IMPORTANT SEBI GUIDELINES/COMPANY PROVISIONS PERTAINING TO IPOS

Initial Public Offering (IPO) 1. First issue by new companies: SEBI defines a new company as one which has not completed 12 months of commercial operations and whose audited operative results i.e. Balance Sheet and Profit and Loss Statement are not available, and is set up by entrepreneurs without a track record. 2. First issue of new companies promoted by existing companies: the existing companies should have a five year track record of consistent profitability, and should be ready to hold 50% of the equity of the new company. 3. First issue by existing private/closely held companies: Should have three year track record of consistent profitability for freely pricing the issue & Equity offered should not be less than 20% SEBI Guidelines for IPOs 1. IPOs of small companies: Public issue of less than five crores has to be through OTCEI . 2. Size of the Public Issue: Issue of shares to general public cannot be less than 25% of the total issue, however in case of IT, media and telecommunication sectors this stipulation is reduced subject to certain conditions. 3. Promoter Contribution: Minimum Promoters contribution is 20-25% of the public issue. Minimum Lock in period for promoters contribution is five years 4. Collection centers for receiving applications: There should be at least 30 mandatory collection centers, which should include the places where stock exchanges have been established. For issues not exceeding Rs.10 crores , the collection centres shall be situated at:- Mumbai, Delhi, Calcutta, Madras; and at all such centres where the registered office of the company is situated. 5. Regarding allotment of shares: Net Offer to the General Public has to be at least 25% of the Total Issue Size for listing on a Stock exchange. It is mandatory for a company to get its shares listed at the regional stock exchange where the registered office of the issuer is located. There should be atleast 5 investors for every 1 lakh of equity offered . Quoting of Permanent Account Number or GIR No. in application for allotment of securities is compulsory where monetary value of Investment is Rs.50,000/- or above. 6. Timeframes for the Issue and Post- Issue formalities:

The minimum period for which a public issue has to be kept open is 3 working days and maximum upto 10 working days. The minimum period for a rights issue is 15 working days & the maximum is 60 days. Allotment has to be made within 30 days of the closure of the Public Issue and 42 days in case of a Rights issue. All the listing formalities for a public Issue has to be completed within 70 days from the date of closure of the subscription list.

7. Despatch of Refund Orders; Refund orders have to be dispatched within 30 days of the closure of the Public Issue. . 8. Other regulations pertaining to IPO: Underwriting is not mandatory but 90% subscription is mandatory for each issue of capital to public unless it is disinvestment in which case it is not applicable. If the issue is undersubscribed then the collected amount should be returned back. Draft prospectus should be submitted to SEBI & to all stock exchanges (to be listed). 9. Restrictions on other allotments: Firm allotments to mutual funds, FIIs and employees not subject to any lock-in period. Within twelve months of the public/rights issue no bonus issue should be made. Maximum percentage of shares, which can be distributed to employees cannot be more than 5% and maximum shares to be allotted to each employee cannot be more than 200. 10. Relaxations to public issues by infrastructure companies: This is applicable to Infrastructure Companies as per under Section 10(23G) of the Income Tax Act, 1961, provided their projects are appraised by any Developmental Financial Institution (DFI) or IDFC or IL&FS.

GUIDELINES ON INITIAL PUBLIC OFFERS THROUGH THE STOCK EXCHANGE ON-LINE SYSTEM (e-IPO)
1. Agreement with the Stock exchange: The Company shall enter into an agreement with the Stock Exchange(s) which have the requisite system of on-line offer of securities. 2. Appointment with the broker: The stock exchange, shall appoint brokers of the exchange, for the purpose of accepting applications and placing orders with the company. 3. Appointment with the Registrar to the issue: The company shall appoint a Registrar to the Issue having electronic connectivity with the Stock Exchange/s through which the securities are offered. 4. Listing: The company may apply for listing of its securities on an exchange other than the exchange through which it offers its securities to public through the on-line system 5. Responsibility of the lead manager: The Lead Manger shall be responsible for co-ordination of all the activities amongst various intermediaries connected in the issue / system.

6. Mode of operation: The company shall, after filing the offer document with ROC and before opening of the issue, make an issue advertisement in one English and one Hindi daily with nationwide circulation, and one regional daily with wide circulation at the place where the registered office of the issuer company is situated.

Advantages And Limitations Of Adjusted Book Value Approach To Corporate Valuation

The term valuation implies the estimated worth of an asset or a security or a business. The alternative approaches to value a firm/an asset are: Book value, Market value, Intrinsic value, Liquidation value, Replacement value, Salvage value Value of Goodwill Fair value

The book value of the company represents what the shareholders will get after the company is sold and its debts are repaid. It also represents an evaluation of the market's willingness to pay for the assets of the company. The simplest approach to valuing a firm is to rely on the information found on its balance sheet. There are two equivalent way of using the balance sheet information to appraise the value of a firm. First the book values of investors claims may be summed directly. Second the assets of the firm may be totaled and from this total non investor claims (like accounts payable, provisions) may be deducted. The accuracy of the book value approach depends on how well the net book values of the assets reflect their fair market values. There are three reasons why book value may diverge from market values Inflation drives a wedge between the book value of an asset and its current value. The book value of an asset is its historical cost less depreciation. Hence it does not consider inflation which is definitely a factor influencing market value. Thanks to technological changes some asset becomes obsolete and worthless even before they are fully depreciated in the books. Organizational capital, a very valuable asset, is not shown on the balance sheet. Organizational capital is the value created by bringing together employees, customer, suppliers and managers in a mutually beneficial and productive relationship. An important characteristic of organizational capital is that it cannot be easily separated from the firm as an ongoing entity.

