A Seminar Report On Contemporary Management Issue

INITIAL PUBLIC OFFER IN INDIA

Submitted to Rajasthan Technical University Kota in lieu of partial fulfillment of requirement of Master of Business Administration (MBA) by Shivani Sharma MBA II SEM (2010-12) From

BIYANI INSTITUTE OF SCIENCE & MANAGEMENT (BISMA)

JAIPUR, (RAJASTHAN)

DECLARATION BY STUDENT

I hereby declare that this report is my original work and I have not copied it from anywhere. I further declare that I have not submitted this report anywhere else.

(Shivani Sharma)

DECLARATION BY GUIDE

It is to certify that Ms.Shivani Sharma , the student of MBA II sem BISMA has completed this seminar report on Initial Public Offer in India under my guidance . I wish her all the success in academic career as well as her life.

Ms. Rachna Khandelwal (Assistant Professor) BISMA

Preface

This report is on initial public offering (IPO). The formation of organisation and the various types of organisation are discussed. Capital is essential for running business. Different methods of raising capital are elaborated here. Then we have concentrated on explaining about the methods in IPO. We have also explained why IPO is essential for an organisation. The benefits and drawbacks of IPO are explained so that the organisation going for IPO are aware of the consequences. This helps the organisation to establish in a better position by taking the suitable decision. The different types of markets are studied to have a deeper understanding of market situations. The difference between primary and secondary market is known. The knowledge about the methodology of IPO helps us to understand the pricing methods in IPO. Studying Institutions involved in IPO makes us aware of the specific institutions which were helping organisation in going for IPO. The role of institutions in IPO is studied in depth. Advantages and disadvantages of going public are discussed in this topic. This educates the organisations to do their business in deciding the efficient method which enables them to earn maximum profit for the given constraints

ACKNOWLEDGEMENT

I express my sincere thanks to my project guide, Ms. Rachna Khandelwal Assistant Professor ,BISMA for guiding me right from the inception till the successful completion of the project. I sincerely acknowledge her for extending their valuable guidance support for literature and critical reviews of project and report and above all the moral support. She had provided to me with all stages of this project.

I would also like to thank to staff of MBA for their help and cooperation throughout our project.

(Shivani Sharma)

CONTENT

S.No.

Chapter

Page. no

1.

Introduction

1-10

2.

Objectives

11

3.

Research Methodology

12-13

4.

Analysis

14-30

5.

Conclusion & Suggestions

31-32

Annexure Bibliography

33

INTRODUCTION

INTRODUCTION
Initial public offer

IPO stands for Initial Public Offering and means the new offer of shares from a company which was previously unlisted. This is done by offering those shares to the public, which were held by the promoters or the private investors prior to the IPO. In the case when other investors or Promoter held the shares the stake holding comes down to the extent their shares are offered to the public. In other cases new shares are issued to the public and the shares, which are with the promoters stay with them. In both cases the share of the promoters in the total capital comes down. For example say there are 100 shares in a company and 50 of these are offered to the public in an IPO then in such a case the promoters stake in the company comes down from 100% to 50%. In another case the company issues 50 additional shares to the public and the stake of the promoter comes down from 100% to 67%. Normally in an IPO the shares are issued at a discount to what is considered their intrinsic value and thats why investors keenly await IPOs and make money on most of them. IPO are generally priced at a discount, which means that if the intrinsic value of a share is perceived to be Rs.100 the shares will be offered at a price, which is lesser than Rs.100 say Rs.80 during the IPO. When the stock actually lists in the market it will list closer to Rs.100. The difference between the two prices is known as Listing Gains, which an investor makes when investing in IPO and making money at the listing of the IPO. A Bullish Market gives IPO investors a clear opportunity to achieve long term targets in a short term phase.

An IPO is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO. Companies fall into two broad categories: private and public. A privately held company has fewer shareholders and its owners don't have to disclose much information about the company. Anybody can go out and incorporate a company: just put in some money, file the right legal documents and follow the reporting rules of your jurisdiction. Most small businesses are privately held. But large companies can be private too. Did you know that IKEA, Domino's Pizza and Hallmark Cards are all privately held?

It usuall isn't possi l to buy shares in a pri ate company. You can approach the owners about investing, but they're not obligated to sell you anything. Public companies, on the other hand, have sold at least a portion of themselves to the public and trade on a stock exchange. This is why doing an IPO is also referred to as "going public."

Public companies have thousands of shareholders and are subject to strict rules and regulations. They must have a board of directors and they must report financial information every quarter. In the United States, public companies report to the Securities and Exchange Commission (SEC . In other countries, public companies are overseen by governing bodies similar to the SEC. From an investor's standpoint, the most exciting thing about a public company is that the stock is traded in the open market, like any other commodity. If you have the cash, you can invest. The CEO could hate your guts, but there's nothing he or she could do to stop you from buying stock.

The first sale of stock by a private company to the public, IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately -owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

TYPES OF MAR ET

PRIMARY MAR ET

SECONDARY MAR ET

Fig no. 1.1

Primary and Secondary markets

In the primary market securities are issued to the public and the proceeds go to the issuing company. Secondary market is term used for stock exchanges, where stocks are bought and sold after they are issued to the public.

1) Primary Market

The first time that a companys shares are issued to the public, it is by a process called the initial public offering (IPO). In an IPO the company offloads a certain percentage of its total shares to the public at a certain price.

Most IPOS these days do not have a fixed offer price. Instead they follow a method called BOOK BUILDIN PROCESS, where the offer price is placed in a band or a range with the highest and the lowest value (refer to the newspaper clipping on the page). The public can bid for the shares at any price in the band specified. Once the bids come in, the company evaluates all the bids and decides on an offer price in that range. After the offer price is fixed, the company allots its shares to the people who had applied for its shares or returns them their money.

