UNDERWRITER

According to SEBI(Underwriters) Rules 1993, an

underwriter is a person who engages in the business of underwriting of an issue of securities of a body corporate.
According to SEBI DIP Guidelines underwriting is

an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them.

 Underwriting is always in connection with a proposed

UNDERWRITER

issue of securities by a body corporate. No general understanding between company and underwriter. Underwriting commitment has to be documented through underwriting agreement. Applicable only if the persons to whom it is offered do not subscribe them Underwriter obligation to subscribe to an agreed number of unsubscribed securities Underwriters charge commission for their service which is governed by Section 76 of the Companies Act (5% w.r.t. shares and 2.5% w.r.t. debentures)

UNDERWRITING AGREEMENT
Amount being underwritten Provision for sub-underwriting Computation of devolvement Right to receive commission within statutory

stipulation

TATA MOTORS UNDER SUBSCRIPTION

Tata Motors' Rs 4,145-crore rights issue that

closed on 20th undersubscribed

October

2008

was

The lead manager to the issue - JM Financial Tata Motors share closed at Rs 244 on BSE,

while its rights issues of ordinary and ClassA shares were priced at Rs 340 and Rs 305 respectively
Tata has to Bailout JM Financial.

Comparative scheme of Underwriting Process Nature of Service India US

Fee-based. Becomes contingently fund based Fund based Standby support that would Firm underwriting wherein the devolve on the underwriter only if underwriters guarantee the issue the issue is under-subscribed irrespective of investors' response

Method of underwriting

Nature of underwriting contract Purchase price of securities Extent of obligation to purchase

It is a contract of purchase and sale wherein underwriters purchase It provides a contingent obligation securities from the issuer at lower price on the underwriter to purchase and sell them to investors at the offer the securities on offer price
At the offer price To the extent of devolvement At a discount to offer price To the extent of amount underwritten

Compensation

Underwriting Commission

Underwriting Speared

Refund (Undersubscription)
If

the company does not receive the minimum subscription of 90% of the net offer to public including devolvement of Underwriters within 60 days from the date of closure of the issue, the company shall forthwith refund the entire subscription amount received.

If there is a delay beyond 8 days after the company

becomes liable to pay the amount, the company shall pay interest prescribed under Section 73 of the Companies Act, 1956.

OVERSUBSCRIPTION AND BASIS OF ALLOTMENT

Oversubscription

occurs when demand for shares exceeds the supply or number of shares offered for sale. As a result, the underwriters or investment bankers must allocate the shares among investors.

Basis of allotment: During an IPO, this is the

number of shares granted to each participating underwriting firm that they are permitted to sell. Remaining surpluses are then given to other firms which have won the bid for the right to sell the IPO.

BASIS OF ALLOTMENT: ADANI POWER IPO

The Adani Power initial public offering (IPO) witnessed huge investors'

interest and was subscribed 21.64 times.

Shares Applied 65 130 195 260 325 390 455 520 585 650 715 780 845 975

Ratio 5:13' 3:4' Firm Firm Firm Firm Firm Firm Firm Firm Firm Firm Firm Firm

Shares allotted 65 74 98 123 147 172 196 221 245 270 295 319 344 368

Refund (Oversubscription)
For any IPO, once the issuing company finalizes

the basis of allotment, it has to ensure that the shares are credited to the applicants within two working days.
Those not allotted shares or allotted fewer shares

than they sought will have to be refunded the money through electronic banking channels within 15 days from the close of the issue failing which the company will have to pay interest of 15%.