Advantages of book value approach

One of the advantages of book value approach is that it is easy to calculate and understand. It will facilitate comparison between stocks which you are targeting. Book value gives an understanding how the market values the asset are compared to the earning it makes. It is applicable throughout the world.

Disadvantages of book value approach This approach fails to reflect the intangible asset such as intellectual assets which represent the basis of the functions of high tech companies Book value registers items at the price at which they were purchased. As a result book value doesn't reflect the current market value, which leads to a lack of precision in measurement.

Adjusting book value to reflect replacement cost Though an assets earning power may not be related to its book value, especially if the asset is old,it is likely to be related to its current replacement cost. Hence net book values may be substituted by current replacement cost. Assets are valued as Cash- cash is cash. There is no problem in valuing it. Debtors- debtors are valued at their face value. If the quality of debtors is doubtful, prudence calls for making allowance for likely bad debts. Inventories- stock may be classified into three categories raw material, work in progress and finished goods. Raw materials may be valued at their most recent cost of acquisition. Work in progress may be approached from the cost point of view. Finished goods is generally appraised by determining the sale price realizable in the ordinary course of business less expenses to be incurred. Other current assets- other current assets like deposits,prepaid expenses are valued at their book values. Fixed tangible asset- fixed tangible asset consist mainly of land, building and civil works and plant and machinery. Land is valued as if it is vacant and available for sale. P&M are appraised at market price. Non operating assets- assets not required for meeting operating requirements of the business are referred to as non operating assets. The more commonly found non perating assets are financial securities, excess land . these assets are valued at their fair market value. Adjusting book value to reflect liquidation values The most direct approach for approximating the fair market value of the assets on the balance sheet of a firm is to find out what they would fetch if the firm were liquidated immediately. If there is an active secondary market for the assets, liquidation values equal secondary market prices. However active secondary markets do not exist for many business assets. In such cases the appraiser must try to estimate the hypothetical price at which the asset may be sold. The principal weakness of the liquidation value approach is that it ignores organizational capital. Instead of valuing the firm as a ongoing concern it values it as a collection of assets to be sold individually. This approach makes sense only for a firm that is worth more dead than alive.

Article Name: Causes of Industrial Sickness in India

Definition of Sick Industry: According to RBI, a sick unit is that which has incurred a cash loss for one year and is likely to continue incurring losses for the current year as well as in the following year and the unit has an imbalance in its financial structure. According to the Sick Industrial Companies Act, 1985. A sick industrial unit is an industrial company (being a company registered for not less than seven years) which has at the end of any financial year accumulated losses in that financial year and in the financial year immediately preceding it According to Companies Act, 2002 : Sick industrial company means an industrial company which has Accumulated losses in any financial year which are equal to 50 percent or more of its average net worth during four year immediately preceding such financial year Failed to repay its debts within any three consecutive quarter on demand made in writing for its repayment by a creditor of such company. Units being closed for a total period of six months and more during the last year

Perhaps the Classical example for the Sick Industry will be of the Cotton Mills based out of Mumbai in the 1980s, with the advent of Polyester, all this Cotton Mills across the belt of Lal Baug, Lower Parel, Chinchpokli and Dadar were redundant and suffered huge losses, hence this cotton Industry could be called Sick Industry Many traditional industries are now being affected by industrial sickness. Persisting problems are been faced by the industrial sector of the country . WARNING SIGNALS OF INDUSTRIAL SICKNESS Shortages of Liquid Funds Growing of Excessive Inventory Under Utilization of Capacity Return on Investment. Financial Ratios .

Causes of sickness: Born Sick: Lack of experience on the part of the promoters, wrong selection of the project, faulty project planning may give birth to sick units. Paucity of funds and faulty financial management. Time and cost overruns prove to be disastrous. Delay in supply of equipment, slippage in the schedule of civil works etc. Such delays cause cost escalations leading to liquidity issues and capital shortages. Location problems: High technology based projects being based in areas without skilled labor or supporting infrastructure. Technological factors like selection of obsolete or improper technology or outdated technology due to innovations while project is being executed, wrong collaboration etc. Incorrect assessment of the market potential or faulty demand forecasting, change in market conditions etc. Achieved Sickness: Bad management ie inexperience, inefficiency, lack of professional expertise, neglect and internal squabbles. Bad management could be poor production management, poor labor management, poor resources management etc. The Tiwari Committee report found that 65% of the large sick units were affected by this problem. Unwarranted expansion and diversion of resources Poor inventory management of finished goods as well as inputs. Failure to modernize the productive apparatus. Poor labor management relationship and the associated poor worker morale and low productivity. External Causes: Energy crisis arising out of power cuts or shortage of coal and oil have been a serious problem for many industrial units Inability of the units to achieve optimum capacity due to shortage of raw materials, poor agricultural output due to natural reasons etc. Infrastructural problems like transport bottlenecks Shortage of working capital / liquidity constraints Artificial economic constraints e.g. Government control of product mix and prices, competition faced by the unit and excess capacity in the industry . Consequences of Industrial Sickness Set back to an employment prospects. Fear of Industrial unrest e.g. - high unemployment rate Wastage of resources Adverse impact on related units - channel breakdown between industries Adverse effect on Investor & Employment Losses to banks & financial institution