2) Secondary Market

Once the offer price is fixed and the shares are issued to the people, stock exchanges facilitate the trading of shares for the general public. Once a stock is listed on an exchange, people can start trading in its shares. In a stock exchange the existing shareholders sell their shares to anyone who is willing to buy them at a price agreeable to both parties. Individuals cannot buy or sell shares in a stock exchange directly; they have to execute their transaction through authorized members of the stock exchange who are also called STOCK BROKERS.

Need of an IPO Basically, going public (or participating in an "initial public offering" or IPO) is the process in which a business owned by one or several individuals is converted into a business owned by many. It involves the offering of part ownership of the company to the public through the sale of debt or more commonly, equity securities (stock). Going public raises cash and usually a lot of it. Being publicly traded also opens many financial doors:

Because of the increased scrutiny, public companies can usually get better rates when they issue debt.

As long as there is market demand, a public company can always issue more stock. Thus, mergers and acquisitions are easier to do because stock can be issued as part of the deal.

Trading in the open markets means liquidity. This makes it possible to implement things like employee stock ownership plans, which help to attract top talent.

Being on a major stock exchange carries a considerable amount of prestige. In the past, only private companies with strong fundamentals could qualify for an IPO and it wasn't easy to get listed. The internet boom changed all this. Firms no longer needed strong financials and a solid history to go public. Instead, IPOs were done by smaller startups seeking to expand their businesses. There's nothing wrong with wanting to expand, but most of these firms had never made a profit and didn't plan on being profitable any time soon. Founded on venture capital funding, they spent like Texans trying to generate enough excitement to make it to the market before burning through all their cash. In cases like this, companies might be suspected of doing an IPO just to make the founders rich. This is known as an exit strategy, implying that there's no desire to stick around and create value for shareholders. The IPO then becomes the end of the road rather than the beginning.

How can this happen? Remember: an IPO is just selling stock. It's all about the sales job. If you can convince people to buy stock in your company, you can raise a lot of money.

Process of issue an IPO The Underwriting Process

Getting a piece of a hot IPO is very difficult, if not impossible. To understand why, we need to know how an IPO is done, a process known as underwriting.

When a company wants to go public, the first thing it does is hire an investment bank. A company could theoretically sell its shares on its own, but realistically, an investment bank is required - it's just the way Wall Street works. Underwriting is the process of raising money by either debt or

equity (in this case we are referring to equity). You can think of underwriters as middlemen between companies and the investing public. The biggest underwriters are Goldman Sachs, Merrill Lynch, Credit Suisse First Boston, Lehman Brothers and Morgan Stanley.

The company and the investment bank will first meet to negotiate the deal. Items usually discussed include the amount of money a company will raise, the type of securities to be issued and all the details in the underwriting agreement. The deal can be structured in a variety of ways. For example, in a firm commitment, the underwriter guarantees that a certain amount will be raised by buying the entire offer and then reselling to the public. In a best efforts agreement, however, the underwriter sells securities for the company but doesn't guarantee the amount raised. Also, investment banks are hesitant to shoulder all the risk of an offering. Instead, they form a syndicate of underwriters. One underwriter leads the syndicate and the others sell a part of the issue.

Once all sides agree to a deal, the investment bank puts together a registration statement to be filed with the SEC. This document contains information about the offering as well as company info such as financial statements, management background, any legal problems, where the money is to be used and insider holdings. The SEC then requires a cooling off period, in which they investigate and make sure all material information has been disclosed. Once the SEC approves the offering, a date (the effective date) is set when the stock will be offered to the public.

During the cooling off period the underwriter puts together what is known as the red herring. This is an initial prospectus containing all the information about the company except for the offer price and the effective date, which aren't known at that time. With the red herring in hand, the underwriter and company attempt to hype and build up interest for the issue. They go on a road show - also known as the "dog and pony show" - where the big institutional investors are courted.

As the effective date approaches, the underwriter and company sit down and decide on the price. This isn't an easy decision: it depends on the company, the success of the road show and, most importantly, current market conditions. Of course, it's in both parties' interest to get as much as possible.

Finally, the securities are sold on the stock market and the money is collected from investors.

As you can see, the road to an IPO is a long and complicated one. You may have noticed that individual investors aren't involved until the very end. This is because small investors aren't the

target market. They don't have the cash and, therefore, hold little interest for the underwriters. If underwriters think an IPO will be successful, they'll usually pad the pockets of their favorite institutional client with shares at the IPO price. The only way for you to get shares (known as an IPO allocation) is to have an account with one of the investment banks that is part of the underwriting syndicate. But don't expect to open an account with $1,000 and be showered with an allocation. You need to be a frequently trading client with a large account to get in on a hot IPO.

Bottom line, your chances of getting early shares in an IPO are slim to none unless you're on the inside. If you do get shares, it's probably because nobody else wants them. Granted, there are exceptions to every rule and it would be incorrect for us to say that it's impossible. Just keep in mind that the probability isn't high if you are a small investor.

IPO Advantages and Disadvantages The decision to take a company public in the form of an initial public offering (IPO) should not be considered lightly. There are several advantages and disadvantages to being a public company, which should thoroughly be considered. This memorandum will discuss the advantages and disadvantages of conducting an IPO and will briefly discuss the steps to be taken to register an offering for sale to the public. The purpose of this memorandum is to provide a thumbnail sketch of the process. The reader should understand that the process is very time consuming and complicated and companies should undertake this process only after serious consideration of the advantages and disadvantages and discussions with qualified advisors.

Advantages of going public

Increased Capital A public offering will allow a company to raise capital to use for various corporate purposes such as working capital, acquisitions, research and development, marketing, and expanding plant and equipment.

Liquidity Once shares of a company are traded on a public exchange, those shares have a market value and can be resold. This allows a company to attract and retain employees by offering stock incentive packages to those employees. Moreover, it also provides investors in the company the option to trade their shares thus enhancing investor confidence.

Increased Prestige Public companies often are better known and more visible than private companies, this enables them to obtain a larger market for their goods or services. Public companies are able to have access to larger pools of capital as well as different types of capital.

Valuation Public trading of a company's shares sets a value for the company that is set by the public market and not through more subjective standards set by a private valuator. This is helpful for a company that is looking for a merger or acquisition. It also allows the shareholders to know the value of the shares.

