BOOK BUILDING, LISTING AND DELISTING OF SECURITIES

S. ANANTHANARAYAN, FCS

SMTP - AUGUST 2, 2006

PUBLIC ISSUE THROUGH BOOK BUILDING

What is Book Building?
Book building is a capital issuance process used in an initial public offer (IPO) which aids price and demand recovery. It is a process by which the demand for the securities proposed to be issued by a company is elicited and built up and the price for the securities is assessed for the determination of the quantum of securities to be issued by means of a notice circular advertisement or document.

Distinction bet een a No!"al #ublic $ssue and one th!ough Book Building !
Normal Iss !
". Issuer fi#es the price in consultation with $ead %anager &. Price being fi#ed the si'e of the issue is pre(determined ). *he issuer has the option of having the public issue underwritten ,. Prospectus has to be filed with -.BI the /egistrar of 0ompanies and -tock .#changes

T"ro #" Boo$ B %l&%'#

Only a price band is fi#ed by the issuer Investors are encouraged to bid for the shares within the price band and the most accepted price is fi#ed as the issue price. +nderwriting is mandatory to the e#tent of the net offer to the public. Issuer shall file Information %emorandum and a /ed 1erring Prospectus (at least ) days prior to the opening of the offer) and a prospectus prior to the opening of the -ubscription list. 2 final prospectus on closing of the offer shall be filed. Book runner has to be appointed in the case of 435 book building and in the case of "665 book building Book /unning $ead %anager (B/$%) and 0o(book running $ead %anagers (0B/$%) and -yndicate %embers (-%) have to be appointed.

3. %erchant bankers are appointed.

%&&e! Docu"ents ' $n&o!"ation (e"o!andu"

-ection 76B has been inserted by the 0ompanies (2mendment) 2ct &666 recogni'ing the concept of 8book building.9 :here a company decides to follow the 8book building9 route to invite subscription it shall file( (a) an Information %emorandum and b) a red herring prospectus at least ) days before the opening of the offer.

Red He!!ing #!os)ectus

It is a prospectus which does not have complete particulars on the price of the securities offered and the quantum of securities but contains all the other features of a prospectus prescribed under -chedule II to the 0ompanies 2ct ";37.

$s book building "andato!* &o! all $#%s?

Book building is not mandatory for all IPOs since this option is given only when a company does not satisfy certain norms specified by -.BI for IPO.

$#% b* unlisted co")anies

2n unlisted company which does not fulfill the eligibility norms for IPO by an unlisted company may still make an IPO of equity shares if it meets the following & conditions! ". the issue is made through the process of book building process with atleast 365 of the issue si'e being allotted to <ualified Institutional Buyers(<IBs) failing which the full subscription monies shall be refunded O/ the 8pro=ect9 is appraised by financial institution> scheduled commercial bank and with at least "35 participation by financial institution> scheduled commercial bank of which at least "65 comes from the appraisers. In addition at least "65 of the issue si'e shall be allotted to <IBs failing which the full subscription monies shall be refunded AND &. the minimum post issue face value capital is /s. "6 crores O/ there is compulsory market making for at least & years from the date of listing sub=ect to the following conditions! (a) market makers undertake to offer buy and sell quotes for a minimum depth of )66 shares? (b) market makers undertake to ensure that the bid(ask spread (difference between quotations for sale or purchase) for their quotes shall not at any time e#ceed "6 per cent. (c) *he inventory of the market makers on each of such stock e#changes as on the date of allotment shall be at least 3 per cent of the proposed issue si'e. 2 further condition is that the unlisted company shall not make an allotment pursuant to the public issue of offer for sale of equity shares or securities convertible into equity shares unless the prospective allottees are not less than one thousand in number.

T*)es o& Book building+

2. 435 Book building process! *he option for 435 book building shall be available to all bodies corporate which are otherwise eligible to make an issue of capital to the public. B. Offer to Public through book building process 2n issuer company may make an issue of securities to the public through a prospectus in the following manner! (i) "66 per cent of the net offer to the public through book building process or (ii) 43 per cent of the net offer to the public through book building process and &3 per cent at the price determined through book building to (a) permanent employees of the issuer company and in the case of a new company the permanent employees of the promoting companies? (b) shareholders of the promoting companies in the case of a new company and the shareholders of group companies in the case of an e#isting company either on a competitive basis or on a firm allotment basis? (c) persons who on the date of filing of the draft offer document with -.BI have business association as depositors bondholders and subscribers to services with the issuer company making an initial public offering provided that allotment to such persons shall not e#ceed 3 per cent of the issue si'e. 1owever no reservation shall be made for the issue management team syndicate members their promoters directors and employees and for the group>associate companies of issue management team and syndicate members and their promoters directors and employees.