 Loss of revenue to government . Remedial Measures Steps taken by banks. - giving adequate working capital and reduced interest rate Policy framework of the government Concessions by government - Introduce the scheme for sick industry Steps for detecting sickness early - corrective action taken by the RBI The industrial investment bank of India- set up the IRCI

Sick Industrial Companies Act, 1985: Objectives of the Act: Timely detection of sick and potentially sick companies owning industrial undertakings Speedy determination by experts of the preventive, remedial and other measures for sick units. Expeditions enforcement of the measures so determined and for matters connected therewith or incidental. The SICA required the Directors of a sick industrial unit to make a reference to BIFR for determining the measures needed and the BIFR could direct any operating agency . The scheme could provide for any one or more of the following measures: The financial reconstruction of the company The proper management of the company by change or takeover The amalgamation of the sick industrial company with any other company The sale or lease of a part or whole of the industrial undertaking. There has been criticism of SICA and BIFR and in 2001-2001, the Finance Minister announced the decision to repeal the act.

CREDIT RATING PROCESS

A credit rating estimates the credit worthiness of an individual, corporation, or even a country through certain processes These ratings are provided after considering the financial history of the companies and so on. On the other hand, the value of assets of the companies and present financial liabilities are also considered for the purpose. These ratings provided by the credit rating agencies of India are very helpful for the investors because they can get a clear idea of the expected returns and risk factor involved in the process. At present, these credit ratings are used for several other purposes like determining the insurance premiums and many more.

corporation credit rating :The credit rating of a corporation is a financial indicator to potential investors of debt securities such as bonds. The credit rating agencies of India assign the following ratings to the companies: AAA: These ratings provided by the credit rating firms denote highest safety. AA: Investment in the companies with AA ratings is also very secured. The AA ratings represent high degree of safety. A: Companies provided with A rating by the Credit Rating Agencies of India can provide adequate safety to the investments and there are some risks involved in the process. BBB: This rating is not negative, but investment in these companies includes some risk factors. According to the credit rating agencies of India, these companies can provide moderate safety to the investment. BB: A company with such rating is eligible for providing sub-moderate safety to the investment. CREDIT RATING AGENCIES PROCEDURES AND METHODS

A Quantitative and qualitative methods The processes and methods used to establish credit ratings vary widely among CRAs. Traditionally, CRAs have relied on a process based on a quantitative and qualitative assessment reviewed and finalized by a rating committee. More recently, there has been increased reliance on quantitative statistical models based on publicly available data. A sovereign rating is aimed at "measuring the risk that a government may default on its own obligations in either local or foreign currency. It takes into account both the ability and willingness of a government to repay its debt in a timely manner.3" The key measure in credit risk models is the measure of the Probability of Default (PD) but exposure is also determined by the expected timing of default and by the Recovery Rate (RE) after default has occurred: 1. Standard and Poor's ratings seek to capture only the forward-looking probability of the occurrence of default. They provide no assessment of the expected time of default or mode of default resolution and recovery values; 2. By contrast, Moody's ratings focus on the Expected Loss (EL) which is a function of both Probability of Default (PD) and the expected Recovery Rate (RE). Thus EL = PD (1- RE); and 3. Fitch's ratings also focus on both PD and RE (Bhatia, 2002). They have a more explicitly hybrid character in that analysts are also reminded to be forward-looking and to be alert to possible discontinuities between past track records and future trends. The credit ratings of Moody's and Standard and Poor's are assigned by rating committees and not by individual analysts. There is a large dose of judgment in the committees final ratings. CRAs provide little guidance as to how they assign relative weights to each factor, though they do provide information on what variables they consider in determining sovereign ratings. Identifying the relationship between the CRAs' criteria and actual ratings is difficult, in part because some of the criteria used are neither quantitative nor quantifiable but qualitative.

The analytical variables are interrelated and the weights are not fixed either across sovereigns or over time. Even for quantifiable factors, determining relative weights is difficult because the agencies rely on a large number of criteria and there is no formula for combining the scores to determine ratings. In assessing sovereign risk, CRAs highlight several risk parameters of varying importance: (i) economic; (ii) political; (iii) fiscal and monetary flexibility; and (iv) the debt burden.