Increased wealth The founders of the company often have the sense of increased wealth as a result of the IPO. Prior to the IPO these shares were illiquid and had a more subjective price. These shares now have an ascertainable price and after any lockup period these shares may be sold to the public, subject to limitations of federal and state securities laws.

Disadvantages of going Public

Time and Expense

Conducting an IPO is time consuming and expensive. A successful IPO can take up to a year or more to complete and a company can expect to spend several hundreds of thousands of dollars on attorneys, accountants, and printers. In addition, the underwriter's fees can range from 3% to 10% of the value of the offering. Due to the time and expense of preparation of the IPO, many companies simply cannot afford the time or spare the expense of preparing the IPO.

Disclosure

The SEC disclosure rules are very extensive. Once a company is a reporting company it must provide information regarding compensation of senior management, transactions with parties related to the company, conflicts of interest, competitive positions, how the company intends to develop future products, material contracts, and lawsuits. In addition, once the offering statement is effective, a company will be required to make financial disclosures required by the Securities and Exchange Act of 1934. The 1934 Act requires public companies to file quarterly statements containing unaudited financial statements and audited financial statements annually. These

statements must also contain updated information regarding nonfinancial matters similar to information provided in the initial registration statement. This usually entails retaining lawyers and auditors to prepare these quarterly and annual statements. In addition, a company must report certain material events as they arise. This information is available to investors, employees, and competitors.

Decisions based upon Stock Price

Management's decisions may be effected by the market price of the shares and the feeling that they must get market recognition for the company's stock.

Regulatory Review

The Company will be open to review by the SEC to ensure that the company is making the appropriate filings with all relevant disclosures.

Falling Stock Price

If the shares of the company's stock fall, the company may lose market confidence, decreased valuation of the company may effect lines of credits, secondary offering pricing, the company's ability to maintain employees, and the personal wealth of insiders and investors.

Vulnerability

If a large portion of the company's shares are sold to the public, the company may become a target for a takeover, causing insiders to lose control. A takeover bid may be the result of shareholders being upset with management or corporate raiders looking for an opportunity. Defending a hostile bid can be both expensive and time consuming. Once a company has weighed the advantages and disadvantages of being a public company, if it decides that it would like to conduct an IPO it will have to retain a le

IPO in India

An IPO (initial public offering) is referred to a flotation, which an issuer or a company proposes to the public in the form of ordinary stock or shares. They are generally offered by new and medium sized firms looking for funds to grow. However, it can be done by big privately-owned firms seeking to transform themselves into an openly traded firm.

The government of India has been playing proactive role in the real estate

market by the

commencement of the In an IPO the company may procur the support of the countersigned enterprise, which assists in establishing what kind of security to issue, competitive offering cost and the period in which it should be launched in market. An IPO can be an unsafe venture for it is tough for an investor to predict how the stock or share will perform on its first trading day and afterwards. Moreover, the historical information available with the company is not sufficient enough to analyze the performance of the stock in Indian market.

Most IPOs are of the firms that are undergoing through momentary growth duration, hence entitled to auxiliary vagueness related to their future

and they are

performance. While IPOs are

effectual at raising revenues, being cataloged at a stock exchange demands immense authoritarian observance and treatment needs.

The Initial Public Offering assumes that the firm is a significant market presence, is flourishing and has the obligatory past record to raise assets in public equity market. If the firm later trades recently tendered shares once again to the equity market, it is known as seasoned equity offering. When an investor trades shares, it is referred to as secondary offering and the investor and not the firm that has initially proposed the shares, maintains the advances of the offering. These phases are usually perplexes and only a firm which proposes a share can indulge in chief offering or the IPOs. Secondary offering takes place in a secondary equity market, where investors and not the firm purchase and trade from one another.

Working of IPO in India The IPO method begins when the business lodges a registration declaration in accordance with SEC and as per the Securities Act of 1933. The SEC then studies the listing declaration and supports the entire revelation. The sponsor then proposes a prelude brochure and then an authorized catalog prior to the share offering. After the SEC endorsement, the value and time of the IPO are determined. As investing in an IPO is an uncertain and tentative endowment, only active merchants relying on their endowment motives and risk forbearance, should opt for such kind of endowment.

Applying for an IPO in India When a firm proposes a public issue or IPO, it offers forms for submission to be filled by the

shareholders. Public shares can be bought for a limited period only and as per the law, any IPO

should be traded openly only for minimum 3 days and 21 days maximum. For offers that are sponsored by financial institutions, the proposal minimum 3 should be traded for maximum 21 days and days.

For offers that are sponsored by India financial institutions, the proposal should be traded for maximum 10 days. The submission form should be duly filled up and submitted by cash, cheque or DD prior to the closing date, in accordance with the guidelines mentioned in the form. IPO's by investment firms generally entail countersigned charges which signify a load to purchasers.

Things to consider before applying for IPOs in India There are certain factors which need to be taken into consideration before applying for Initial Public Offerings in India. They are:
y y y y y y y y y y

Promoters, their reliability and past records Firm producing or facilitating services Product offered by the firm and its potential Whether the firm has entered into a collaboration with technological firm Status of the associates Historical record of the firm providing the Initial Public Offerings Project value and various techniques of sponsoring the plan Productivity estimates of the project Risk aspects engaged in the execution of the plan Authority that has reviewed the plan

OBJECTIVES

OBJECTIVES

The following are the objectives of report:

To know the working mechanism of IPO in India.

To know about the growth rate of IPO in Indian equity market.

To understand the role of SEBI and other intermediaries in IPO.

To know about the parameters to judge an IPO.

To know about the recent trends evolving in Indian IPO market.

To identify the requirements for getting an IPO issued.

