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Appointment Procedure

1. Meeting of Board of Directors

2. Appointing of Merchant Bankers- Specialized financial Consultancy who looks after Initial
Public Offering
3. Apponting of Registrar and transfer agent done by Merchant Bankers
4. Banks- Appointed by Merchant Bankers
5. Appointing of Lawyer

Real Procedure
6. Book issued by Merchant bankers and submit it to SEBI which includes Reason of Issuing,
no of Shares, Financial Condition of the company, current Business, Management, Growth in
Sectors and Risk factor
7. Prospectus- Issued to stock Market and registrars
8. Printing Of Forms
9. appointment of Brokers
10. Marketing & Advertising
11. Brokers Meeting in a Company
12. Road Shows or meetings
13. IPO starts 3-7 days opened
14. IPO closed

Post IPO
15. collection of Forms
16. Oversubscription or Undersubscription
17. Allotement Of shares
a. Pro data allotement
b. lottery system
18. Issue of share certificate
a. Letter of allotement
b. regret Leter
19. Refund cheque
20. Listing Of shares in NSE or BSe
Advertisement

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CONTENTS Classification of Issues Primary Market / New issue market Placement of issue
Offer through prospectus Offer for sale Private placement Rights issue Book building Red
herring prospectus Intermediaries to issue Lead Manager Registrar Bankers to issue
Underwriters Pricing of issue
j
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CLASSIFICATION OF ISSUES Issues Public Rights Preferential Initial Public Offering

(IPO) Follow on Public Offering (FPO) Fresh Issue Offer for Sale Fresh Issue Offer for Sale
Prof. Deepak Tandon

    
  

PRIMARY MARKETS OR NEW ISSUE MARKET Primary markets - include all types of
securities - being sold for the first time After being offered in the primary market, it becomes
part of the secondary market Primary market offered consist of (1) FPOs, new offerings of
listed companies that have sold securities to the public before, and (2) IPOs, where an
unlisted company is selling securities to the public for the first time

j

 

PLACEMENT OF THE ISSUE Initial issues are floated 1. Through prospectus 2. Bought
out deals/offer for sale 3. Private placement 4. Right issue 5. Book building

   j

OFFER THROUGH PROSPECTUS Invites offers for subscription or purchase of any shares
or debentures from the public The salient features of the prospectus are 1. General
Information about company 2. Capital structure of the company 3. Terms of the present
issue 4. Particulars of the Issue - issue-opening, closing and earliest closing date of the issue
5. Company Management and Project 6. Details of the outstanding litigations 7.
Management perception of risk factors 8. Justification of the issue premium 9. Financial
Information - cost of the project, projected earnings

 


OFFER FOR SALE Promoter places his shares with an investment banker (bought out
dealer or sponsor) who offer it to the public at a later date Hold on period is 70 days to more
than a year Bought out dealer decides the price after analyzing the viability, the gestation
period, promoters¶ background and future projections Boughs out dealer sheds the shares at
a premium to the public Promoter Investment Banker Public

j

Contd. Advantages for the issuing company helps the promoters to realize the funds without
any loss of time the cost of raising funds is reduced - For issuing share cost as high as 10
percent of the cost of the project helps the new entrepreneurs, not familiar with the capital
market, to raise adequate capital from the market. a company with no track record of
projects, public issues at a premium may pose problems possess low risk to investors since
the sponsors have already held the shares for a certain period Disadvantage sell at a hefty
premium, manipulation of the results, insider trading and price rigging

 j


PRIVATE PLACEMENT Small number of financial intermediaries (like Unit Trust of

India, mutual funds, insurance companies, merchant banking subsidiaries of commercial
banks) purchase the shares and sell them to investors at a later date at a suitable price
Advantages: Cost Effective - statutory and non-statutory expenses are avoided. Time
Effective Structure Effectiveness - flexible to suit the financial intermediaries Access
Effective - issue of all sizes can be accommodated