FDs AS A FINANCING
Conservative investors are always searching for that extra percent. Since they invest most of their savings in safe avenues like bank deposits, it is very important for them to earn an extra percent from other relatively safe instruments like company deposits. Naturally, they settle for manufacturing companies offering fixed deposits for tenures ranging from one to three years. Today, investors have many such options like Ansal Housing, Apollo Hospitals, Unitech, Bilcare, Godrej Properties and Unitech. Typically, one can earn around 9-12% from these company fixed deposits. But the problem with these company FDs is choosing the right one in the absence of a rating. This is because apart from NBFCs and housing finance companies, other companies need not go for a rating for their fixed deposits. Do look at the financials of the companies. The company must be making profits and paying dividends year after year, says Anil Chopra, chief investment officer and director, Bajaj Capital. If the company is posting sustained fall in revenues and profits, it is a cause for concern. Simply avoid companies that are making losses, Chopra adds. You will be better off looking at taxes and dividends paid by the company. Since these two are cash expenditures, paid to outsiders such as government and nonpromoter shareholders, there is little accounting jugglery possible here. A sustained increase in taxes paid and dividends indicates that companys business is doing well. If you can do some number crunching, do look at the interest coverage ratio just divide earnings before interest and tax by the interest paid by the company. Higher the number, the better it is. You can also look at the debtequity ratio total debt divided by shareholder funds. Lower the number, the better it is. In case of companies listed on stock exchanges, you can get yearly and quarterly numbers of these companies on websites of the exchanges. Many companies have raised money using foreign currency convertible bonds in 2007-2008. In some cases the stock prices are lower than their 2007 highs. In these cases, the bondholders are not keen on conversion of their bonds into equity. In such cases, the companies are keen to raise money from all possible sources. If such companies are offering fixed deposits, one has to be doubly careful. If the company could not raise enough money, there may be a default on FCCB redemption which can set the company in a tailspin. Being unsecured borrowing, the interests of the fixed deposit holders may be compromised. If the promoter shares are pledged, investors need to be doubly cautious, says Ashutosh Wakhare, trainer at Nagpur-based Money Bee Institute. Information pertaining to this is readily available on the websites of stock exchanges in case of listed companies. A beginner in this field may be lost in the numbers game. Hence it is better to stick with companies that are accepting fixed deposits for a long period of time. A long track record surely offers some comfort. CHECK COMPANY BACKGROUND It is better to stick to companies that are promoted by large industrial houses. Though this does not give any guarantee that your money with interest will reach you on due date, it reduces the risk. Large companies with a good promoter and long operating history generally offer low rates compared to new companies with not much operating history.

But it is better to settle for a bit lower returns than risking the capital. If you are still keen to go with companies that may not have much of operating history, do check the background of the company and the promoters on the net. If there is a history of defaults, it is better to play safe and avoid such investment options. OTHER ISSUES Companies with long track record in accepting fixed deposits have their investor service processes in place and investors are generally paid on time. For some new companies raising funds by accepting deposits, the processes may not be as smooth and one may see lapses in investor services, says Jyotheesh Kumar, senior vice president (marketing), HDFC Securities. Established companies accepting fixed deposits for years, generally send the interest cheques and redemption proceeds on time. They are also good at answering customer queries. Though new companies need not default on payment of interest, there is a possibility of procedural delays which causes some financial loss and much more mental strain. If you are not keen to do the leg work, avoid this space and stick to AAA rated papers.

PROBLEMS OF PUBLIC SECTOR UNDERTAKINGS:

DEFINITION: Disinvestment refers to the action of an organization or the government in selling or liquidating an asset or subsidiary. In simple words, disinvestment is the withdrawal of capital from a country or corporation. Some of the salient features of disinvestment are: Disinvestment involves sale of only part of equity holdings held by the government to private investors. Disinvestment process leads only to dilution of ownership and not transfer of full ownership. While privatization refers to the transfer of ownership from government to private investors. Disinvestment is called as Partial Privatization PROBLEMS OF PUBLIC SECTOR UNDERTAKINGS: The most important criticism levied against public sector undertakings has been that in relation to the capital employed, the level of profits has been too low. Even the government has criticized the public sector undertakings on this count. Of the various factors responsible for low profits in the public sector Undertakings, the following are particularly important:Price policy of public sector undertakings Under utilization of capacity Problem related to planning and construction of projects Problems of labor, personnel and management Lack of autonomy REASONS FOR DISINVESTMENT The public sector in India at present is at cross roads. The new economic policy initiated in July 1991, clearly indicated that the public sector undertakings have shown a very negative rate of return on capital employed. On account of this phenomenon many public sector undertakings have become burden to the government. They are in fact turning out to be liabilities to the government rather than being assets.