#!ocedu!e &o! issue o& ca)ital th!ough book building

Cas! I ()00 * +oo$ + %l&%'# Cas! II (,-* +oo$ + %l&%'# Allo.a/%o' ."a'#!& 0rom RII1NII12IB112-12-1-0 /o 3-1)-1-0 $n case book built issue "ade )u!suant to the !e,ui!e"ent o& "andato!* allocation o& -./ to 0$Bs, R$$ ill get 1., N$$ 2./. $n case o& unde! subsc!i)tion, the unsubsc!ibed )o!tion in an* catego!* shall be a3ailable &o! allot"ent to othe! catego!ies. Ho e3e!, the unsubsc!ibed )o!tion o& 0$B shall not be a3ailable &o! allot"ent to othe! catego!ies.

Allot"ent No!"s
@ide Press release Ao. "6B>&663 dated &7th 2ugust &663 -.BI has issued new allotment norms. In case of <IB in book built issues the following measures have to be implemented! ". <IBs shall bring at least "65 margin while submitting bids? &. the allotment to <IBs shall be on a proportionate basis? ). Out of e#isting 365 for <IBs 35 shall be specifically available for %Cs registered with -.BI. 1owever %Cs participating in <IB category will also be eligible for allotment in the remaining ,35 portion.

Aow allotment to <IBs shall also be on proportionate basis. 2ccordingly allotment will be made in proportionD to the bid si'es. *he bigger the bid the better are the chances of a successful allotment. D proportionate basis! If say /II portion of &35 is subscribed B times an applicant who has applied for B6 shares shall be allotted B6>BE "6 shares. In case of a book built issue allotment should be completed within "3 days from the closure of the issue.

LISTING OF SECURITIES
No!"s &o! listing
2. Other than B-. ". the threshold limit for issued capital of /s. ) crores &. at least "65 of each class or kind of securities was offered to the public for subscription through advertisement in newspapers for a period of not less than & days and that applications received pursuant to such offer were allotted sub=ect to the following conditions! a. minimum &6 lakh securities e#cluding reservations firm allotment and promoters contribution was offered to the public? b. the si'e of the offer i.e. offer price multiplied by number of securities offered to the public was minimum of /s. "66 crores? and a. the issue was made only through book building method with allocation of 765 of the si'e to <IBs as specified by -.BI. Rule 24565b7 o& the Secu!ities Cont!acts 5Regulation7 Rules, 2489 B. Cor companies listed on other -.s and seeking listing on B-. (Aew direct listing norms) ". *he minimum issued and paid up capital of /s. ) crores 4 &. *he company should have a track record of making profit for the last ) years (the revenue>profits arising out of e#traordinary items should be e#cluded while calculating distributable profits) ). %inimum net worth of /s. &6 crores (capital plus free reserves but e#cluding revaluation reserves)? ,. %inimum market capitali'ation of the listed capital should be at least & times the paid up capital? 3. *he company should have a track record of dividend payment for the last ) consecutive years and the minimum dividend should have been at least "6 per cent? 7. %inimum &3 5 of the companyFs issued capital should be with non(promoter shareholders as per 0lause )3 of the $isting 2greement. Out of the above no single shareholder should hold more than 6.35 of the paid up capital individually or =ointly with others e#cept in case of Banks CIs>CIIs>O0Bs and A/Is. 4. *he company should have at least & years listing record with any of the regional stock e#changes. B. *he company should sign an agreement with 0-G$ and A-G$ for demat trading. [ Press release dated 8th August, 2002 issued by BSE

Conditions &o! listing

M%'%m m 5 +l%. o00!r (i)In the case of a public issue by an unlisted company the net offer to the public shall be at least "65 or &35 as the case may be of the post issue capital? (ii) in the case of a public issue by a listed company, the net offer to public shall be at least "65 or &35 as the case may be of the issue si'e. *hese requirements will not apply to an infrastructure company seeking listing if! a. the pro=ect has been appraised by a public financial institution (PCI) or Infrastructure Gevelopment Cinance 0orporation (IGC0) or Infrastructure $easing and Cinancing -ervices $imited(I$HC-) or a bank which was earlier a PCI? and

b. not less than -* of the pro=ect cost is financed by any of the institutions referred to above =ointly or severally whether they appraise the pro=ect or not by way of loan or subscription to equity or a combination of both.