 

RIGHTS ISSUE Offers shares at first to the existing share holders In proportion to the
shares held by them at the time of offer Offered at a advantageous rate compared with the
market rate Certain conditions: A notice should be issued to specify the number of shares
issued The time given to accept should not be less than 15 days Right of the share holders to
renounce the offer in favor of others

  


BOOK BUILDING Process of price discovery Not a fixed price for its shares Indicates a
price band that mentions the lowest (referred to as the floor) and the highest (the cap) prices
The spread between the floor and the cap of the price band shall not be more than 20%. The
cap should not be more than 120% of the floor price. Price is finalized by the book runner
and the issuer company Malegam Committee - introduction of the book building process Oct
1995 Originally, companies issuing more than Rs 100 cr allowed; Later SEBI allowed for
issue of any size

j

Contd. Nirma offering a maximum of 100 lakh equity shares through this process; first
company to adopt the mechanism An example of pricing securities - Google¶s IPO offer:
Google¶s IPO offer on the Dutch-auction basis, similar to the book-building process. Target
range between U.S. $105 and U.S. $135 per share Market response to offer not too good;
final issue price U.S. $85 Enabled Google to find price that market was willing to pay for its
issue
 
 j

RED HERRING PROSPECTUS Prospectus without details of either price or number of

shares being offered or the amount of issue A preliminary registration statement that must be
filed with the SEBI describing a new issue of stock (IPO) and the prospects of the issuing
company It is known as a red herring because it contains a passage in red that states the
company is not attempting to sell their shares before the registration is approved by the SEBI

 j

 

PRICING OF ISSUE Prior to 1992, governed by Controller of Capital Issues Act 1947
Fixation of a fair price on the basis of the net asset value per share Era of free pricing in
1992; SEBI does not play any role in price fixation Issuer in consultation with Merchant
Banker shall decide the price FIXED PRICE - company and LM fix a price PRICE
DISCOVERY THROUGH BOOK BUILDING - company and LM stipulate a floor price or
a price band and leave it to market forces to determine the final price At premium
Companies are permitted to price their issues at premium At par value In certain cases
companies are not permitted to fix their issue prices at premium

     

INTERMEDIATRIES TO ISSUE Intermediaries to an issue are: Merchant Bankers to the

issue or Book Running Lead Managers (BRLM) Registrars to the issue Bankers to the issue
Auditors of the company Underwriters to the issue Solicitors Advertising agencies Financial
institutions Government/ statutory agencies


 

LEAD MANAGER Appointed by company to manage the public issue programmes. BRLM
- A Merchant banker possessing a valid SEBI registration Main duties (a) drafting of
prospectus (b) preparing the budget of expenses related to the issue (c) suggesting the
appropriate timings of the public issue (d) assisting in marketing the public issue
successfully (e) advising the company in the appointment of registrars to the issue,
underwriters, brokers, bankers to the issue, advertising agents etc. (f) directing the various
agencies involved in the public issue.

 

The merchant banking division of the financial institutions, subsidiary of commercial banks,
foreign banks, private sector banks and private agencies are available to act as lead managers
Some of them are SBI Capital Markets Ltd., Bank of Baroda, Canara Bank, DSP Financial
Consultant Ltd. ICICI Securities & Finance Company Ltd., etc. Prof. Deepak Tandon

!

Role of Lead Manager in the Pre & Post Issue Pre issue: Post issue: Due diligence Design of
offer doc, prospectus, memo« Ensure the formalities with SE, ROC & SEBI Appointment
wd intermediaries Marketing strategy Mgt of escrow a/ct Co-ordinate non institutional
allocation Intimation of allocation Dispatch of refunds to bidders Follow up steps-
finalization of trading, Dealing of instruments, dispatch of certificates & demat of delivery
of shares Look at the functioning of agencies Prof. Deepak Tandon

   