RESEARCH METHODOLOGY

Research Methodology
Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. It is necessary for the researcher to know not only the research methods but also the methodology. When we talk of research methodology we not only talk of the research methods but also consider the logis behind the methods or in the context of our research study and explain why we are using a particular method or technique and why we are not using others so that research results are capable of being evaluate either by the researcher himself or by others. Why a research study has been undertaken, how the research problem has been defined, in what way and why the hypothesis has been formulated, what data has been collected and what particular method has been adopted, why particular technique of analysing data has been used and a host of similar other questions are usually answered when we talk of research methodology concerning a research problem or study.

Title of research- Initial Public Offer in India Research Design Research design is a conceptual structure within which research would be conducted. Function of research design is to provide for the collection of relevant data with minimum expenditure and efforts. It is a draft of research. Research design is about1) what is the study about? 2) why is the study being made? 3) what type of data is required? 4) where can the data be collected from? 5) sample design? 6) techniques of analysis? 7) report writing

Types of research design

y y y y

Exploratory research design Descriptive research design Experimental research design Qualitative research design

Exploratory research design this report is based on exploratory research design. It is a type of research conducted for a problem that has not been clearly defined. It often relies on secondary data. Methods of data collection 1. Primary method: the primary data are those which are collected afresh and for the first time, and thus happen to be original in character. 2 .Secondary method: the secondary data are those which have already been collected by someone else and which have already been passed through statistical process. As per the requirement of my report I have been collected the data from secondary sources like books , magazines, internet etc. Limitations of the study
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Wide topic Time boundation

ANALYSIS

ASBA System
ASBA is a service or we can say a system introduced by SEBI for the investors in the year 2008. ASBA has a simple meaning say Application Supported by Blocked Amount, and it clearly says that your applications for the IPO is fully supported by your bank, and the amount of the IPO is safe, and blocked / locked for the IPO purpose only; and if you are not allotted the issue of IPO, your money will become free from any blockage and you can use your money for any other purpose or withdrawal.

You are keeping your money into your bank locked for the IPO purpose, thats it; its very simple and nothing to confuse. ASBA is a system which ensures that applicants money is locked in the applicants bank account till the IPO is allotted and if not than the money will become free for any other purpose. ASBA is the authorisation to block your amount / money into the bank against the IPO application and the amount will be debited only after the allotment of IPO to you. You can avail of ASBA service from your bank to subscribe to book-built public issues and few rights issues. The best part of the ASBA is that it ensures / guarantees the investors money not to leave his / her bank account till the IPO is allotted and if not than it remains there only.

ASBA services Nearly all Self-Certified Syndicate Banks (SCSB) are offering the ASBA service to their clients. If you are having your bank account with the bank offering the ASBA service, than you can block your amount for the IPO purpose and thus can use the ASBA service. Remember that not all IPOs can be subscribed using ASBA. Only the IPO which are offering book-built public issues and few right issues are allowed to buy through ASBA.

There are two methods to get the ASBA service from your bank, FRIST one is to get the printed copy of the ASBA form and after filling of the form you will have to submit it to your bank; and the SECOND one is to have an online bank account facility with your bank, Login to your online bank account and find out the ASBA option there; fill the form online, allocate the IPO / amount, Submit; thats it Finish, So Simple. The higher limit of the IPO price will be considered as the amount per share to be blocked; higher price (higher limit) per share IPO multiplied by the quantity applied will be the total amount to be blocked into the bank using the ASBA service.

In an emergency you can withdraw (cancel or revise) your IPO application, and your blocked amount will be unblocked and your are free to use your money

It is not compulsory to apply for the IPO using ASBA service; you can still apply for the IPO by filling the form and giving a cheque of the bid amount. But remember not to apply through both (ASBA & Cheque method) methods for the same IPO and with the same bank. SEBI has also permitted the brokerage houses to distribute the ASBA forms; ask your share broker for the ASBA forms; but it is not compulsory that the share broker or brokerage houses should keep the ASBA forms.

Parameters to judge an IPO Good investing principles demand that you study the minutes of details prior to investing in an IPO. Here are some parameters you should evaluate:-

Promoters

Is the company a family run business or is it professionally owned? Even with a family run business what are the credibility and professional qualifications of those managing the company? Do the top level managers have enough experience (of at least 5 years) in the specific type of business?

Industry Outlook

The products or services of the company should have a good demand and scope for profit.

Business Plans

Check the progress made in terms of land acquisition, clearances from various departments, purchase of machinery, letter of credits etc. A higher initial investment from the promoters will lead to a higher faith in the organization.

Financials

Why does the company require the money? Is the company floating more equity than required? What is the debt component? Keep a track on the profits, growth and margins of the previous years. A steady growth rate is the quality of a fundamentally sound company. Check the assumptions the promoters are making and whether these assumptions or expectations sound feasible.

Risk Factors The offer documents will list our specific risk factors such as the companys liabilities, court cases or other litigations. Examine how these factors will affect the operations of the company.

Key Names Every IPO will have lead managers and merchant bankers. You can figure out the track record of the merchant banker through the SEBI website.

Pricing Compare the companys PER with that of similar companies. With this you can find out the

P/E Growth ratio and examine whether its earning projections seem viable.

Listing

You should have access to the brokers of the stock exchanges where the company will be listing itself.

Understanding the role of intermediaries

The intermediaries in an issue

Merchant Bankers to the issue or Book Running Lead Managers (BRLM), syndicate members, Registrars to the issue, Bankers to the issue, Auditors of the company, Underwriters to the issue, Solicitors, etc. are the intermediaries to an issue. The issuer discloses the addresses, telephone/fax numbers and email addresses of these intermediaries. In addition to this, the issuer also discloses the details of the compliance officer appointed by the company for the purpose of the issue.

Eligibility to be a BRLM

A Merchant banker possessing a valid SEBI registration in accordance with the SEBI (Merchant Bankers) Regulations, 1992 is eligible to act as a Book Running Lead Manager to an issue.