This is a sector which the government clearly wants to get rid off. In this direction the government has adopted a new approach to reform and improve the public sector undertakings performance i.e. Disinvestment policy'. This has gained lot of importance especially in latter part of 90s. At present the government seriously perceives the disinvestment policy as inactive tool to reduce the burden to financing the public sector

OBJECTIVE OF THE DISINVESTMENT: Privatization intended to achieve the following: Releasing large amount of public resources Reducing the public debt Transfer of Commercial Risk Releasing other tangible and intangible resources Expose the privatized companies to market discipline Wider distribution of wealth Effect on the Capital Market Increase in Economic Activity

MAJOR ISSUES IN DISINVESTMENT 1) Profitability: The return on investment in PSEs, at least for the last two decades, has been quite poor. The PSE survey shows PSEs as a whole, never earned post tax profit that exceeds 5% of total sales or 6% of capital employed , which is at least 3% points below the interest paid by the government on its borrowings. 2) Recurring budgetary support to PSEs: Despite huge investment in the public sector, the Government is required to provide more funds every year that go into maintaining of the unviable/week PSEs 3) Industrial sickness in PSUs: To save the PSUs from sickness, the government has been sanctioning restructuring packages from time to time. 4) Employees issue: Of the 1.6 million jobs added in the organized sector 1 million, or two third, were added in the private sector during the year 1991 to 2000. This indicates that the private sector has become the major sources for incremental employment in the organized sector of the economy over the last decades.

OBJECTIVES AND FUNCTIONS OF SEBI

SEBI is the regulator for the securities market in India. It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C B Bhave, SEBI is headquartered in the popular business district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata and Chennai

SEBIs principal objectives and functions are as follows: 1) Regulate the business in stock exchanges and any other securities markets ( debt, G-sec, corporate bonds, PSU bonds) 2) Register and regulate the working of intermediaries ( broker, sub-broker, merchant bankers, portfolio managers, lead manager, depositories, custodians, underwriters etc) 3) Register and regulate the working of Mutual funds & Venture capital funds 4) Promoting and regulating self-regulatory organisations 5) Prohibiting frauds, manipulating transactions relating to securities markets 6) Prohibiting insider trading in securities 7) Regulating Substantial acquisitions of shares and takeover of companies 8) Protect the interests of investors in securities markets 9) Promote the securities markets as a Global Securities Markets 10) Measure undertaken Inspection of any book, or register or other document or record of any listed public company or public company which intends to get listed on stock exchanges 11) To oversee that investors doesnt harm the securities market which would lead to disruption of financial system SUMMARY Securities Market consists of various financial instruments such as Shares, Debt and Debentures. Corporates, Government, MNCs require funds for expansion, restructuring, mergers etc and to meet this requirements they raise shares, bonds, debentures, G-sec, Commercial Paper etc. Individual Investors too require funds where they do trading in stock exchanges and they are assisted by various intermediaries i.e 1) 2) 3) 4) Broker Sub-Broker Share Transfer Agents Financial Institutions etc.

Overall Securities market deal with the peoples money and it is the duty Of SEBI to protect the interest of investors, have a fair efficient and transparency transactions, shorten settlement cycle, Standardised screen based trading system, meet international securities standards.

Initial Public Offering (IPO)

1. First issue by new companies: SEBI defines a new company as one which has not completed 12 months of commercial operations and whose audited operative results i.e.Balance Sheet and Profit and Loss Statement are not available, and is set up by entrepreneurs without a track record. 2. First issue of new companies promoted by existing companies: the existing companies should have a five year track record of consistent profitability, and should be ready to hold 50% of the equity of the new company. 3. First issue by existing private/closely held companies: Should have three year track record of consistent profitability for freely pricing the issue & Equity offered should not be less than 20% SEBI Guidelines for IPOs 1. IPOs of small companies: Public issue of less than five crores has to be through OTCEI . 2. Size of the Public Issue:

 Issue of shares to general public cannot be less than 25% of the total issue, however in case of IT, media and telecommunication sectors this stipulation is reduced subject to certain conditions. 3. Promoter Contribution: Minimum Promoters contribution is 20-25% of the public issue. Minimum Lock in period for promoters contribution is five years 4. Collection centers for receiving applications: There should be at least 30 mandatory collection centers, which should include the places where stock exchanges have been established. For issues not exceeding Rs.10 crores , the collection centres shall be situated at:- Mumbai, Delhi, Calcutta, Madras; and at all such centres where the registered office of the company is situated. 5. Regarding allotment of shares: Net Offer to the General Public has to be at least 25% of the Total Issue Size for listing on a Stock exchange. It is mandatory for a company to get its shares listed at the regional stock exchange where the registered office of the issuer is located. There should be atleast 5 investors for every 1 lakh of equity offered . Quoting of Permanent Account Number or GIR No. in application for allotment of securities is compulsory where monetary value of Investment is Rs.50,000/- or above. 6. Timeframes for the Issue and Post- Issue formalities: The minimum period for which a public issue has to be kept open is 3 working days and maximum upto 10 working days. The minimum period for a rights issue is 15 working days & the maximum is 60 days. Allotment has to be made within 30 days of the closure of the Public Issue and 42 days in case of a Rights issue. All the listing formalities for a public Issue has to be completed within 70 days from the date of closure of the subscription list. 7. Despatch of Refund Orders; Refund orders have to be dispatched within 30 days of the closure of the Public Issue. 8. Other regulations pertaining to IPO: Underwriting is not mandatory but 90% subscription is mandatory for each issue of capital to public unless it is disinvestment in which case it is not applicable. If the issue is undersubscribed then the collected amount should be returned back. Draft prospectus should be submitted to SEBI & to all stock exchanges (to be listed). 9. Restrictions on other allotments: Firm allotments to mutual funds, FIIs and employees not subject to any lock-in period. Within twelve months of the public/rights issue no bonus issue should be made. Maximum percentage of shares, which can be distributed to employees cannot be more than 5% and maximum shares to be allotted to each employee cannot be more than 200. 10. Relaxations to public issues by infrastructure companies: This is applicable to Infrastructure Companies as per under Section 10(23G) of the Income Tax Act, 1961, provided their projects are appraised by any Developmental Financial Institution (DFI) or IDFC or IL&FS.