Conditions )!ecedent listing

". %inimum subscription as per -ec. 7; (") and ()) of the 0ompanies 2ct ";37 is received and &. 2ll moneys received from the issue are kept in a separate public issue account with bankers to the issue as required by sec 4) of the 2ct. It is obligatory that such moneys received are kept with a scheduled bank (banker to the issue) till the permission has been granted by the stock e#changes or until the disposal of any appeal against refusal of the permission -uch moneys can be utili'ed only for & purposes! ". for ad=ustment against allotment of shares where listing is permitted? or &. for repayment where listing is not permitted or the company is otherwise unable to allot shares. *he bank has an obligation not to release the money lying in the account without satisfying itself that the permission form listing has been granted or that the company is unable to allot shares and therefore has to refund the moneys lying therein. /elease by the banker without ensuring it is breach of trust and statutory duty !Ban" o# Baroda $s SEB% !2000&'8 ()A 22* B+,&. In another case i.e. +niversal Incast $td. @s 2ppellate 2uthority -.BI(&666) )B -0$",6 (Pun=abH 1aryana) the subscription money received from the applicants was not deposited with 8Bankers to the IssueF but with another scheduled bank. -tock e#change refused listing of shares.

Co!)o!ate :o3e!nance Co")liance

2ll entities seeking listing for the first time are required to comply with the provisions of corporate governance at the time of listing. *he stock e#changes shall ensure that these provisions are complied with before granting any new listing. It is sufficient if these companies set up Boards and constituted committees such as audit committees shareholders>investors grievance committee etc. before seeking listing. In case of companies failing to comply with this requirement without any genuine reason the application money will be kept in an escrow account till the conditions are complied with.

Ne

$#% to be t!aded in de"at &o!" onl*

-.BI has mandated vide its 0ircular dated &Bth Cebruary &66" that all shares allotted under new IPOs will be traded in demat form only in all the e#changes. Investors however have the right to obtain and hold physical certificates which will be required to be demateriali'ed before sale of securities. 2 single certificate will be issued to an investor who wishes to obtain physical certificates unless otherwise specifically requested by him.

;isting o& &u!the! ca)ital

-.BI had vide its 0ircular Ao. "3>&66" dated B th %arch &66" mandated inter alia that a listed company shall be required to obtain Iin principleF approval for listing from the stock e#changes before issuing further securities

Conditions &o! continued listing< a"ended b* S=B$ #!ess !elease No. 2.>'6..8 dated 6-th August, 6..8
*he conditions for continued listing have been revised as follows! ". 2ll listed companies will be required to maintain at least &35 of shareholding with public for the purpose of continuous listing? &. *his will not however be applicable to companies which are permitted to make an IPO of at least "65 to public in terms of /ule ";(&)(b) of the -ecurities 0ontracts (/egulation) /ules ";34. -uch companies will be required to maintain at least "65 public shareholding for the purpose of continuous listing. ).*he above minimum public holding requirement will not be applicable to Jovt. companies infrastructure companies and companies registered with BIC/. ,.$isted companies which are not presently complying with the above minimum public holding requirement will be given a period of & years for compliance from the date of issuance of circular in this regard. 3.$isted companies which may in future fall short of the requisite minimum level as mentioned above on account of 0orporate Gebt /estructuring packages etc. will be given a period of one year from the date of non( compliance. *hough no time frame has been anticipated or set the aim is to reach a single level of minimum public shareholding requirement for all listed companies.

Takeo3e! o& a Co")an* ? Clause @.B

:henever a takeover offer is made or there is a change in the control of the management of the 0ompany the person who secures the control of the management and the company whose shares have been acquired shall comply with the relevant provisions of -.BI (-ubstantial 2cquisition of -hares and *akeovers) /egulations ";;4.

SEBI 6D!l%s/%'# o0 S!. r%/%!s7 G %&!l%'!s 2003 DELISTING OF SECURITIES

>K (((((((((((((((((((((((((((((((((((((((((((( I I @oluntary (by the company) 0ompulsory by the stock e#change 8OLUNTAR9 I I I Crom one or more e#changes where the securities continue to be listed in a stock e#change having nation wide trading terminals vi'. B-. A-. Pr!.o'&%/%o's 0or &!l%s/%'# ". continued listing for at least ) years? &. no compulsion to remain listed on any e#change merely because it is regional e#change. (.arlier delisting e#cept from regional e#change.) ). 0ompany is not permitted to use buy( back for delisting. ,. where convertible instrument is outstanding the company is not permitted to delist till the conversion option is e#ercised. I Crom one or more e#changes without having or continuing to have listing of securities in a stock e#change having nation wide trading terminals B-. A-.

Pro.!& r! 0or &!l%s/%'# :"!r! /"! o00!r 0or &!l%s/%'# %s .o's%&!r!& /o "a;! 0a%l!&<
:here the offer for delisting results in acceptance of a fewer number of shares than the total shares outstanding and consequently the public shareholding does not fall below the minimum limit specified by the listing conditions the offer shall be considered to have failed and no securities shall be acquired pursuant to such offer.