A - Initial public offery

1.1 Definition :
An initial public offering, or IPO, is the first sale of stock by a company to the
public. A company can raise money by issuing either debt or equity. If the
company has never issued equity to the public, it's known as an IPO. Companies
fall into two broad categories: private and public.

1.2 Introduction
Initial public offering (IPO) or stock market launch is a type of public offering in
which shares of stock in a company usually are sold to institutional investors (that
price the company receives from the institutional investors is the IPO price) that in
turn sell to the general public, on a securities exchange, for the first time. Through
this process, a private company transforms into a public company. Initial public
offerings are used by companies to raise expansion capital, to possibly
monetize the investments of early private investors, and to become publicly traded
enterprises. A company selling shares is never required to repay the capital to its
public investors. After the IPO, when shares trade freely in the open market,
money passes between public investors. Although IPO offers many advantages,
there are also significant disadvantages, chief among these are the costs associated
with the process and the requirement to disclose certain information that could
prove helpful to competitors, or create shaky bridge with the existing vendors.
Details of the proposed offering are disclosed to potential purchasers in the form of
a lengthy document known as aprospectus. Most companies undertake an IPO with
the assistance of an investment banking firm acting in the capacity of
anunderwriter. Underwriters provide several services, including help with correctly
assessing the value of shares (share price) and establishing a public market for
shares (initial sale). Alternative methods such as the dutch auction have also been
explored. In terms of size and public participation, the most notable example of
this method is the Google IPO.[1] China has recently emerged as a major IPO
market, with several of the largest IPOs taking place in that country.

1.3 History
The earliest form of a company which issued public shares was
the publicani during the Roman Republic. Like modern joint-stock companies,
the publicani were legal bodies independent of their members whose ownership
was divided into shares, orparties. There is evidence that these shares were sold to

public investors and traded in a type of over-the-counter market in the Forum, near
the Temple of Castor and Pollux. The shares fluctuated in value, encouraging the
activity of speculators, orquaestors. Mere evidence remains of the prices for
which partes were sold, the nature of initial public offerings, or a description of
stock market behavior. Publicanis lost favor with the fall of the Republic and the
rise of the Empire.[2]
The first modern IPO occurred in March 1602 when the "Vereenigde Oost-Indische
Compagnie" (VOC), or Dutch East India Company, offered shares of the company
to the public in order to raise capital. All the shares were tradable, and the
shareholders received receipts for the purchase. A share certificate documenting
payment and ownership such as we know today was not issued but ownership was
instead entered in the company's share register.[3] In the United States, the first IPO
was the public offering of Bank of North America around 1783.

1.4 Advantages
An IPO accords several benefits to the previously private company:
Enlarging and diversifying equity base
Enabling cheaper access to capital
Increasing exposure, prestige, and public image
Attracting and retaining better management and
employees through liquid equity participation
Facilitating acquisitions (potentially in return for shares
of stock)
Creating multiple financing opportunities: equity, convertible debt, cheaper bank
loans,
Enlarging and diversifying equity base
Enabling cheaper access to capital
Increasing exposure, prestige, and public image

 Attracting and retaining better management and

employees through liquid equity participation
Facilitating acquisitions (potentially in return for shares
of stock)
Creating multiple financing opportunities: equity,
convertible debt, cheaper bank loans, etc.

1.5 Disadvantages
There are several disadvantages to completing an initial public offering:
Significant legal, accounting and marketing costs, many
of which are ongoing
Requirement
information

to

disclose

financial

and

business

Meaningful time, effort and attention required of senior

management
Risk that required funding will not be raised
Public dissemination of information which may be
useful to competitors, suppliers and customers.
Loss of control and stronger agency problems due to
new shareholders
Increased risk of litigation, including private securities
class actions and shareholder derivative actions[5]
The IPO process is time consuming, complex, and requires a company to have a
clear and complete understanding of its core business functions before embarking.
[6]

1.6 Procedure
IPO procedures are governed by different laws in different countries. In the United
States, IPOs are regulated by the United States Securities and Exchange
Commission under the Securities Act of 1933.[7] In the United Kingdom, the UK