The role of a Lead Manager (pre and post issue)

In the pre-issue process, the Lead Manager (LM) takes up the due diligence of companys operations/ management/ business plans/ legal etc. Other activities of the LM include drafting and design of Offer documents, Prospectus, statutory advertisements and memorandum containing

salient features of the Prospectus. The BRLMs shall ensure compliance with stipulated requirements and completion of prescribed formalities with the Stock Exchanges, RoC and SEBI including finalization of Prospectus and RoC filing. Appointment of other intermediaries viz., Registrar(s), Printers, Advertising Agency and Bankers to the Offer is also included in the pre-issue processes. The LM also draws up the various marketing strategies for the issue. The post issue activities including management of escrow accounts, co-ordinate non-institutional allocation, intimation of allocation and dispatch of refunds to bidders etc are performed by the LM. The post Offer activities for the Offer will involve essential followup steps, which include the finalization of trading and dealing of instruments and dispatch of certificates and demat of delivery of shares, with the various agencies connected with the work such as the Registrar(s) to the Offer and Bankers to the Offer and the bank handling refund business. The merchant banker shall be responsible for ensuring that these agencies fulfill their functions and enable it to discharge this responsibility through suitable agreements with the Company.

The role of a registrar

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 co-ordinates 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, dispatch security certificates and refund orders completed and securities listed.

The role of bankers to the issue

Bankers to the issue, as the name suggests, carries out all the activities of ensuring that the funds are collected and transferred to the Escrow accounts. The Lead Merchant Banker shall ensure that Bankers to the Issue are appointed in all the mandatory collection centers as specified in DIP Guidelines. The LM also ensures follow-up with bankers to the issue to get quick estimates of collection and advising the issuer about closure of the issue, based on the correct figures.

Question on Due diligence

The Lead Managers state that they have examined various documents including those relating to litigation like commercial disputes, patent disputes, disputes with collaborators etc. and other materials in connection with the finalization of the offer document pertaining to the said issue; and on the basis of such examination and the discussions with the Company, its Directors and other officers, other agencies, independent verification of the statements concerning the objects of the

issue, projected profitability, price justification, etc., they state that they have ensured that they are in compliance with SEBI, the Government and any other competent authority in this behalf.

REGISTRATION PROCESS Going public requires a Registration Statement which is a carefully crafted document that is prepared by your attorneys and accountants. It requires detailed discussions on information pertaining to: Business product/service/markets Company Information Risk Factors Proceeds Use (How are you going to use the money) Officers and Directors Related party transactions Identification of your principal shareholders Audited financials

y y y y y y y y

After your registration statement is prepared, it is submitted to the Securities and Exchange Commission and various other regulatory bodies for their detailed review. When this process is completed, you and your management team will do a "road show" to present your company to the stock brokers who will then sell your stock to the public investors. Assuming they can successfully sell your issue, youll receive your money. Then it's simple, all you have to do is make a lot more money with the proceeds so as to increase the value of your, your teams and the public investors stock.

IPO Scams

1) Reliance Industries Fraud 2) YES Bank ltd. Case 3) SEBI unearth another IPO scams in IDFC 4) MARUTI case 5) HDFC Bank , 2 others fined
1. Reliance Industries Fraud

After a well planned racket to trip the Reliance IPO using a combination of court cases filed on the behalf of Investor grievances for a media attacks and investment banks questioning valuations of the issue, Reliance Industries(led by Mukesh Ambani) through its many arms used the stock market to derail the prelisting and the post listing price of the Reliance Power issue.

Using the cover of a global meltdown, starting January 14, Reliance Indiatries setup a crack team of five key strategists for this horrible market management operation. Run personally by top Reliance Industries Ltd. top Excutive Manoj Modi, two treasury hotshots were sent to Mauritius to coordinate the bear hammering on Reliance ADAG scrips in the run up to the listing. Both Sanjay Punkhia ADAG and Gagan Chaturvedi acting in concert with two other executives chief investment officer Ashish Kumar Chauhan and Balakrishnan, vice president in the treasury department have wrecked havoc on Indias Stockmarkets and Reliance ADAG scrips in particular. Some of them, actually operating out of beautiful Mauritius, ran the operation along with some favourably inclined hedge funds, even as Manoj Modis daughetr was being wedded to Anand Jains (a very close associate of Mukesh Ambani) nephew in Mumbai on January 24. They had to miss the wedding, since the synchronized market operation got top priority within the group, Reliance Industries.

The core of the operation was to destabilize the Reliance Power listing on February 11. Brokers like Shankar Sharma and his associates and CNBC TV 18 Stocks Editor Udayan Mikherjee were pressed into service to execute the entire gameplan. With Udayan Mukherjee talking down the market in tandem with Shankar Sharma(who has Once earlier been guilty of doing exactly the same during the infamous Tehelka First Global scam) the bears ran riot to scupper not just the listing, but the entire market in totality.

Since mid January, when the Sensex was hovering around 21,000, it has been beaten down to 17,000, seeing a massive erosion in shareholder wealth. But the most drastically hit are Reliance ADAG scrips Reliance Communications, Reliance Energy, Reliance Capital, Reliance Natural Resources and Adlabs. While Reliance Communications has seen a 30 per cent hit, the other four have practically been poleaxed, halved as they are from their mid January tops. What is perhaps even more surprising is that when the worlds biggest investment banks, domestic and even some stockmarket reporters in Economic Times were involved in hammering the markets and Reliance Power in particular. Even as listing was to get underway, a vicious campaign orchrestrated by Ashish Kumar Chauhan and Samir Saran, another Reliance Industries(Mukesh

Ambani) executive was in play using the internet as a domain. Saran, ostensibly based in London for the last six months is the handler of media friendlies and has been acting in connivance with Chauhan in this operation.With so many investors waiting for good returns, it is highly disgraceful for such big entities being involved, just to make another stock unsuccessful.

