INITIAL PUBLIC OFFERING

Summer Training 2013

TABLE OF CONTENTS

Introduction Offer values Categories of investors Participants Red Herring Prospectus Escrow Account Fixed-Price Issue & Book-Building Issue Book-Building Issue Process Benefits of investing in Primary market

INTRODUCTION

Definition: First sale of securities in a corporation under the regulations regarding governing a public company

When the promoters dont have enough capital they invite the public to contribute via PUBLIC ISSUE

SEBI prescribes the guidelines for allotment of these public

issues.

The purchase of public issue happens under Primary Market.

OFFER VALUES

Public issue is offered at two values:

Face value
Nominal value of the share, assigned to it by the company

It is the original cost shown on the share certificate and the extent to which the shareholder is liable to the company

Premium value
It is the amount charged over the Face value Normally company charges premium if it has accumulated some past profits

CATEGORIES OF INVESTORS

Type

Qualified Institutional Bidders

Non-Institutional Investors

Retail Investors

Participants

Financial Institutions, Banks, FII's and Mutual Funds who are registered with SEBI

Individual investors, NRI's, companies, trusts etc. who bid for more then Rs. 1 lakhs

Includes individuals, both residents and NRIs, HUFs

Reservation

50% of shares of 15% of shares of 35% of shares of the total issue size in the total issue size in the total issue size in Book Build IPO's Book Build IPO's Book Build IPO's

High Networth Individuals (HNI) - If retail investor applies more then Rs 2,00,000 /- of shares in an IPO, they are considered as HNI

QUALIFIED INTUITIONAL INVESTOR/BUYER

Qualified Institutional Investor/Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets. E.g. Banks Mutual funds FII etc. At least 50%can be reserve for this category.

NON INSTITUTIONAL INVESTOR

These are the investor whose application size is more than Rs. 2 lakh e.g. Individual Investors NRIs, Societies & trusts. At least 15 % of total offer size can be reserve for this category.

RETAIL INVESTOR

These are the investor whose application size is less than Rs. 1 lakh e.g individual NRIs, HUFs Minimum 35 % of total offer size can be reserve for this category.

INERMEDIARIES IN PUBLIC ISSUE

When company launches an IPO it has to appoint various intermediaries for successfully completion of IPO. Book Running Lead Managers(BRLM)
Bankers to Issue Underwrites Registrar to the issue etc

BOOK RUNNING LEAD MANAGERS(BRLM)

BRLM are appointed by company for completion of pre & post formalities of related to Public offer with SEBI , Stock Exchanges and other Regulatory Authorities, e.g. escrow accounts, banker appointment, price deciding, final allotment etc.

BANKERS TO THE ISSUE

Banker to the issue carry out all activities of ensuring that the fund collected are transfer to escrow account

UNDERWRITES

They provide safety net to the company. Underwriter are institutions/ individual who agree to buy the shares of the company in case company unable to sell them to public. They charged commission for providing this service.

REGISTRAR TO THE COMPANY

Registrar to the Company (RTA) finalize the total list of eligible allotees and ensures that shares are credited to accounts of successful allotees and refund order are sent to unsuccessful applicants

ROLE OF PARTICIPANTS

Bankers to issue collect and transfer funds to the escrow accounts

Underwriters to issue institutions/individuals, who agree to buy the shares of the company in case the company is unable to sell its shares to the public Registrars to the issue finalizes the list of eligible allottees

Book Running Lead Managers (BRLMs) appointed by the issuing company

Pre-issue role Compliance with SEBI requirements, completion of formalities for listing of shares on the Stock Exchanges, appointing of various agencies etc. Post-issue role Management of escrow account, deciding final issue price, dispatch of refunds, allotment letters

RED HERRING PROSPECTUS

Definition - A preliminary registration statement that must be filed with the

SEC describing a new issue of stock and the prospects of the issuing company. Either price band or the number of shares or amount issue is disclosed In case the price is not disclosed, number of shares and amount issue is disclosed Fixed-price issue The issuer can disclose price band or floor price one day prior to the issue through advertisement Book-built issues - The price is only disclosed after the closure of the issue The document then filed with RoC is called a prospectus

ESCROW ACCOUNT

The word derives from the Old French word escrow, meaning a scrap of paper or a roll of parchment; this indicated the deed that a third party held until a transaction is completed. An escrow is:
an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of contractually-agreed conditions by the transacting parties, or

an account established by a broker, under the provisions of license law, for the purpose of holding funds on behalf of the broker's principal or some other person until the consummation or termination of a transaction,or
a trust account held in the borrower's name to pay obligations such as property taxes and insurance premiums

FIXED PRICE ISSUE

The offer price is known in advance

Demand for the securities offered is only known after closure of the issue 100 % payment in advance

50 % of the shares offered are reserved for applications below Rs. 1 lakh
and the balance for higher amount applications

BOOK-BUILDING ISSUE
In this process, the price of the issue is not pre-fixed The issuer along with BRLM decides a price band for the issue Price band A value-setting method in which a seller indicates an upper and lower cost range. It is a auction

pricing technique
The spread between the cap and floor price cannot be more than 20% The Book-building IPO is open for min. 3 days and max. 7 days Green-shoe option

An over-allotment option, which cannot exceed 15% of the originally proposed issue
Provides price stability, as the company is able to increase the supply and avoid high price fluctuations

BOOK-BUILDING ISSUE PROCESS

Book-runner: A leading merchant banker is nominated by IPO issuing company The Issuer specifies the number of securities to be issued and the price band for the bids The Issuer also appoints syndicate members with whom orders are to be placed by the investors The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open auction The book normally remains open for a period of 5 days Bids have to be entered within the specified price band Bids can be revised by the bidders before the book closes On the close of the book-building period, the book runners evaluate the bids on the basis of the demand at various price levels The book runners and the Issuer decide the final price at which the securities shall be issued Generally, the number of shares is fixed; the issue size gets frozen based on the final price per share Allocation of securities is made to the successful bidders. The rest get refund orders

BOOK-BUILT ISSUE SUMMARY

Issue price of book-built issue is not pre-determined

10% advance payment by QIBs and 100% by other category of investors Book-built issue price is disclosed after closing period only

You can know the status by calling the registrar after 20 days from the
closing date Confirmatory Allotment Note (CAN ) is issued in case shares are allotted

within 15 days from the date of closure of a book-built issue

The registrar has to ensure to demat credit account or refund as applicable within 15 days of closure of a book-built issue

BENEFITS OF INVESTING IN PRIMARY MARKET

Shares are priced in a relatively attractive manner giving investor an ample

scope to gain from the investment Its safer to invest in primary market than in secondary market

The investor doesnt have to pay any kind of brokerage or transaction fees such
as service tax, stamp duty and STT There is no need to time the market, as all the investors will get share at the

same price

THANK YOU FOR LISTENING

Summer Training 2013