Listing Authority reviews and approves prospectuses and operates the listing
regime.[8]
Advance planning
Planning is crucial to a successful IPO. One book[9] suggests the following 7
advance planning steps:
1. develop an impressive management and professional
team
2. grow the company's business with an eye to the
public marketplace
3. obtain audited financial statements using IPOaccepted accounting principles
4. clean up the company's act
5. establish antitakeover defences
6. develop good corporate governance
7. create insider bail-out opportunities and take
advantage of IPO windows.
one or more law firms with major practices in securities law, such as the Magic
Circle firms of London and the white shoe firms of New York City.
Financial historians Richard Sylla and Robert E. Wright have shown that before
1860 most early U.S. corporations sold shares in themselves directly to the public
without the aid of intermediaries like investment banks. [11] The direct public
offering or DPO, as they term it, [12] was not done by auction but rather at a share
price set by the issuing corporation. In this sense, it is the same as the fixed price
public offers that were the traditional IPO method in most non-US countries in the
early 1990s. The DPO eliminated the agency problem associated with offerings
intermediated by investment banks. There has recently been a movement based
on crowd funding to revive the popularity of Direct Public Offerings.[13]
Allocation and pricing
The sale (allocation and pricing) of shares in an IPO may take several forms.
Common methods include:

 Best efforts contract

Firm commitment contract
All-or-none contract
Bought deal
Public offerings are sold to both institutional investors and retail clients of the
underwriters. A licensed securities salesperson (Registered Representative in the
USA and Canada) selling shares of a public offering to his clients is paid a portion
of the selling concession (the fee paid by the issuer to the underwriter) rather than
by his client. In some situations, when the IPO is not a "hot" issue
(undersubscribed), and where the salesperson is the client's advisor, it is possible
that the financial incentives of the advisor and client may not be aligned.
The issuer usually allows the underwriters an option to increase the size of the
offering by up to 15% under certain circumstance known as the greenshoe or
overallotment option. This option is always exercised when the offering is
considered a "hot" issue, by virtue of being oversubscribed.
A company planning an IPO typically appoints a lead manager, known as
a bookrunner, to help it arrive at an appropriate price at which the shares should be
issued. There are two primary ways in which the price of an IPO can be
determined. Either the company, with the help of its lead managers, fixes a price
("fixed price method"), or the price can be determined through analysis of
confidential investor demand data compiled by the bookrunner ("book building").
Historically, some IPOs both globally and in the United States have been
underpriced. The effect of "initial underpricing" an IPO is to generate additional
interest in the stock when it first becomes publicly traded. Flipping, or quickly
selling shares for a profit, can lead to significant gains for investors who have been
allocated shares of the IPO at the offering price. However, underpricing an IPO
results in lost potential capital for the issuer. One extreme example
is theglobe.com IPO which helped fuel the IPO "mania" of the late 1990s internet
era. Underwritten by Bear Stearns on November 13, 1998, the IPO was priced at
$9 per share. The share price quickly increased 1000% after the opening of trading,
to a high of $97. Selling pressure from institutional flipping eventually drove the
stock back down, and it closed the day at $63. Although the company did raise
about $30 million from the offering it is estimated that with the level of demand for
the offering and the volume of trading that took place the company might have left
upwards of $200 million on the table.

The danger of overpricing is also an important consideration. If a stock is offered

to the public at a higher price than the market will pay, the underwriters may have
trouble meeting their commitments to sell shares. Even if they sell all of the issued
shares, the stock may fall in value on the first day of trading. If so, the stock may
lose its marketability and hence even more of its value. This could result in losses
for investors, many of whom being the most favored clients of the underwriters.
Perhaps the best known example of this is the Facebook IPO in 2012.
Underwriters, therefore, take many factors into consideration when pricing an IPO,
and attempt to reach an offering price that is low enough to stimulate interest in the
stock, but high enough to raise an adequate amount of capital for the company.
When pricing an IPO, underwriters use a variety of key performance indicators and
non-GAAP measures.[17] The process of determining an optimal price usually
involves the underwriters ("syndicate") arranging share purchase commitments
from leading institutional investors.
Some researchers (Friesen & Swift, 2009) believe that the underpricing of IPOs is
less a deliberate act on the part of issuers and/or underwriters, and more the result
of an over-reaction on the part of investors (Friesen & Swift, 2009). One potential
method for determining underpricing is through the use of IPO underpricing
algorithms.