2. YES bank ltd. Case The modus operandi adopted in manipulating the YES Bank Ltd (YBL)'s initial public offering (IPO) allotment involved opening of over 7,500 benami dematerialised accounts. These accounts were with the National Securities Depository Ltd (NSDL) through Karvy Stockbroking Ltd (KarvyDP). Of the 13 erring entities, the chief culprits identified by SEBI were Ms Roopalben Panchal and Sugandh Estates and Investments Pvt Ltd. While Ms Panchal opened 6,315 benami DP accounts, another entity Sugandh opened 1,315 benami accounts. Each of these accounts applications were made for 1,050 shares, paying application money of Rs 47,250 each. By applying for small lots (1,050 shares through each accounts), they misused the retail allotment quota stipulated for IPOs. The shares allotted in IPO to the benamis of Ms Panchal and Sugandh would have otherwise gone to genuine retail applicants.

The IPO of YBL opened on June 15, 2005 and its shares were listed on the BSE and the NSE on July 12, 2005. It was observed that Ms Panchal had transferred 9,31,600 shares to various entities in seven off-market transactions on July 11 - a day prior to the listing and commencement of trading on the stock exchanges. In order to get an allotment of 9,31,600 shares, Ms Panchal would have had to apply for crores of shares involving many crores of rupees in application money. However, Ms Panchal's name did not appear in the list of top 100 public issue allottees. Thus, it was suspected that Ms Panchal must have made multiple applications or that other applicants were acting as a front for her.

Ms Panchal had applied for only 1,050 shares in the YES Bank IPO, paying the application money of Rs 47,250. And she did not receive any allotment in the IPO. On July 6, Ms Panchal received 150 shares each from 6,315 allottees through off-market transactions aggregating 9,47,250 YBL shares.

Curiously, as per the dematerialised account data furnished by NSDL, of the above 6,315 entities as many as 6,221 entities have a same address in Ahmedabad. There are three more addresses of

locations in Ahmedabad, which have been linked to Ms Panchal. All the 6,315 entities have their bank accounts with Bharat Overseas Bank and demat accounts with Karvy-DP.

By applying for the maximum possible number of shares per applicant while being categorised as retail applicant and by putting in large number of applications in the lot of 1,050 shares, Ms Panchal and her associates (real or fictitious) have attempted to corner the maximum possible number of shares in the IPO allotment. This tantamounts to an abuse of IPO allotment process, the SEBI order said.

A similar modus operandi was adopted by Sugandh, which received 150 shares each from 1,315 dematerialised accounts aggregating 1,97,250 shares in off market transactions. According to SEBI findings, Ms Panchal and others booked profits to the tune of about Rs 1.70 crore on the day of the listing of YES Bank shares.

3. SEBI unearths another IPO scam in IDFC

SEBI on Thursday 12th Jan 06 unearthed yet another abuse of IPO norms in the IDFC's initial public offering (IPO) where a few investors opened over 14,000 dematerialised accounts to corner large number of shares of the company. This is the second such incident, after a similar such violations were detected in the YES Bank's IPO. SEBI said in IDFC's IPO too four investors opened as many as 14,807 dematerialized accounts with Karvy-DP and "strangely", all these account holders have their bank accounts with Bharat Overseas Bank Ltd, Ahmedabad. SEBI order said: "further probe is required for examining the systemic fault, if any, of the registrar Karvy-RTI i.e. Karvy Computer Shares P Ltd, and the lead managers Kotak Mahindra Capital Company Ltd, DSP Merrill Lynch Ltd and SBI Capital Markets Ltd in identifying and weeding out the benami applications." Reference is being made to the RBI to examine the role of BhOB, HDFC Bank, Indian Overseas Bank, ING Vysya Bank and Vijaya Bank in opening the bank accounts of these benami entities and apparently funding them. According to SEBI, Karvy-DP, which was also named in the YES Bank IPO case, has not adhered to `Know-your-Client' norms, as per the reports of inspection submitted by NSDL and CDSL on the DP. Also, some of the documents collected by CDSL during the course of inspection show that Karvy-DP has obtained letters purportedly issued by the banks' concerned such as BhOB as proof of identity and proof of address of the person for the purpose of opening dematerialized accounts.

"It is seen that one branch manager has on the same date signed as authorized signatory of different branches of the bank. This raises a doubt as to the authenticity of the bank documents obtained by Karvy-DP for opening dematerialised accounts," the SEBI order by its Whole-time Director Mr G. Anantharaman said. SEBI also banned four investors (in whose names the multiple accounts were opened) viz., Ms Roopalben Nareshbhai Panchal (who was also named in the YES Bank IPO scam), Sugandh Estates & Investments P Ltd, Mr Purshottam Ghanshyam Budhwani and Mr Manojdev Seksaria from doing any kind of transactions in the securities market, till further directions. Another 35 firms were also barred from participating in the IPOs in the future, till further orders, the SEBI order said.

4. MARUTI case Fictitious Demat A/cs opened in 2003 itself `First IPO in which key players took part was Maruti'

The Charges DPs have been accused by SEBI of not fully implementing the `maker-checker' concept, data entry errors, scanning of officials' signatures, and appointing themselves as the second holder.

Description Some of the demat accounts that were used to manipulate allotments in the initial public offer of Yes Bank and IDFC were opened during 2003, and not in the last year as was earlier believed. The first IPO in which the key operators have participated was that of Maruti Udyog Ltd, in June 2003, though the numbers of fictitious demat accounts were not very high then, the interim order from Securities and Exchange Board of India has said.

SEBI's investigations have now pegged that a "total of 24 key operators have indulged in abusive practices in respect of 21 IPOs". The evidence against Karvy DP has stemmed from the fact that almost all the demat accounts which served as conduits for these master account holders were held with Karvy DP, according to the order. These 24 operators have 34 demat accounts; of which 16 demat accounts are held with Karvy DP. Due Diligence Not Taken

The market regulator's investigations have pointed out that, while opening demat accounts the depository participants were not exercising due diligence. Persons involved in the scam have collected proofs of identity and addresses from groups of persons and used this to open bogus bank accounts.

Inter-linkages The master account holders were found to have made off market transfer of the IPO shares to various common groups of entities who appear to be their principals. It is seen that some of the master account holders have also made off-market transfers amongst themselves. This shows that there are inter-linkages amongst the master account holders as well as between groups of master account holders and their principals, the order said.

