC.
Any company prohibited by Board can not make an issue of security.
Filing of application with Stock exchange for listing and in principal approval is
required.
Issue of securities in dematerialized form.
Unlisted company can not make allotment pursuant to public issue unless
prospective allottees are less than 1000 in numbers.
Shares can be offered to public either in the form of IPO or offer for sale.
Any company issuing debt instrument which are to convertible or not into share on a
later date is required to obtain credit rating of investment grade from at least 2 credit
rating agencies before filing the offer document with the SEBI,
the company is not a willful defaulters of RBI and
Not defaulted in payment of interest or repayment of debentures issued to public
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Issue of Equity share or other securities to be converted into equity on later
date by
an unlisted company:
Company must have track record of distributable profits for at least 3 years
out of immediately preceding 5 years. - Clause 2.2.1(b)
Company must have net worth of Rs.1 Crore in preceding 3 years (full 12
months each). - Clause 2.2.1(c)
If name of the Company has been changed in last 1 year, 50% income of
the Company must be earned from the activity suggested by new name.
Clause 2.2.1(d)
Aggregate of proposed issue & all previous issues made during that
financial year does not exceed to 5 times to its pre issue net worth as per 4
the last audited balance sheet. Clause 2.2.1(e)
B. Companies not fulfilling conditions specified in Clause 2.2.1, have to fulfill following conditions:
(i) Issue through book building process with at least 50% of net offer to public to be issued to QIB.
Or
Project has been appraised & at least 15% participation by FI/Sched. Commercial banks, of which
at least 10% from appraiser & at least 10% of issue size from QIBs.
In case of partnership firms are converted into Company, track record for distributable profit
shall be considered, if the accounts are revised in the format prescribed as per companies Act
and conforming all accounting standards.
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Companies are free to price its share or security to be converted into shares at a later date are:
DIFFERENTIAL PRICING:
Unlisted Company : Firm allotment may be made on higher price than the price officer to Public. If equity shares or
securities convertible into shares are issued to retail individual investor/retail individual share holder, the same can
be issued at lower price than to other categories. The difference shall not exceed 10%.
Listed Company: Differential price may be charged in composite issue of public and right offer.
Justification of differential price in the offer document.
PRICE BAND:
For Fixed price issues, there may be price band of 20% at the time of filing offer documents
with SEBI.
Price shall be freezed in the final offer documents and before filing it to ROC.
DENOMINATION OF SHARE:
If issue price is more than Rs.500/- any face value denomination not less Re. 1/- and not in
decimal.
If Issue price is less than Rs.500/-, face value shall be Rs.10/-
Only one denomination at a given time.
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In case of IPO, the locking period is as under:
Promoters contribution equal to 20% - start from date of allotment & end after 3
years from the date of allotment or date of commencement of commercial
production, whichever is later.
Pre issue share capital: In excess of promoters contribution equal to 20%, for 1
year.
Basis of Lock in – Last allotted share locked in first – Omitted since 29.11.07.
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APPOINTMENT OF LEAD MANAGER(S)
Due diligence procedure by Lead Manager.
Appointment of intermediaries
Lead Manager will appoint:
a. Registrar to issue
b. Legal Advisor
c. Bankers to Issue
d. Underwriters
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WHOLESALE MARKETING
RETAIL MARKETING:
Press Coverage
ISSUE PROCESS:
Issue remain open for minimum 3 days and maximum for 10 days.
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Post issue monitoring reports: These reports shall be submitted with in 3 days from the due dates.
Due dates:
- 3rd day monitoring report - for book building portion – 3rd day from the date of allocation of book building portion
-In other cases – 3rd day from the date of closure of issue.
- Final post issue monitoring report: 3rd day from the date of listing or 78 days from the date of closure of issue, whichever is
earlier.
- Due diligence certificate with final report
Basis of allotment
Post issue advertisement : giving detail about oversubscription, basis of allotment etc. within 10 days from the date of
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A. In respect of Large Cap Companies with a minimum issue size of Rs. 10 crores and market capitalization of not less than Rs.
25 crores.
The minimum post-issue paid-up capital of the applicant company (hereinafter referred to as "the Company") shall be
Rs. 3 crores; and
The minimum issue size shall be Rs. 10 crores; and
The minimum market capitalization of the Company shall be Rs. 25 crores (market capitalization shall be calculated by
multiplying the post-issue paid-up number of equity shares with the issue price).
The minimum post-issue paid-up capital of the Company shall be Rs. 3 crores; and
The minimum issue size shall be Rs. 3 crores; and
The minimum market capitalization of the Company shall be Rs. 5 crores (market capitalization shall be calculated by
multiplying the post-issue paid-up number of equity shares with the issue price); and
The minimum income/turnover of the Company should be Rs. 3 crores in each of the preceding three 12-months period;
and
The minimum number of public shareholders after the issue shall be 1000.
A due diligence study may be conducted by an independent team of Chartered Accountants or Merchant Bankers
appointed by the Exchange, the cost of which will be borne by the company. The requirement of a due diligence study
may be waived if a financial institution or a scheduled commercial bank has appraised the project in the preceding 12
months.
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Permission to use the name of the Exchange in an Issuer Company's prospectus:
The Exchange follows a procedure in terms of which companies desiring to list their securities offered through public issues
are required to obtain its prior permission to use the name of the Exchange in their prospectus or offer for sale documents
before filing the same with the concerned office of the Registrar of Companies. The Exchange has since last three years
formed a "Listing Committee" to analyse draft prospectus/offer documents of the companies in respect of their forthcoming
public issues of securities and decide upon the matter of granting them permission to use the name of "Bombay Stock
Exchange Limited" in their prospectus/offer documents. The committee evaluates the promoters, company, project and
several other factors before taking decision in this regard.
