|


 



„


 

›„

›



„

DIP VS ICDR

IPO NEW PROCESS

Significance of some changes made

Green Shoe Option

UNDERWRITING IN IPO

IPO GRADING (THE FLIP SIDE)



 ›



„ 
DIP guidelines stands rescinded ( Aug
2009)
=roadly the framework remains the
same
Some more clarification provided in the
new Regulations
Guidelines does not have the force of law
Regulations does
Enforcement to be more strict
Unwanted guidelines deleted from the
new regulations
0
„





Yhe term "group
Yhe term "group companies"
companies" not explained to avoid
explained. confusion. Yhe new
norms also bans
firm allotment to
privileged people
like relatives,
associates and
Exemptions were friends in IPO¶s.
available to Exemption has been
banking removed.
company, and Eligibility norms
have been made
infrastructure applicable uniformly
company. to all types of
issuers.
 




?efinition Excludes permanent
of "employee" employee/ director of
subsidiary or holding
Includes company of the issuer and
permanent promoters and immediate
employee/ relatives of promoters.
director of employee means a
subsidiary or permanent and full-
full-time
holding employee of the issuer,
company of the working in India or abroad
issuer. (?IP or a director of the issuer,
Guidelines) whether whole time or part
time
Reservations to employees
will not be subject to lock-
lock-
in.
 ÿ







! 

›
"
?efinition of Officers vested with
"Key executive powers and the
officers at the level
Management
immediately below the
Personnel" board of directors of the
issuer and includes any other
person whom the issuer may
declare as a key management
personnel.
?efinition of ³anchor investor" (AI)
³Anchor means a qualified institutional
Investor´ buyer
(AI) Concept of AI notified by SE=I
on 9th July 2009
 
Êirm allotment Yhere is no provision
in public issues for firm allotment in
was permitted. public issues. Yhis has
been done away since
there is a separate
window for AI and
also for QIPs now
Book
building
process could 75% book building
be made route has been
through 75%
or 100% of omitted.
issue size.
 
Yhe allotment and Yhe allotment/refund
/or refund period period has been made
was 30 days for 15 days for both fixed
fixed price issues price and book built
issues ( Possibly
and 15 days for mind)
keeping SMEs in mind)
book built issues.
Êor Book Built issues
?isclosure of price price band / Êloor price
or price band was needs to be announced
required in draft 2 days before issue
prospectus in case opening and for Êixed
of fixed price price at the time of ROC
public issues. filing
 
Surplus money in Surplus money would
Green Shoe now be transferred to
Option (GSO) Bank the Investor
Protection and
Account was required Education Êund (IPEÊ)
to be transferred to established by the
the investor Board
Protection Êund of
stock exchanges Yhe issue period has
Issue period for been made uniform to
10 days for all types
Infrastructure issuers. Yhe need
of issuers.
companies in to give more time for
public issues was 21 this sector was
days, as against 10 dispensed with since
money comes only on
days for other issues. the last day
 
Particulars as per Both the Government
audited financial and non-
non-government
statements would issuers would now be
not be more than 6 treated at par.
months old from the
issue opening date Yhe New Regulations
for all issuers, provides for ?isclosure
except Government on pledge of shares by
Companies. promoters consequent
?isclosure on to amendment in the
pledge of shares by listing agreement
promoters Replaced by "public
financial institution or a
Êinancial institution scheduled commercial
as a monitoring bank" who would be
agency not defined acting as monitoring
before agency.
 = =!
If issue opening and If advertisement
closing contains information
advertisement other than the details
contained highlights, specified in the format,
the advertisement
then the shall contain risk
advertisement would factors.
contain risk factors.
Where the warrant
holder exercises his
Êorfeiture of option to convert only
money on some of the warrants
unexercised held by him, upfront
warrants in payment made against
only such warrants can
preferential issues be adjusted. Balance
will stand forfeited
 #
 

›
Minimum Promoter¶s
promoters' contribution shall be
contribution brought in only by
brought in by promoters whose
promoters/ persons identity, photograph,
belonging to etc are disclosed in
promoter the offer document.
group/friends,
Yhe New Regulations
relatives and
provide that total
associates
issue period shall not
Issue period was exceed 10 days,
not clear in case of including any
revision in price revision in price
band in book built
band.
public issues.


Pre-issue
Pre- Pre-issue
Pre-
advertisement to be advertisement
made immediately would be made after
after receipt of registering of
observations from the Prospectus / red
Board herring prospectus
with Registrar of
?ocuments such as M Companies but
of A and A of A of the before opening of
Company, audited the issue.
balance sheet to be Yhe New
attached with due Regulations require
diligence certificate. for attachment of
checklist only.
only.
 m" ""
Êor follow on public Since the price band is
offers (ÊPO) the notice required to be announced
of Board meeting had one day before the issue
to be given as per opening notice period to
clause 19 of the listing Stock Exchange for the
agreement a week Board meeting to be held
before the board for this purpose has been
meeting. reduced to 48 hours
Underwriting
Yhe underwriting obligations will not be
obligations will be for restricted to the
the entire amount minimum subscription
amount of 90% of the
issue size but for
100% of the issue
size.
 !#
$! 