Depository participants have been accused by SEBI of not fully implementing the `maker-checker' concept, data entry errors, scanning of officials' signatures, and appointing themselves as the second holder.

With some of the DPs also acting as brokers, stock exchanges have been advised to examine the role and involvement of brokers and sub-brokers by way of participation in IPOs either directly or indirectly and their dealings in the shares subsequent to listing. Exchanges are to submit a report on this within a month.

SEBI bars Karvy, 23 other entities Alleged involvement in IPO allotment scam \In the dock Ban on several entities including HDFC Bank, IDBI Bank, ING Vysya Bank and Motilal Oswal Securities from opening fresh demat accounts. The regulator also pulled up NSDL and CDSL for `grave management lapses'.

Description SEBI on Thursday 27th April 2006 came down heavily on stock market intermediaries by banning several entities including Karvy group of companies, Pratik DP and Indiabulls Securities, for their alleged involvement in the IPO allotment scam. SEBI has also barred several entities including HDFC Bank, IDBI Bank, ING Vysya Bank and Motilal Oswal Securities from opening fresh demat

accounts. In an interim order issued today after the second round of investigations, the capital market regulator has banned 24 entities from buying and selling securities till further orders.

Common address SEBI also said 15 Depository Participants at National Securities Depository Ltd (NSDL) including Kotak Securities, Citibank, ICICI Bank, Bank Paribas and IndusInd Bank had more than 500 demat account holders sharing the common address. It asked NSDL to conduct inspection on whether all the demat account holders are genuine. NSDL has also been asked to check whether the Know Your Customer norms of SEBI have been duly complied with and take action against suspect accounts on verification. Analysts felt the SEBI order was akin to capital punishment for the entities involved in the securities market scam. "In view of the detailed findings, Karvy DP and Pratik DP prima facie do not appear to be fit to deal in securities market as SEBI registered intermediaries. Appropriate quasi-judicial proceedings are being initiated against the two DPs," the 252-page order issued late in the evening said.

SEBI said the other business groups of Karvy appear to have acted in concert in the gamut of IPO manipulations. "I further direct Karvy Stock Broking Ld, Karvy Computer Share PVT Ltd, Karvy Investor Services and Karvy Consultants not to undertake fresh business as registrar to the issue and share transfer agent," Mr G Anantharaman, Whole-Time Member, SEBI, said.

NSDL, CDSL pulled up The regulator also pulled up NSDL and CDSL for `grave management lapses'. The findings revealed "contributory negligence" on the part of the depositories and their managements. "The promoters of NSDL and CDSL are directed to take all appropriate actions including revamping of management which clearly has allowed matters to come to such a sorry pass," the order said. The order, to be treated as a `show-cause notice', has given 15 days time to the parties named for filing objections.

5. IPO scam: HDFC Bank, 2 others fined The Reserve Bank of India on Monday 27th Feb 2006 fined HDFC Bank, IDBI and ING Vysya Bank for violation of Know Your Customer norms and other irregularities in relation to the recent IPO scam.

HDFC Bank has been slapped with the highest penalty of Rs 25 lakh; ING Vysya Bank - Rs 10 lakh and IDBI Ltd Rs 5 lakh. This is the second time HDFC Bank has been fined for violation of KYC norms. In January, the bank was imposed a penalty of Rs 5 lakh.

According to an RBI release, these banks have been fined, "for violation of regulations on KYC norms, for breach of prudent banking practices and for not adhering to its directives/guidelines relating to loans against shares/ IPO."

Salient Features of IPO scam

Current account opened in the name of multiple companies on the same date in the same branch of a bank

Sole person authorized to operate all these accounts who was also a Director in all the companies

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Identity disguised by using different spelling for the same name in different companies Multiple accounts opened in different banks by the same group of joint account holders Huge funds transferred from companies accounts to the individuals account which was invested in IPOs

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Loans/ overdrafts got sanctioned in multiple names to bypass limit imposed by RBI Loans sanctioned to brokers violating guidelines Multiple DP accounts opened to facilitate investment in IPO Large number of cheques for the same value issued from a single account on the same day Multiple large value credits received by way of transfer from other banks Several accounts opened for funding the IPO on the request of brokers, some were in fictitious names

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Refunds received got credited in brokers a/cs Margin money provided by brokers through single cheque Nexus between merchant banker, brokers and banks suspected Operational deficiencies

Factors that facilitated the scam

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Photographs not obtained Proper introductions not obtained Signatures not taken in the presence of bank official

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Failure to independently verify the identity and address of all joint account holders Directors identity/ address not verified Customer Due Diligence done by a subsidiary Objective of large number of jt. account holders opening account not ascertained Purpose of relationship not clearly established Customer profiling based on risk classification not done Poor monitoring and reporting system due to inadequate appreciation of ML issues Absence of investigation about use and sources of funds Unsatisfactory training of personnel No system of fixing accountability of bank officials responsible for opening of accounts and complying with KYC procedures

Ineffective monitoring and control

Measures to prevent scams

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An analysis of IPO scam clearly brings out the laxity on the part of banks to scrupulously implement the KYC/AML guidelines issued from time to time. It also raises serious concerns about the integrity of the systems & systemic risks.

While scams may still happen despite best of preventive measures, it should not undermine the efforts being made to insulate the financial sector from money laundering. It is going to be a long fight with constant need to improve and innovate new strategies.

It is important to understand that the risks banks run as a result of non-compliance with regulatory and statutory guidelines can cause severe reputational and financial damage to individual banks and the Indian banking system as a whole

Need for comprehensive operational framework implementing important aspects of KYC instructions e.g.

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Documentation procedure for opening of all types of customer accounts; Clarity in understanding of risk classification of accounts and proper customer profiling Ongoing monitoring of medium and high risk accounts Enhanced due diligence in respect of accounts with beneficial ownership, non-face to face transactions, group companies, high risk businesses and wire transfers etc.

