DEFINITION

A corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company.

WHY A COMPANY GO FOR IPO ?

To become a limited company
To raise the capital from primary market To minimize the risk Liquidity

To dilute the risk of loss To ensure the listing of shares

To have a widespread shareholder base

The process of an IPO

Eligibility criteria:

Net Tangible assets of Rs. 3.00 Crore in each of the preceding 3 years.
and

Track record of Distributable profits at least 3 out of 5 preceding years.

and

The Company has a Networth of Rs. 1.00 Crore in preceding 3 years.

and

The proposed issue should not exceed 5 times of its Pre-issue networth.

MANAGEMENT OF IPO
Appointment of merchant Banker Appointment of Registrar and Share Transfer Agent Grading of the Companys Securities

Drafting of Prospectus filing with SEBI

Filing of Prospectus with Stock Exchanges Obtaining of In-principle approval from stock

What is the process of an IPO

Appointment of Brokers, Advertisers and Bankers

Conducting Road shows and Press Conference

Opening and closing of Subscription list Preparation of Basis of Allotment Allotment of shares Listing of shares

What are the critical areas to focus

Compliance with SEBI Guidelines

90% subscription of the issue

Underwriting Agreements Firm Allotments

Listing approvals from the Stock Exchanges

ROC approval for the prospectus Advertising and Road Shows

Statutory advertisements
In-time allotments and refunds Listing of the shares with the Exchanges

SEBI GUIDELINES:
1.

Filing of prospectus:

Prospectus to be filed with SEBI Through Merchant Banker At least 30 days < filing with ROC SEBI may suggest changes < 30 days SEBI to consider only after approval from St.Ex Issuer is obligated SEBI is not obligated

2. Application for Listing:

No IPO without application for listing 3. Dematerialization of shares:
,

Agreement with Depository Present shares also to be in dmat public may opt either physical or dmat shares

4. Qualified Institutional Buyer shall mean:

a. public financial institution as defined in section 4A of the Companies Act, 1956; b. scheduled commercial banks; c. mutual funds; d. foreign institutional investor registered with SEBI; e. multilateral and bilateral development financial institutions; f. venture capital funds registered with SEBI;

g. foreign venture capital investors registered with SEBI; h. state industrial development corporations; i. insurance companies registered with the Insurance Regulatory and Development Authority (IRDA); j. provident funds with minimum corpus of Rs. 25 crores; k. pension funds with minimum corpus of Rs. 25 crores).

5. Exemption from Eligibility Norms:

Banking Co. including Pvt. Banks Subject to licensing by RBI New Bank being set up on acquisition or take over of a bank An infrastructure Company, whose project is appraised by F/I, IL & FS and IDFC

6. IPO Grading: No IPO unless; (as on the date of filing the prospectus with ROC): Grading for IPO has been obtained from at least one agency Grading and the rationale have been included in the prospectus Grading expenses to be borne by the issuer

7.

Present shares to be fully paid-up:

No IPO, if there are any shares partly paid up as on the date of IPO The Shares to be fully paid up or forfeited

8. Pricing of the Securities:

Listed Cos Unlisted Co.s Infrastructure co.

Free price

Free price

Free price

Subject to the Disclosure norms issued by SEBI Banks to obtain approval from RBI

9. Price Band:
Price Band to be 20% Max price can be 20% above the floor price Board of directors may be authorized to fix the price

10. Denomination of shares

Denomination of the shares is not restricted In case the issue price is <Rs.500, the Face Value shall be Rs.10/The Face Value may be less, where the issue price is Rs.500 or more Full disclosure of the face value in offer document

11. Promoter Contribution and Lock-in: 20% of the post issue share cap is to be held by promoters 12. Securities not included in the above: Where the equity has been acquired during the preceding 3 years and; - where the consideration is not cash or - where the shares are given through bonus issue from revaluation reserve

Guidelines on issue of advertisement:

advertisement shall be truthful, fair and clear shall not contain untrue or misleading or misleading statement disclose all relevant facts clear, concise and understandable language Avoid technical, legal, complex terms No advertisement in Crawlers Reference to the red-herring prospectus

No slogans, captions or one liners Shall include risk factors Risk factors to be given in the same font size The print size shall not be less than point size 7 The style of the font shall be Times new roman No advertisement relating to the full or over subscription while the issue is open Closure announcement can be made only after RTA certifies that 90% is subscribed

WHAT IS BOOK BUILDING ?

Book Building is basically a process used in Initial Public Offer (IPO) for efficient price discovery. It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date.
The concept of Book Building is relatively new in India. However it is a common practice in most developed countries.

Difference between Book Building Issue and Fixed Price Issue

In Book Building securities are offered at prices above

or equal to the floor prices, whereas securities are offered at a fixed price in case of a public issue.
In case of Book Building, the demand can be known

everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.

Book Building at NSE

The NSE has set up nation-wide network for trading

whereby members can trade remotely from their offices located all over the country. The NSE trading network spans various cities and towns across India. NSE decided to offer this infrastructure for conducting online IPOs through the Book Building process. NSE operates a fully automated screen based bidding system called NEAT IPO that enables trading members to enter bids directly from their offices through a sophisticated telecommunication network.

Book Building through the NSE system offers several advantages

The NSE system offers a nation wide bidding facility in

securities It provides a fair, efficient & transparent method for collecting bids using latest electronic trading systems Costs involved in the issue are far less than those in a normal IPO The IPO market timings are from 10.00 a.m. to 5.00 p.m. On the last day of the IPO, the session timings can be further extended on specific request by the Book Running Lead Manager.

Procedures
Issuers

Issuers desirous of using NSE's online IPO system are required to comply with the following procedures: 1. Submit a written request as per prescribed format (Letter1, Letter2, BRLM) for usage of electronic facilities and software of NSE 2. Give details regarding Book Running Lead Manager, Co Book Running Lead Managers and Syndicate Members. 3. Pay the requisite charges to NSE.

Trading Members The Book Running Lead Manager will give the list of trading members who are eligible to participate in the Book Building process to the Exchange. Members have to submit a one time undertaking to the Exchange. Eligible trading members have to give in the prescribed format details of the user IDs that they would like to use.

Subscribers
Subscribers can approach any of the approved trading members for submitting bids in the NEAT IPO system. On line transaction registration slip are generated automatically after entering the bids in to the system which acts as proof of the registration of each Bid option.

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