GUIDELINES ON INITIAL PUBLIC OFFERS THROUGH THE STOCK EXCHANGE ON-LINE SYSTEM (e-IPO)
1. Agreement with the Stock exchange: The Company shall enter into an agreement with the Stock Exchange(s) which have the requisite system of on-line offer of securities. 2. Appointment with the broker: The stock exchange, shall appoint brokers of the exchange, for the purpose of accepting applications and placing orders with the company. 3. Appointment with the Registrar to the issue: The company shall appoint a Registrar to the Issue having electronic connectivity with the Stock Exchange/s through which the securities are offered. 4. Listing: The company may apply for listing of its securities on an exchange other than the exchange through which it offers its securities to public through the on-line syste 5. Responsibility of the lead manager: The Lead Manger shall be responsible for co-ordination of all the activities amongst various intermediaries connected in the issue / system. 6. Mode of operation: The company shall, after filing the offer document with ROC and before opening of the issue, make an issue advertisement in one English and one Hindi daily with nationwide circulation, and one regional daily with wide circulation at the place where the registered office of the issuer company is situated.

Causes of Industrial Sickness in India

Definition of Sick Industry: According to RBI, a sick unit is that which has incurred a cash loss for one year and is likely to continue incurring losses for the current year as well as in the following year and the unit has an imbalance in its financial structure. According to the Sick Industrial Companies Act, 1985. A sick industrial unit is an industrial company (being a company registered for not less than seven years) which has at the end of any financial year accumulated losses in that financial year and in the financial year immediately preceding it According to Companies Act, 2002 : Sick industrial company means an industrial company which has Accumulated losses in any financial year which are equal to 50 percent or more of its average net worth during four year immediately preceding such financial year Failed to repay its debts within any three consecutive quarter on demand made in writing for its repayment by a creditor of such company. - Units being closed for a total period of six months and more during the last year Perhaps the Classical example for the Sick Industry will be of the Cotton Mills based out of Mumbai in the 1980s, with the advent of Polyester, all this Cotton Mills across the belt of Lal Baug, Lower Parel, Chinchpokli and Dadar were redundant and suffered huge losses, hence this cotton Industry could be called Sick Industry Many traditional industries are now being affected by industrial sickness. Persisting problems are been faced by the industrial sector of the country WARNING SIGNALS OF INDUSTRIAL SICKNESS Shortages of Liquid Funds Growing of Excessive Inventory Under Utilization of Capacity -

 Return on Investment. Financial Ratios Causes of sickness: Born Sick: Lack of experience on the part of the promoters, wrong selection of the project, faulty project planning may give birth to sick units. Paucity of funds and faulty financial management. Time and cost overruns prove to be disastrous. Delay in supply of equipment, slippage in the schedule of civil works etc. Such delays cause cost escalations leading to liquidity issues and capital shortages. Location problems: High technology based projects being based in areas without skilled labor or supporting infrastructure. Technological factors like selection of obsolete or improper technology or outdated technology due to innovations while project is being executed, wrong collaboration etc. Incorrect assessment of the market potential or faulty demand forecasting, change in market conditions etc. Achieved Sickness: Bad management ie inexperience, inefficiency, lack of professional expertise, neglect and internal squabbles. Bad management could be poor production management, poor labor management, poor resources management etc. The Tiwari Committee report found that 65% of the large sick units were affected by this problem. Unwarranted expansion and diversion of resources Poor inventory management of finished goods as well as inputs. Failure to modernize the productive apparatus. Poor labor management relationship and the associated poor worker morale and low productivity. External Causes: Energy crisis arising out of power cuts or shortage of coal and oil have been a serious problem for many industrial units Inability of the units to achieve optimum capacity due to shortage of raw materials, poor agricultural output due to natural reasons etc. Infrastructural problems like transport bottlenecks Shortage of working capital / liquidity constraints Artificial economic constraints e.g. Government control of product mix and prices, competition faced by the unit and excess capacity in the industry Consequences of Industrial Sickness Set back to an employment prospects. Fear of Industrial unrest e.g. - high unemployment rate Wastage of resources Adverse impact on related units - channel breakdown between industries Adverse effect on Investor & Employment Losses to banks & financial institution Loss of revenue to government

Remedial Measures Steps taken by banks. - giving adequate working capital and reduced interest rate Policy framework of the government Concessions by government - Introduce the scheme for sick industry Steps for detecting sickness early - corrective action taken by the RBI The industrial investment bank of India- set up the IRCI Sick Industrial Companies Act, 1985: Objectives of the Act: Timely detection of sick and potentially sick companies owning industrial undertakings Speedy determination by experts of the preventive, remedial and other measures for sick units. Expeditions enforcement of the measures so determined and for matters connected therewith or incidental. The SICA required the Directors of a sick industrial unit to make a reference to BIFR for determining the measures needed and the BIFR could direct any operating agency . The scheme could provide for any one or more of the following measures: The financial reconstruction of the company The proper management of the company by change or takeover The amalgamation of the sick industrial company with any other company The sale or lease of a part or whole of the industrial undertaking. There has been criticism of SICA and BIFR and in 2001-2001, the Finance Minister announced the decision to repeal the act.