REGISTRAR Finalizes the list of eligible allotees after deleting the invalid applications
Corporate action for crediting of shares to the demat accounts of the applicants Dispatch of
refund orders to those applicable Receive the share application from various collection
centres Recommend the basis of allotment in consultation with the Regional Stock Exchange
for approval Arrange for the dispatching of the share certificates BANKERS TO THE
ISSUE Ensure that the funds are collected and transferred to the Escrow accounts. Estimates
of collection and advising the issuer about closure of the issue Prof. Deepak Tandon


   

UNDERWRITERS Underwriting means they will subscribe to the balance shares if all the
shares offered at the IPO are not picked up Could be a banker, broker, merchant banker or
financial institution Insurance against the possibility of inadequate subscription Done for a
commission The aspects considered before appointing are (a) experience in the primary
market (b) past underwriting performance and default (c) outstanding underwriting
commitment (d) the network of investor clientele of the underwriter and (e) his overall
reputation Prof. Deepak Tandon

˜c The costs of an initial public offering are small as compared to the costs of
borrowing large sums of money for ten years or more,

˜c The capital raised never has to be repaid.

˜c When a company sells its stock publicly, there is also the possibility for appreciation
 of the share price due to market factors not directly related to the company.

˜c It allows a company to tap a wide pool of investors to provide it with large volumes
of capital for future growth.

Net worth


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Once µDraft Prospectus' of an IPO is cleared by SEBI and approved by Stock Exchanges
then it's up to company going public to finalize the date and duration of an IPO. Company
consult with the Lead Managers, Registrar of the issue and Stock Exchanges before decides
the date.

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Company with help of lead managers (merchant bankers or syndicate members) decides the
price or price band of an IPO.

SEBI, the regulatory authority in India or Stock Exchanges do not play any role in fixing the
price of a public issue. SEBI just validate the content of the IPO prospectus.

Companies and lead managers does lots of market research and road shows before they
decide the appropriate price for the IPO. Companies carry a high risk of IPO failure if they
ask for higher premium. Many a time investors do not like the company or the issue price
and doesn't apply for it, resulting unsubscribe or undersubscribed issue. In this case
companies' either revises the issue price or suspends the IPO.

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  is a way for a company to raise money from investors for its
future projects and get listed to Stock Exchange. Or An Initial Public Offer (IPO) is the
selling of securities to the public in the primary stock market.

Company raising money through IPO is also called as company µgoing public'.

From an investor point of view, IPO gives a chance to buy shares of a company, directly
from the company at the price of their choice (In book build IPO's). Many a times there is a
big difference between the price at which companies decides for its shares and the price on
which investor are willing to buy share and that gives a good listing gain for shares allocated
to the investor in IPO.

From a company prospective, IPO help them to identify their real value which is decided by
millions of investor once their shares are listed in stock exchanges. IPO's also provide funds
for their future growth or for paying their previous borrowings.

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Lead managers are independent financial institution appointed by the company going
public. Companies appoint more then one lead manager to manage big IPO's. They are
known as Book Running Lead Manager and Co Book Running Lead Managers.

Their main responsibilities are to initiate the IPO processing, help company in road shows,
creating draft offer document and get it approve by SEBI and stock exchanges and helping
company to list shares at stock market.

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Registrar of a public issue is a prime body in processing IPO's. They are independent
financial institution registered with SEBI and stock exchanges. They are appointed by the
company going public.

Responsibility of a registrar for an IPO is mainly involves processing of IPO applications,

allocate shares to applicants based on SEBI guidelines, process refunds through ECS or
cheque and transfer allocated shares to investors Demat accounts.

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Follow on public offering (FPO) is public issue of shares for already listed company.

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"Draft Offer document" is prepared by Issuer Company and the Book Building Lead
Manager of the public issue. This document is submitted to SEBI for review. After
reviewing this document either SEBI ask lead managers to make changes to it or approve it
to go ahead with IPO processing.