1.7 Largest IPOs (unadjusted)

Company

Year of IPO

Amount

The Alibaba Group

2014

$25B

Agricultural Bank of China

2010

$22.1B

Industrial and Commercial Bank of China

2006

$21.9B

American International Assurance

2010

$20.5b

Visa Inc.

2008

$19.7B

General Motors

2010

$18.15B

Facebook

2012

$16B[32]

1.8 Largest IPO markets

Prior to 2009, the United States was the leading issuer of IPOs in terms of total
value. Since that time, however, China (Shanghai, Shenzhen and Hong Kong) has
been the leading issuer, raising $73 billion (almost double the amount of money
raised on the New York Stock Exchange and NASDAQ combined) up to the end of
November 2011. The Hong Kong Stock Exchange raised $30.9 billion in 2011 as
the top course for the third year in a row, while New York raised $30.7 billion.

B - RIGHT ISSUE
1.1 DEFINITION OF 'RIGHTS OFFERING (ISSUE)'
An issue of rights to a company's existing shareholders that entitles them to buy
additional shares directly from the company in proportion to their existing
holdings, within a fixed time period. In a rights offering, the subscription price
at which each share may be purchased in generally at a discount to the current
market price. Rights are often transferable, allowing the holder to sell them on
the open market.
.

1.2 Basic example

An investor: Mr. A had 100 shares of company X at a total investment of $40,000,

assuming that he purchased the shares at $400 per share and that the stock price did
not change between the purchase date and the date at which the rights were issued.
Assuming a 1:1 subscription rights issue at an offer price of $200, Mr. A will be
notified by a broker dealer that he has the option to subscribe for an additional 100
shares of common stock of the company at the offer price. Now, if he exercises his
option, he would have to pay an additional $20,000 in order to acquire the shares,
thus effectively bringing his average cost of acquisition for the 200 shares to $300
per share ((40,000+20,000)/200=300). Although the price on the stock markets
should reflect a new price of $300 (see below), the investor is actually not making
any profit nor any loss. In many cases, the stock purchase right (which acts as
anoption) can be traded at an exchange. In this example, the price of the right
would adjust itself to $100 (ideally).
The company: Company X has 100 million outstanding shares. The share price
currently quoted on the stock exchanges is $400 thus the market capitalization of
the stock would be $40 billion (outstanding shares times share price).
If all the shareholders of the company choose to exercise their stock option, the
company's outstanding shares would increase by 100 million. The market
capitalization of the stock would increase to $60 billion (previous market
capitalization + cash received from owners of rights converting their rights to
shares), implying a share price of $300 ($60 billion / 200 million shares). If the
company were to do nothing with the raised money, its earnings per share (EPS)
would be reduced by half. However, if the equity raised by the company is
reinvested (e.g. to acquire another company), the EPS may be impacted depending
upon the outcome of the reinvestment.
1.3 Advantages and disadvantages of right issue:
Pros of Franchise Businesses

Established Brand and Customer Base. By far, the biggest advantage of

buying into an established franchise is the strength of the brand and loyalty of its
customers.

Marketing Support. Franchises often have the support of a national

campaign, as well as prepared marketing materials for a local campaign.
Reputable Suppliers. Franchisors often have established relationships with
suppliers for all the materials franchisees need.
Business Support. There's a saying in franchising: "You're in business for
yourself, but not by yourself" because you have a network of support.
Training. Some of the better (and more expensive) franchise operations offer
management and technical training.
Financial Assistance. Some franchisors provide loans and other assistance to
help franchisees.
Access to Proprietary Methods. There's no need to reinvent the wheel as
franchisees get access to all the trade secrets.
Ongoing Research and Development, New Products. Franchisees can stick
to improving their operations and let the franchisor spend the time and money
developing new products.
The Boss is You. As with owning any business that you own, you are in
control of your destiny.
Reduced Risk. For all of these reasons, starting a franchise of an established
brand often has less risk than starting a business from nothing.
Cons of Franchise Businesses
Initial Payout (Franchise Fee and Start-up Costs). Some of the bigger
franchise operations can involve a very large initial costs, often more than what it
would cost to start your own business.
Royalty Payments. For as long as you are a franchisee, you will have to pay
some percentage of the monthly gross back to the franchisor, reducing your profit
potential.
Marketing/Advertising Fees. To receive the wonderful marketing support
from the franchisor, franchisees must pay these fees, according to some contracts.
Limited Creativity/Flexibility. Most franchise contracts have very explicit
standards, allowing little or no alterations or additions to the brand, stifling any
creativity on the part of the franchisee. You must use their system, follow their
rules.
Sole Sourcing. Some franchise contracts stipulate that franchisors must buy
supplies only from an approved list of suppliers, possibly at a higher cost.
Locked into Operation by Long-Term Contract. If you don't do as much
research as you should have and find yourself with the wrong franchise, you may
be stuck for many years.