CREDIT RATING PROCESS

A credit rating estimates the credit worthiness of an individual, corporation, or even a country through certain processes These ratings are provided after considering the financial history of the companies and so on. On the other hand, the value of assets of the companies and present financial liabilities are also considered for the purpose. These ratings provided by the credit rating agencies of India are very helpful for the investors because they can get a clear idea of the expected returns and risk factor involved in the process. At present, these credit ratings are used for several other purposes like determining the insurance premiums and many more. corporation credit rating :The credit rating of a corporation is a financial indicator to potential investors of debt securities such as bonds. The credit rating agencies of India assign the following ratings to the companies: AAA: These ratings provided by the credit rating firms denote highest safety. AA: Investment in the companies with AA ratings is also very secured. The AA ratings represent high degree of safety. A: Companies provided with A rating by the Credit Rating Agencies of India can provide adequate safety to the investments and there are some risks involved in the process. BBB: This rating is not negative, but investment in these companies includes some risk factors.

According to the credit rating agencies of India, these companies can provide moderate safety to the investment. BB: A company with such rating is eligible for providing sub-moderate safety to the investment. CREDIT RATING AGENCIES PROCEDURES AND METHODS A Quantitative and qualitative methods The processes and methods used to establish credit ratings vary widely among CRAs. Traditionally, CRAs have relied on a process based on a quantitative and qualitative assessment reviewed and finalized by a rating committee. More recently, there has been increased reliance on quantitative statistical models based on publicly available data. A sovereign rating is aimed at "measuring the risk that a government may default on its own obligations in either local or foreign currency. It takes into account both the ability and willingness of a government to repay its debt in a timely manner.3" The key measure in credit risk models is the measure of the Probability of Default (PD) but exposure is also determined by the expected timing of default and by the Recovery Rate (RE) after default has occurred: 4. Standard and Poor's ratings seek to capture only the forward-looking probability of the occurrence of default. They provide no assessment of the expected time of default or mode of default resolution and recovery values; 5. By contrast, Moody's ratings focus on the Expected Loss (EL) which is a function of both Probability of Default (PD) and the expected Recovery Rate (RE). Thus EL = PD (1- RE); and 6. Fitch's ratings also focus on both PD and RE (Bhatia, 2002). They have a more explicitly hybrid character in that analysts are also reminded to be forward-looking and to be alert to possible discontinuities between past track records and future trends. The credit ratings of Moody's and Standard and Poor's are assigned by rating committees and not by individual analysts. There is a large dose of judgment in the committees final ratings. CRAs provide little guidance as to how they assign relative weights to each factor, though they do provide information on what variables they consider in determining sovereign ratings. Identifying the relationship between the CRAs' criteria and actual ratings is difficult, in part because some of the criteria used are neither quantitative nor quantifiable but qualitative. The analytical variables are interrelated and the weights are not fixed either across sovereigns or over time. Even for quantifiable factors, determining relative weights is difficult because the agencies rely on a large number of criteria and there is no formula for combining the scores to determine ratings. In assessing sovereign risk, CRAs highlight several risk parameters of varying importance: (i) economic; (ii) political; (iii) fiscal and monetary flexibility; and (iv) the debt burden.

PROBLEMS OF DISINVESTMENT OF PSUS IN INDIA

DEFINITION: Disinvestment refers to the action of an organization or the government in selling or liquidating an asset or subsidiary. In simple words, disinvestment is the withdrawal of capital from a country or corporation. Some of the salient features of disinvestment are: Disinvestment involves sale of only part of equity holdings held by the government to private investors.

Disinvestment process leads only to dilution of ownership and not transfer of full ownership. While privatization refers to the transfer of ownership from government to private investors. Disinvestment is called as Partial Privatization PROBLEMS OF PUBLIC SECTOR UNDERTAKINGS: The most important criticism levied against public sector undertakings has been that in relation to the capital employed, the level of profits has been too low. Even the government has criticized the public sector undertakings on this count. Of the various factors responsible for low profits in the public sector Undertakings, the following are particularly important:Price policy of public sector undertakings Under utilization of capacity Problem related to planning and construction of projects Problems of labor, personnel and management Lack of autonomy REASONS FOR DISINVESTMENT The public sector in India at present is at cross roads. The new economic policy initiated in July 1991, clearly indicated that the public sector undertakings have shown a very negative rate of return on capital employed. On account of this phenomenon many public sector undertakings have become burden to the government. They are in fact turning out to be liabilities to the government rather than being assets. This is a sector which the government clearly wants to get rid off. In this direction the government has adopted a new approach to reform and improve the public sector undertakings performance i.e. Disinvestment policy'. This has gained lot of importance especially in latter part of 90s. At present the government seriously perceives the disinvestment policy as inactive tool to reduce the burden to financing the public sector