Allotment of Securities
As per Listing Agreement, a company is required to complete allotment of securities offered to the public within 30 days of
the date of closure of the subscription list and approach the Regional Stock Exchange, i.e. Stock Exchange nearest to its
Registered Office for approval of the basis of allotment.
In case of Book Building issue, Allotment shall be made not later than 15 days from the closure of the issue failing which
interest at the rate of 15% shall be paid to the investors.
Trading Permission
As per SEBI Guidelines, the issuer company should complete the formalities for trading at all the Stock Exchanges where the
securities are to be listed within 7 working days of finalization of Basis of Allotment.
A company should scrupulously adhere to the time limit for allotment of all securities and dispatch of Allotment
Letters/Share Certificates and Refund Orders and for obtaining the listing permissions of all the Exchanges whose names are
stated in its prospectus or offer documents. In the event of listing permission to a company being denied by any Stock
Exchange where it had applied for listing of its securities, it cannot proceed with the allotment of shares. However, the
company may file an appeal before the Securities and Exchange Board of India under Section 22 of the Securities Contracts
(Regulation) Act, 1956.
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It is a process used for marketing a public offer of equity shares of a company. It is a mechanism 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 process aims at tapping both wholesale and retail investors. The offer/issue price is then determined after the bid
closing date based on certain evaluation criteria.
The Process:
The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'.
The Issuer specifies the number of securities to be issued and the price band for orders.
The Issuer also appoints syndicate members with whom orders can be placed by the investors.
Investors place their order with a syndicate member who inputs the orders into the 'electronic book'. This process is called
'bidding' and is similar to open auction.
A Book should remain open for a minimum of 3 days and maximum for 10 days.
Bids cannot be entered less than the floor price.
Bids can be revised by the bidder before the issue closes.
On the close of the book building period the 'book runner evaluates the bids on the basis of the evaluation criteria which may
include -
◦ Price Aggression
◦ Investor quality
◦ Earliness of bids, etc.
The book runner and the company conclude the final price at which it is willing to issue the stock and allocation of securities.
Generally, the number of shares are fixed, the issue size gets frozen based on the price per share discovered through the book
building process.
Allocation of securities is made to the successful bidders.
Book Building is a good concept and represents a capital market which is in the process of maturing.
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Guidelines for Book Building
Rules governing book building is covered in Chapter XI of the Securities and Exchange Board of India (Disclosure and Investor Protection)
Guidelines 2000.
Book building is a process by which demand of securities which are being offered, is elicited and price is determined.
BSE offers the book building services through the Book Building software that runs on the BSE Private network.
This system is one of the largest electronic book building networks anywhere spanning over 350 Indian cities through over 7000 Trader Work
Stations via leased lines, VSATs and Campus LANS
The software is operated through book-runners of the issue and by the syndicate member brokers. Through this book, the syndicate member brokers
on behalf of themselves or their clients' place orders.
Bids are placed electronically through syndicate members and the information is collected on line real-time until the bid date ends.
In order to maintain transparency, the software gives visual graphs displaying price v/s quantity on the terminals.
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Fixed Price process Book Building process
Price at which the securities are .offered/allotted is Price at which securities will be offered/allotted is not
known in advance to the investor. known in advance to the investor. Only an indicative
price range is known.
Demand for the securities offered is known only after the Demand for the securities offered can be known
closure of the issue . everyday as the book is built.
Payment if made at the time of subscription wherein Payment only after allocation
refund is given after allocation
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Definitions & Abbreviations
Risk Factors & Proposals to address the risks thereof
Highlights
PART I
I. General information
II. Capital structure of the company
III. Terms of the present issue
IV. Particulars of the issue
V. Description of industry and business
VI. Company, management and project
VII. Management discussion and analysis of the financial condition and results of the operations as reflected in
the financial statements.
VIII. Financial of group companies
IX. Basis for issue price
X. Outstanding litigations or defaults
XI. Risk factors and Proposals to address the risks on the same, if any
PART II
I. General information
II. Financial information
III. Statutory and other information
PART III
Declaration
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Existing Listed Company issues further securities by way of public issue or by right issue and
aggregate value of issue including premium is in excess of Rs. 50.00 Lacs and fulfilling following
formalities:
Shares of the company are listed with a stock exchange having nationwide terminals for a period of
three years immediately preceding to the reference date.
Average capitalization of public shareholding of the Company is at least of Rs.10000 Crores for a
period of one year upto the end of the quarter preceding the month in which the proposed issue is
approved by Board of Directors/Shareholders of the issuers.
Company has redressed at least 95% grievances of the total shareholders/investors received till
the end of the quarter preceding the month.
Company has complied with all the compliance of listing agreement for a period of three years.
Impact of auditors’ qualification if any, shall not affect the profit/loss by 5%.
No prosecution/show cause notice issued by SEBI is pending against the Company, its directors or
promoters.
Entire promoters holding is in dematerialized form.
A listed issuer company satisfying all the requirements specified in this clause and filing a red
herring prospectus (in case of a book built issue) or prospectus (in case of a fixed price issue) with
ROC or letter of offer with Designated Stock Exchange, as the case may be, shall simultaneously
with such filing or as soon thereafter as reasonably practicable, but in any case not later than the
opening of the issue, file a copy thereof with the Board.
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Application supported by Blocked Amount (ASBA) : Application for subscribing an issue with an
authorization to block the amount in Bank account
Self Certified Syndicate Bank (SCSB): Banker to the issue registered with SEBI, which offers the
services of making ASBA.
ussharda@yahoo.co.in 19