!


"
Stock Exchanges would Yhese disclosures
be required to disclose will also include
complaints lodged by details pertaining to
investors against trading arbitration penal
members and companies action etc against
listed on the exchange in
their website trading members.
Where there is
drawal of lots it has Yhe reference to PR
to be done in the has been omitted
presence of the PR from IC?R. It has
from the governing been clarified by
Board of the Stock SEBI that it is
Exchange intentional.
 






Yhe Issuer, any of its
Companies promoters, directors or
prohibited if persons in control are
debarred from debarred
accessing Capital
O Ê S Provided for.
for.
Market ±Order or
Promoters with majority
?irection by Board
shareholding in listed
entities can do offer for
No provision for sale«. ?isinvestment
offer for sale by and increasing in public
listed entities holding to 25%
Provisions relating to
OYCEI, EE--IPO Omitted
 
›
%



3 day report 3 ?ay report (
(working days calendar days).
from the closure 15 days within
of the issue) fifteen days
Êinal 50 days of the date of
post issue finalization of basis
monitoring of allotment or within
report (50 fifteen days of refund
of money incase of
calendar days
failure of issue, from
from closure of
closure.
the issue)

 
! 




&

"
'((&
Reservation for
Employees
ü Upto 5 % of the issue size
ü Ceiling of Rs 1 Lakh
ü Extend reservation for
Rights Issue also
ü ?iscount for Employees
also
°
 

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 °
 
 
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X Yhis day«.. Yhese deliverables«..
1 Y day o Book closes
2 Y + 1 days o Price determination
o ?etermination of offer size
3 Y + 2 days o Registrar draws the allocation list
o All bids entered assumed as valid
4 Y + 3 days o Stock Exchanges approve the basis of allocation
o Êinal prospectus printed and dispatched
o CANs sent to QIBs
o Allocation details electronically communicated by
Registrar/Company to brokers
5 Y + 4 days o Pay ±in (only high-value)
o Bankers to confirm clearance of fund
o Board meeting
o Stock Exchanges to issue the listing and trading permission
6 Y + 5 days o Brokers account to be credited with shares
o Broker to credit shares to the demat account of investors
o Company to instruct NS?L/C?SL to credit shares to the demat
account of brokers
7 Y + 6 days o Yrading to commence

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ARGIN ONEY FOR QI=

ü Was Zero initially
ü ade i0 % from Sep 2005
ü ade i00% from ay 20i0
ü AS=A made available for all
DISCRETIONARY ALLOTENT
ü PROPORTIONATE ALLOTENT FRO SEP
2005
5% RESERVATION FOR F FRO SEP
2005
„ 



 
 

)



Definition of Retail / HNI Aug 2003

ü 25% upto Rs 50,000/-
50,000/-
ü Increased to 35 % and amount < Rs
i00,000/-- from arch 2005
i00,000/
ü 25% for HNI > Rs 50,000/-
50,000/-
ü i5 % for amount >i,00,000/-
>i,00,000/- ar 2005
Proposal to increase it to Rs 2 Lakhs
„ 



 
 

)



Time line in Public Issues

ü 30 days for completion plus 7 working
days for Listing ( 40 days)
ü i5 days for completion plus 7 working
days for Listing (22 days)
ü Completion of all activities within i2
working days ( Sunday & Public
Holiday excluded)
„ 



 
 

)


ODE OF PAYENT & RECON
ü =y cheque /DD through S
ü Electronic IPO and secondary market
settlement T + 6 For listing
ü Payment through AS=A for Retail only
from July 2008
ü Extension of AS=A for all from Jan 2009
ü QI= covered through AS=A since i00%
payment upfront
 BOOK BUIL?ING

GREEN SHOE OPYION

UN?ERWRIYING
&
IPO GRA?ING
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4,
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1|m-780 6 % ""
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5 6 % ""

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"! 6 % ""
, 6 59"
)9! 6
5
1|m= 95 6 5%
 ›* ›

%›






+(
 ,
GSO BANK A/C GSO ?EMAY A/C ACYION YO ÊOLLOW POSY %OÊ
ISSUE PROMOY
CAPIYA OR
L HOL?IN
G

i Rs.30 Crores NIL Yransfer 30 Cr. Yo XYZ 530 300/530

Ltd. Co. to allott 30 lakh lakh =57%
shares to Mr. A shares

2 Rs.30 Cr.-
Cr.-Rs.27 Cr = 30 lakh shares @ Yransfer 30 lakh shares to 500 300/500
Rs.3 Cr. Yo IPEÊ Rs.90/share Mr. A lakh = 60%
shares