Dependent on Franchisor Success. The reputation of your franchise is only

as good as that of the franchisor, so any difficulties that the franchisor encounters
will have a direct impact on you.

False Expectations. Opening a franchise rather than starting your own

business offers no guarantees of success. You still need to be a sharp
businessperson to make it work.

Risk. There's always risk in starting any new business.

C - Private placement
1.1 DEFINITION
Private placement (or non-public offering) is a funding round of securities which
are sold not through a public offering, but rather through a private offering, mostly
to a small number of chosen investors.[1]
PIPE (private investment in public equity) deals are one type of private
placement. SEDA (standby equity distribution agreement) is also a form of private
placement. They are often a cheaper source of capital than a public offering.

1.2 PROCEDURE FOR PRIVATE PLACEMENT OF SHARES

Section (1)(c) read with Sec-42

1. Check Provision in Article regarding Private Placement
2. Call Board Meeting:

To Prepare Offer Letter

Make Proposal for Private Placement

Prepare list of persons to whom option will be given

Call Extra ordinary General Meeting

3. Call Extra ordinary General Meeting:

Pass SR- will be valid for 12 month

If not completed PP in 12 Month pass another SR

Approve Draft Offer Letter by SR

4. File MGT-14 with ROC Attachments:

- Notice of EGM

- CTC of SR

- Minutes
5. Issue offer letter in PAS-4 within 30 days of record of name of persons:

Application form serially numbered

Address to the persons to whom the offer is made

6. Prepare complete record of Private Placement in PAS-5
7. File PAS-4 + PAS-5 with ROC within 30 days of issue of offer letter in GNL-2

8. Make Allotment of shares within 60 days of receipt of Money from the persons
to whom right was given.
9. Called Board Meeting for allotment of shares
10. File PAS-3 with Roc within 30 days if Allotment.
Attachments:

- List of Allottees

- BR for allotment of share

11. File Form MGT-14 along with Resolution pass in Board meeting for allotment
of shares.
12. Issue Share Certificate

D - Preferential issue

1.1 What is a Preferential Issue?

A preferential issue is an issue of shares or of convertible securities by listed
companies to a select group of persons under Section 81 of the Companies Act,
1956 which is neither a rights issue nor a public issue. This is a faster way for a
company to raise equity capital. The issuer company has to comply with the
Companies Act and the requirements contained in Chapter pertaining to
preferential allotment in SEBI (DIP) guidelines which inter-alia include pricing,
disclosures in notice etc.

1.2 The problem with preferential issue

Among the many ways by which companies can raise capital is preferential issue -an issue of fresh shares or convertible debentures allotted to a select set of people,
whether promoters, their relatives, or institutional investors.
One could call it a wholesale equity market since the retail investors or
shareholders are not invited to participate. The issue is currently governed by
section 81(1A) of the Companies Act and is similar to the issues made by
companies in the US under Rule 144A of the US Securities Act.
Promoters have used preferential allotments as a means for raising their stake in
their companies -- whether through shares or equity warrants, which can be
converted at a later date.