Draft document are available on SEBI's website in the section of µReports -> Public Issues:
Draft Offer Documents filed with SEBI" at:
http://www.sebi.gov.in/SectIndex.jsp?sub_sec_id=70

"Draft Offer document" is usually a PDF file having information of an investor who needs to
know about the public issue. It mainly contain information about the company, its business,
management, risk involve in applying to this issue, company financials and the reason why
company is raising money through IPO.

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Once the µDraft Offer document' cleared by SEBI, it becomes "Offer Document". Offer
Document is the modified version of µDraft Offer document' with SEBI suggestions.

"Offer Document" is submitted to the registrar of the issue and stock exchanges where Issuer
Company is willing to list.

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Once "Offer Document" gets clearance from Stock Exchanges, Issuer Company add Issue
size and price of the issue to the document and make it available to the public. The issue
prospectus is now called "Red Herring Prospectus".

Primary market is the market where shares are offered to investors by the issuer company to
raise their capital.

Secondary market is the market where stocks are traded after they are initially offered to the
investor in primary market (IPO's etc.) and get listed to stock exchange. Secondary market
comprises of equity markets and the debt markets.
Secondary market is a platform to trade listed equities, while Primary market is the way for
companies to enter in to secondary market.

SEBI had issued new guidelines for )  $. The new guidelines of
Applications Supported by Blocked Amount (ASBA) allows investors to apply
for an IPO, keeping the application money in their bank accounts till the
finalisation of the allotment.

20 Microns Ltd is set to become the first company to come out with an %
,'-#&&*2  3 through the new Securities and Exchange Board of India
(SEBI) guidelines of Applications Supported by Blocked Amount (ASBA).

"We are offering 20 Microns Ltd's IPO under the new Sebi guidelines through
applications supported by blocked amount' (ASBA). The investors will have to
fill up an application form with their name, PAN number and DPID details to
any of the five designated banks--State Bank of India (SBI), HDFC Bank,
ICICI Bank, Corporation Bank and Union Bank--to block the application
money in a bank account," Keynote Corporate Services' vice-chairman, B
Madhuprasad, told PTI here today.

The new system will help retail investors whose  %,,#%/. is

often blocked for weeks even when they are not allotted shares, Madhuprasad
said.

The investors would benefit because they won't have to pay anything upfront.
So the cash won't be required to be paid immediately. Of course, the funds
would be blocked with the bank. The time and costs involved in waiting to get
the refunds and then crediting them to the account would be eliminated
altogether.

This process will also do away with the  *&' process. This will also
shorten the time between a public issue and its listing, since listing happens
only after refunds are done.
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Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue
of securities or an offer for sale of its existing securities or both for the first time to
the public.
Further public offering (FPO) is when an already listed company makes either a fresh
issue of securities to the public or an offer for sale to the public, through an offer
document.

Rights Issue (RI) is when a listed company which proposes to issue fresh securities
to its existing shareholders as on a record date. The rights are normally offered in a
particular ratio to the number of securities held prior to the issue.

Private Placement is an issue of shares or of convertible securities by a company to a

select group of persons under Section 81 of the Companies Act, 1956 which is
neither a rights issue nor a public issue.

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Red Herring Prospectus is a prospectus which does not have details of either price or
number of shares being offered or the amount of issue. This means that in case price
is not disclosed, the number of shares and the upper and lower price bands are
disclosed. On the other hand, an issuer can state the issue size and the number of
shares are determined later.

An RHP for an FPO can be filed with the RoC without the price band and the issuer,
in such a case will notify the floor price or a price band by way of an advertisement
one day prior to the opening of the issue. In the case of book-built issues, it is a
process of price discovery and the price cannot be determined until the bidding
process is completed.
Hence, such details are not shown in the Red Herring prospectus filed with ROC in
terms of the provisions of the Companies Act. Only on completion of the bidding
process, the details of the final price are included in the offer document. The offer
document filed thereafter with ROC is called a prospectus.

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