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Prompt reporting of cash and suspicious transactions to Principal Officer by branches An effective audit machinery Good understanding of regulatory and statutory prescriptions in letter and spirit Clear demarcation of duties and responsibilities

Violations to be dealt with sternly

Biggst IPO In India 2011

COAL INDIA IPO OVERSUBSCRIBED 1.57 TIMES Coal India IPO: The Success Story Coal India IPO saw a tornado of subscriptions coming towards it right after the launch. Here are some interesting highlights.

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. Government-run companies like Power Grid, ONGC, Steel Authority of India and India Oil Corporation are planning to enter the markets very soon. CIL IPO highlights 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 Ltds performance and quality have been two major hallmarks of this IPO. Both foreign and domestic investors have shown robust positivism as far as the companys 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 Rs. 225 to 245. The Indian capital market and stock futures turned back into gold since the subscription of CIL IPO began. The initial public offer mobilized 236,000 crore going far beyond the estimated target of 15,500 crore. IANS, Oct 19, 2010, 05.55pm IST MUMBAI: State-run Coal India's $3.5 billion dollar initial public offering (IPO), the biggest in the history of corporate India, was subscribed 1.57 times on Tuesday. The issue at a price band of Rs.225-Rs.245 a share, received 991,179,700 bids against 631,636,440 shares on offer for sale till 4pm, according to data made available by the stock exchanges. At the higher end of the band, the IPO size will be to the tune of about Rs.15,400 crore, making it the largest IPO in the history of Indian capital markets. The institutional segment of the IPO was fully subscribed in the morning itself. The offer closes Oct 21 for retail and non-institutional bidders, while for large financial institutions it would end a day earlier. The company is set to list on the stock exchanges Nov 4. The mega public float, experts believe, is expected to attract foreign investors and lead to a surge in dollar inflows, pushing the Indian rupee further up. It could cause a liquidity crunch for a short while and lead to correction in the secondary market. Coal India is the world's largest coal miner, producing over 80 percent of India's coal through 471 mines across eight states. It produced 431.26 million tonnes of raw coal in 2009-10

HERE ARE THOSE INVESTMENT-WORTHY IPOS FOR 2011:

DELHI METRO RAIL CORP IPO

Sector: Infrastructure & Development Investment Quotient: Citing the rapid and time-driven growth of infrastructure projects in India, investing in the Delhi Metro Rail Corp IPO would prove beneficial. Besides being one of the largest and profit-making infrastructure groups, DMRC has turned its sights to stock market investors for cash, which would help them raise funds for expansion.

RELIANCE LIFE IPO

Sector: Insurance Investment Quotient: Reliance Life, the financial arm of Reliance ADA Group, is considering for an initial public offering this year along with liberal bonus for the shareholders. Insurance sector has numerous growth opportunities and investment in Reliance Lifes stock sale would not be a waste of money.

THE LOOT IPO

Sector: Retail Investment Quotient: With retail market conditions improving, the multi-brand discount retailer, The Loot, has shelved its IPO plan with an objective to raise Rs. 100 crore through stock sale. The investment opportunities will be good as The Loot is a self-funded entity, which is planning to extend operations in Indias tier II and tier-III cities.

SUPER RELIGARE LABORATORIES IPO Sector: Healthcare Investment Quotient: Super Religare Laboratories, a diagnostic business unit under Fortis Healthcare Ltd, is looking for inorganic growth opportunities in both domestic and Asian markets after acquiring Piramal Healthcare for Rs. 600 crore in the FQ10 to signal the markets about its expansion plans. Thus, the SRL IPO investment will be a fine deal.

HDFC LIFE IPO

Sector: Insurance Investment Quotient: HDFC Life IPO will be a very good investment option as HDFC Life is one of the premium private sector insurance giants with well-designed policies. Plus, its parental institution, HDFC Bank has robust plans to infuse around Rs. 50 crore- 100 crore to extend its insurance business. Big money, better growth, ideal investment!

SISTEMA SHYAM IPO

Sector: Telecommunication

Investment Quotient: Sistema Shyam IPO would be a hit as the CDMA-based mobile service (MTS) provider is sure of its business model and has already added six million mobile subscribers in its kitty. Sistema Shyam is the Indian JV of Russian Sistema and intends to raise funds through its stock sale next year in order to expand its MTS service in India.

CONCLUSION & SUGGESTION

CONCLUSION

Previously the shares were issued in physical form but now it is based on ASBA system.

The guidelines of SEBI for issuing IPO are lenient.

The study about IPO and its methods helped us to know the different ways of going for an IPO.

Analysis of financial markets helps to know about the various types of markets.

The advantages and disadvantages of going for an IPO are studied. Thus the overall knowledge about IPO is gathered. The different role of intermediaries are studied as BRLM, lead manager, registrar, and banker. The reasons for IPO scams are: 1. Guidelines of SEBI are not clear. 2. Intermediaries

3. Investors worthiness

SUGGESTIONS Though the move to make IPO ass ess ment mandatory has drawn some critical comments
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The need for a tool to help investors make better-informed decisions and judge the quality of issues hitting the market is undisputed. An IPO assessment brings four major pluses.

Firstly, it improves information content through a professional and independent assessment.

Secondly, it is relief for individual investors from infor mation overload.

Thirdly, it provides disincentives for weak companies to come t o the mar ket in the hope of raising easy capital.

It brings about greater level of investor sophistication.

The process of underwriting involves raising money from invest ors by issui ng new securities. It is suggested that to prevent the IPO scams some steps should be taken to improve guidelines of SEBI, role played by intermediaries must be fair.

ANNEXURE

BIBLIOGRAPHY
Agarwal M.R. IPO In India,Security Analysis & Portfolio Management, Garima publications, 2010, Pg no. 120-140.
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Chandra Prasanna, Security Analysis, Bhalla, V.K. Investment Management. In Security Analysis and PortfolioManagement, S.CHAND publication, 12thEdition 2005,Pg no. 90-105.

Fischer, Donald E.. Security Analysis and Portfolio Management.,Pearson Education Publication, Sixth Edition 2003, Pg no. 140-150.

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