Unfortunately, however, allegations abound that the system has been misused by
unscrupulous promoters, who initially sell their existing holdings at a higher price
in the secondary market, and then build up their stakes through such issues at a
lower price.
In some instances, promoters are believed to have colluded with investors.
Essentially, a group of people has enriched themselves in an unfair manner, to the
detriment of the company and smaller shareholders.
Which is why the regulators are now attempting to tighten the guidelines.
Until now, preference shares of promoters or promoter groups have been subject to
a lock-in for three years. But this applies only to a maximum of 20 per cent of the
paid-up capital and includes capital brought in by way of a preferential issue.
This means that if there are preferential shares in excess of 20 per cent, the
promoter is free to sell them at any time. What is now being suggested is that the
entire lot of shares allotted to promoters should not be transferable for a period of
three years.
Thus, the 20 per cent rule, which was creating anomalous situations, will not apply
and all shares issued will be subject to a lock-in for three years.
In addition, a promoter or a promoter group cannot sell any portion of their
existing shareholding for six months before the preferential issue.
That would ensure that promoters do not sell shares at a higher price and then issue
fresh shares to themselves at a lower price. And furthermore, they cannot also sell
existing shares for one year post-allotment.
Since the promoter needs to demonstrate commitment, making the lock-in
guidelines more stringent is a step in the right direction. That should ensure that
only promoters serious about their businesses are allowed to access the markets.
For investors, the lock-in period is one year and it is being suggested the lock-in
should remain. The ostensible reason for institutional investors being subject to a
lock-in is that they are privileged, having received a block of shares and, therefore,
must pay a price for it.
It is true that institutional investors do benefit by getting a big lot -- if they had to
pick up the same number of shares in the market, the cost would be higher,

especially in an illiquid counter. Investors, however, are reluctant to lock in their

shares claiming that in the event of any adverse news flow, they become sitting
ducks.
That is not without justification. Even if there is no negative news relating to the
company per se, the market as a whole could fall, for extraneous reasons, and
investors would not be able to sell.
This is one reason for investors, including some private equity investors, staying
away from preferential issues and preferring instead to pick up a lot from the
market as and when it is available.
That, however, defeats the purpose of capital raising since the funds merely move
from one investor to another and do not flow into the company. Neither does the
free float go up; so if it is a small company, the liquidity does not improve.
On the face of it, there appears to be no reason why a lock-in should be enforced
for investors, especially since the minority shareholders approve the issue at a
shareholder's meeting.
Moreover, issued are priced in line with a formula stipulated by the regulators. If
the share price moves up, retail investors also stand to gain.
In fact, stocks often get re-rated when reputed institutions pick up big holdings,
which again is to the benefit of the small shareholder. However, the concern is that
being a big investor, a fund might get hold of sensitive information before other
investors, and sell ahead of the rest.
So, while there is little to worry about when things are going right and the share
price is moving up, a situation should not arise where big investors are privy to
sensitive information and dump shares in the market.
Of course, this could happen even with institutional investors who have not bought
shares in a preferential issue but in the secondary market. Managements tipping off
fund managers ahead of formal announcements are not unheard of.
On the whole, therefore, it would be a pity if investors are kept away from
companies that genuinely need capital because not all companies can afford to mop
up money through American depository receipts or foreign currency convertible
bonds, which need to be of a minimum size to justify the expenses.

Larger companies will always manage to raise resources but mid-sized firms need
access to capital.
One advantage of raising money via a preferential issue is that it helps save costs
and time involved in a public issue. More important, if the concerned company is
not doing too well at that point in time but requires capital, then retail investors
may not want to participate in an issue.
At the same time, there could be some institutions who view the company's
troubles as being temporary and feel that some injection of capital could help it out
of the trough.
In fact, promoters need such investors in times when the market sentiment is weak
and a public issue could fail. But such investors, who are willing to take a call on
the management's abilities to turn around the company, nonetheless need an exit if
things don't work out.
With not too many preferential allotments having taken place, the capital market
has also lost out since there is less liquidity in the concerned stock and,
consequently, less depth in the market.
Though firms prefer an overseas issue even if they are already listed abroad,
because shares fetch a better premium, an overseas issue is costlier and calls for
greater compliance.
Thus, if they felt they could price shares at a reasonably good premium in the
domestic market and were confident of a good response, they might as well issue
preferential shares.
And investors for their part should not mind buying through a preferential issue if
there is no lock-in because the premium would be lower and liquidity in the
domestic market is better than that in the ADR or global depository receipts
markets.
The other issue relating to preferential issues currently being debated is how these
issues should be priced. Currently, the price for a preferential issue is the higher of
the average of the weekly high and low of the closing prices in past six months, or
the average for two weeks.