OBJECTIVE OF THE DISINVESTMENT: Privatization intended to achieve the following: Releasing large amount of public resources Reducing the public debt Transfer of Commercial Risk Releasing other tangible and intangible resources Expose the privatized companies to market discipline Wider distribution of wealth Effect on the Capital Market Increase in Economic Activity

MAJOR ISSUES IN DISINVESTMENT 1) Profitability: The return on investment in PSEs, at least for the last two decades, has been quite poor.The PSE survey shows PSEs as a whole, never earned post tax profit that exceeds 5% of total sales or 6% of capital employed , which is at least 3% points below the interest paid by the government on its borrowings. 2) Recurring budgetary support to PSEs: Despite huge investment in the public sector, the Government is required to provide more funds every year that go into maintaining of the unviable/week PSEs

3) Industrial sickness in PSUs: To save the PSUs from sickness, the government has been sanctioning restructuring packages from time to time. 4) Employees issue: Of the 1.6 million jobs added in the organized sector 1 million, or two third, were added in the private sector during the year 1991 to 2000.This indicates that the private sector has become the major sources for incremental employment in the organized sector of the economy over the last decades.

Advantages And Limitations Of Adjusted Book Value Approach To Corporate Valuation

The term valuation implies the estimated worth of an asset or a security or a business. The alternative approaches to value a firm/an asset are: Book value, Market value, Intrinsic value, Liquidation value, Replacement value, Salvage value Value of Goodwill Fair value The book value of the company represents what the shareholders will get after the company is sold and its debts are repaid. It also represents an evaluation of the market's willingness to pay for the assets of the company. The simplest approach to valuing a firm is to rely on the information found on its balance sheet. There are two equivalent way of using the balance sheet information to appraise the value of a firm. First the book values of investors claims may be summed directly. Second the assets of the firm may be totaled and from this total non investor claims (like accounts payable, provisions) may be deducted. The accuracy of the book value approach depends on how well the net book values of the assets reflect their fair market values. There are three reasons why book value may diverge from market values Inflation drives a wedge between the book value of an asset and its current value. The book value of an asset is its historical cost less depreciation. Hence it does not consider inflation which is definitely a factor influencing market value. Thanks to technological changes some asset becomes obsolete and worthless even before they are fully depreciated in the books. Organizational capital, a very valuable asset, is not shown on the balance sheet. Organizational capital is the value created by bringing together employees, customer, suppliers and managers in a mutually beneficial and productive relationship. An important characteristic of organizational capital is that it cannot be easily separated from the firm as an ongoing entity. Advantages of book value approach One of the advantages of book value approach is that it is easy to calculate and understand. It will facilitate comparison between stocks which you are targeting. Book value gives an understanding how the market values the asset are compared to the earning it makes. It is applicable throughout the world.

Disadvantages of book value approach This approach fails to reflect the intangible asset such as intellectual assets which represent the basis of the functions of high tech companies Book value registers items at the price at which they were purchased. As a result book value doesn't reflect the current market value, which leads to a lack of precision in measurement. Adjusting book value to reflect replacement cost Though an assets earning power may not be related to its book value, especially if the asset is old,it is likely to be related to its current replacement cost. Hence net book values may be substituted by current replacement cost. Assets are valued as Cash- cash is cash. There is no problem in valuing it. Debtors- debtors are valued at their face value. If the quality of debtors is doubtful, prudence calls for making allowance for likely bad debts. Inventories- stock may be classified into three categories raw material, work in progress and finished goods. Raw materials may be valued at their most recent cost of acquisition. Work in progress may be approached from the cost point of view. Finished goods is generally appraised by determining the sale price realizable in the ordinary course of business less expenses to be incurred. Other current assets- other current assets like deposits,prepaid expenses are valued at their book values. Fixed tangible asset- fixed tangible asset consist mainly of land, building and civil works and plant and machinery. Land is valued as if it is vacant and available for sale. P&M are appraised at market price. Non operating assets- assets not required for meeting operating requirements of the business are referred to as non operating assets. The more commonly found non perating assets are financial securities, excess land . these assets are valued at their fair market value. Adjusting book value to reflect liquidation values The most direct approach for approximating the fair market value of the assets on the balance sheet of a firm is to find out what they would fetch if the firm were liquidated immediately. If there is an active secondary market for the assets, liquidation values equal secondary market prices. However active secondary markets do not exist for many business assets. In such cases the appraiser must try to estimate the hypothetical price at which the asset may be sold. The principal weakness of the liquidation value approach is that it ignores organizational capital. Instead of valuing the firm as a ongoing concern it values it as a collection of assets to be sold individually. This approach makes sense only for a firm that is worth more dead than alive.