3 30Cr.-
30Cr.-9Cr. = 21 Cr. 21-
21- 10 lakh shares @ Yransfer 10 lakh shares to 520 300/520
20 = 1 Cr. Yo IPEÊ Rs.90/ shares Mr. A. Yransfer Rs.20 Cr. lakh = 58%
Yo XYZ Ltd. XYZ Ltd. Yo shares
allot 20 lakh shares to
Mr.A
 *
-

p
  
p 

Hard Underwriting
ü Underwriter agrees to buy his
commitment at its earliest stage
ü Guarantees a fixed amount to the
issuer from the issue If the shares
are not subscribed by investors
ü Where the issue is devolved on
underwriters and they have to bring
in the amount by subscribing to the
shares
 *
-

p
  
p 

Hard Underwriting
ü Underwriting agreement signed
before the issue opening
ü Underwriting not mandatory for
Êixed Price Issue
ü If ÊP is underwritten fully
underwriters will have to bring in
their obligations
ü IN Book Built Issue Underwriting is
mandatory..
mandatory
 *
-

p
  
p 

Soft Underwriting

ü Underwriting agreement only after

the issue closes
ü Pricing is determined only after
issue closing in Book Built Issues
ü Paradox of some sorts
ü Underwriting obligations have
been met in the past???? HOW??
ü Underwriter agrees to buy the
shares at later stages as soon as
the pricing process is complete
 *
-

p
  
p 
Soft Underwriting

ü Subsequently, he places those shares

with Institutional Investors
ü Also holds an option to invoke a force
majeure (acts of God) clause
ü In case there are certain factors
beyond the control that can affect the
underwriter's ability to place the
shares with the buyers
 ›

 
 -
!),0
IPO Grading Compulsory from May 1, 2007
Êive--point point scale
Êive
Higher score indicating stronger Êundamentals and
vice versa
All the grades to be disclosed
Activity to run parallel to the filing of draft offer
document
Price of the IPO not taken into account for Grading

     

CRISIL
"1! "1! ü iri Dyes and Chemicals Ltd ü
" ( 2/5
(Subscription ü i.3 times)
(1! (1!
" ( ICRA
ü SRS Entertainment ± 2/5
 ›

 

-
!),0


-
!),0
! 

=usiness Prospects and Competitive Position

Industry Prospects
Company Prospects
Financial Position
anagement Quality
Corporate Governance Practices
Compliance and Litigation History
New Projects ² Risks and Prospects

ÿ !"


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   „   

 
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 ›

 ›
Was grading not a factor in
investors' decision making
process?
Or is that the bullish secondary
market conditions will always
overweigh?
Good to remember that IPOs
can be floated only in buoyant
markets.
Even the best issues will not
sell in a bear market
Market replete with examples
 ›

 ›
It is being assumed by
most that IPO grading
is a perfect and an
objective process.
If that was the case,
there are no problems.
In reality, it appears
to be a hugely
subjective and an
imperfect process.
process.
 =||m m
°
X HISYORIC YREN?S OÊ YHE
PASY
X WEIGHYAGE ÊOR LOWER
CAYEGORY
X HIGHER PERCENYAGE OÊ
ALLOCAYION
X MULYIPLE APPLICAYIONS
(EXAMPLES)
X EXAMPLES OÊ RS/RPPL/ REPL
X SYOCK INVESYS
 =||m m
°
X CHANGE YO PRORAYA
ALLOYMENY IN 1993/94
X SEGREGAYION OÊ APPLICAYIONS
š 2 CAYEGORIES
X SMALL INVESYORS š
GRIEVANCES
X REVERSE NUMBERING
X ALLOYMENY IN ?EMAY ÊORM
2001
X PREREQUISIYES ÊOR OPENING
?EMAY A/C YILL 2005
X REQUIREMENY SPECIÊIE? POSY
IPO SCAM
 =||m m
°

X ÊORMAYION OÊ COMMIYYEE
ÊOR MULYIPLE
APPLICAYIONS IN 2001
UN?ER CHAIRAMNSHIP OÊ JK
VERMA
X SCAM AS IY UNÊOL?E?
X CASE OÊ PARAG JHAVERI
2007
X MISUSE OÊ YHE SYSYEM
 =||m m
° 
-!0

X YOYAL SHARES ON OÊÊER @Rs.500/-

@Rs.500/-
PER SHARE SAY 10 CRORE
X ÊOR REYAIL SAY 3.5 CRORES
X REYAIL OVERSUBSCRIBE? 6 YIMES
12/6=2, 24/6=4, 48/6=8 -----
LOYYERY
72/6=12 ----
----ÊIRM
ÊIRM 84/6=14 ---- ÊIRM
96/6=16 ----
----ÊIRM
ÊIRM 192/6=32----
192/6=32----ÊIRM
ÊIRM
X IÊ REYAIL IS 7 YIMES
12/7=1.71=2 24/7=3.42=3 }
LOYYERY
48/7=6.85=7 72/7=10.28=10 }
84/7=12 ---- ÊIRM 192/7=27 ÊIRM
   !!

 


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*......//
CS = Narasimhan
obile No 9004089490
Email bn@karvy.com
Or
narasimhan.b8@gmail.com