This formula, it is being suggested, should be changed slightly and the average of
the daily weighted average of 130 trading sessions or the last 10 trading sessions,
whichever is higher, should be the issue price.
The new formula is better simply because it takes into account a daily weighted
average and not closing prices that can, to some extent, be manipulated in
infrequently traded counters.
To sum up, preferential issues are good for the capital market and provide
companies with an avenue to raise resources. Investors should, therefore, be
encouraged to invest in these placements.
If proper checks and balances are put in place there can be no incentive to misuse
the system

E - Eipo

1.1 Definition:
The Securities and Futures Commission (SFC) today released the Guidelines for
Registered Persons Using the Internet to Collect Applications for Securities in an
Initial Public Offering (Guidelines). The Guidelines are intended to provide
guidance to those registered persons who use the Internet to collect applications
from their clients or the public for securities in an initial public offering (IPO).
In order to promote and facilitate the use of technology in the IPO process in Hong
Kong, during the past few months, the SFC has been working closely with the
industry to formulate an eIPO model which is suitable for the Hong Kong market.
With increasing popularity of online trading, the market needs a new application
process which is easy and friendly for investors to use and provides various market
participants (e.g. brokers, banks, share registrars etc.) with a more cost-effective
means to conduct their business. The new model would encourage competition and
innovation among market players and allows investors to have the freedom to
choose the eIPO services which meet their needs the best.
It is important to point out that, at this stage, the eIPO method is only a supplement
to the existing paper-based approach where white forms and yellow forms are
used. The SFC will continue to work with the industry to facilitate the adoption
and implementation of the eIPO in the marketplace

1.2 Advantages of eipo

CHOOSE THE EXPERTS
Computershare has been running eIPOs since 2006 and has unrivalled experience
of successfully
delivering this ground-breaking service, so you can be certain that our experienced
team will make
your eIPO run smoothly and efficiently. Our unique global footprint and
experience of handling
large transactions means we are ideally placed to meet the needs of companies of
all sizes and
sectors.
ENFRANCHISE YOUR AUDIENCE
By going online, applicants can take advantage of the Offer quickly and at their
convenience. This is
useful when an Offer has tight timescales and avoids the risk of traditional paper
application forms
being lost or delayed in postal systems. Overseas investors can take part more
easily as they have
the same opportunity and timeframe to invest. The process is instant and they can
participate
wherever they are in the world without needing to complete paper forms and obtain
cheques in a
different currency to their own. Instead, they make an online payment via debit
card.
EASIER ONLINE

Applicants pre-register their interest online and are instantly notified by email
when the
Offer is open, giving your eIPO the opportunity for real momentum and rapid
initial take-up.
Computershares eIPO system can also pre-populate the details of your existing
customers and
stakeholders by supplying a secure login directly to their email address and making
their application
process even quicker.
Our intuitive, easy-to-follow website guides applicants through each step and,
coupled with our
proven IT systems, ensures that incorrect completion of forms is reduced,
maximising the receipt
of valid applications. Our online payment functionality is secure and easy to use
and allows for
same day payment clearance, by the payment service provider. This increases the
likelihood of
participation, successful payments and mitigates the risk of invalid applications. It
also makes it
easier to issue refunds directly in the event that the Offer is oversubscribed.
CORPORATE IMAGE
By choosing an eIPO, you can show yourself to be an innovative organisation,
willing to embrace
the latest industry developments and expected standards to assist your new
investors.
The environmental and cost benefits are clear too. Going online reduces mailing
and postage costs,

manual form processing and is subsquently better for the environment, proving
your green and
forward thinking credentials to the industry and your investors.

F - Offer for sale

Definition
noun
a situation in which a company advertises new shares for sale to the public as a
way of launching itself on the Stock Exchange
(NoteThe other ways of launching a company are a 'tender' or a 'placing.')

Procedure

announcement/ Notice of the Offer for sale of shares

Seller(s) shall announce the intention of sale of shares at least one clear trading day
prior (on T-2 day, T being the day of OFS issue) to the opening of offer latest by 5
pm,
along
with
the
following
information:
i. Name of the Seller(s) i.e. Promoters/Promoter group entities/ Non-Promoter
shareholder and the name of the company whose shares are proposed to be sold.
ii. Name of the Exchange(s) where the orders shall be placed. In case orders are to
be placed on both BSE and NSE, one of them shall be declared as the Designated
Stock
Exchange
("DSE").
iii.

Date

and

time

of

the

opening

and

closing

of

the

offer.

iv. Allocation methodology i.e. either on a price priority (multiple clearing prices)
basis or on a proportionate basis at a single clearing price..
v.

Number

of

shares

being

offered

for

sale.

vi. The maximum number of shares that the seller may choose to sell over and
above the offer made at point (v) above. The name of the broker(s) on behalf of the
seller(s).
vii. The date and time of the declaration of floor price, if the seller(s) chooses to
announce it to the market. Alternatively, a declaration to the effect that the floor
price will be submitted to the DSE in a sealed envelope that shall be disclosed post
closure
of
the
offer.
viii. Conditions, if any, for withdrawal or cancellation of the offer
.
Below are the advantages of OFS over FPOs:

Involves least amount of paper work since it is a system based bidding

platform
Less time consuming due to automation & process involved
Minimum spread between application & allotment of shares
Cost-effective
Convenient

G - Qualified institutional placement

1.1 DEFINITION
Qualified institutional placement (QIP) is a capital-raising tool, primarily used in
India and other parts of southern Asia, whereby a listed company can issue equity
shares, fully and partly convertible debentures, or any securities other than
warrants which are convertible to equity shares to a qualified institutional
buyer(QIB).
Apart from preferential allotment, this is the only other speedy method of private
placement whereby a listed company can issue shares or convertible securities to a
select group of persons. QIP scores over other methods because the issuing firm
does not have to undergo elaborate procedural requirements to raise this capital.
1.2 Why was it introduced?
The Securities and Exchange Board of India (SEBI) introduced the QIP process
through a circular issued on May 8, 2006,[1] to prevent listed companies in India
from developing an excessive dependence on foreign capital. Prior to the
innovation of the qualified institutional placement, there was concern from Indian
market regulators and authorities that Indian companies were accessing
international funding via issuing securities, such as American depository receipts
(ADRs), in outside markets. The complications associated with raising capital in
the domestic markets had led many companies to look at tapping the overseas
markets. This was seen as an undesirable export of the domestic equity market, so

the QIP guidelines were introduced to encourage Indian companies to raise funds
domestically instead of tapping overseas markets.[2]
1.3 What are some of the regulations governing a QIP?
To be able to engage in a QIP, companies need to fulfil certain criteria such as
being listed on an exchange which has trading terminals across the country and
having the minimum public shareholding requirements which are specified in
their listing agreement.
During the process of engaging in a QIP, the company needs to issue a minimum of
10% of the securities issued under the scheme to mutual funds. Moreover, it is
mandatory for the company to ensure that there are at least two allottees, if the size
of the issue is up to Rs 250 crore and at least five allottees if the company is
issuing securities above Rs 250 crore.
No individual allottee is allowed to have more than 50% of the total amount issued.
Also no issue is allowed to a QIB who is related to the promoters of the company.

1.4 Who can participate in the issue?

The specified securities can be issued only to QIBs, who shall not be promoters or
related to promoters of the issuer. The issue is managed by a Sebiregisteredmerchant banker. There is no pre-issue filing of the placement document
with Sebi. The placement document is placed on the websites of the stock
exchanges and the issuer, with appropriate disclaimer to the effect that the
placement is meant only QIBs on private placement basis and is not an offer to the
public.

1.5 QIPs in India

In US US securities laws contain a number of exemptions from the requirement of
registering securities with the US Securities & Exchange Commission (SEC).
Pursuant to Rule 144A of the Securities Act of 1933, issuers may target private
placements of securities to QIBs. Although often referred to as Rule 144A
offerings, as a technical matter, transactions must actually involve an initial sale
from the issuer to the underwriter and then a resale from the underwriters to the
QIBs. A QIB is defined under Rule 144A as having investment discretion of at
least $100 million and includes institutions such as insurance agencies, investment
companies, banks, etc. Rule 144A was adopted by the SEC in 1990 in order to
make the US private placement market more attractive to foreign issuers who may
not wish to make more onerous direct US listings. Whereas the US regulators by

enacting Rule 144A sought to make the domestic US capital markets more
attractive to foreign issuers, the Indian regulators are seeking to make the domestic
Indian capital markets more attractive to domestic Indian issuers.
In India Therefore, to encourage domestic securities placements (instead of foreign
currency convertible bonds (FCCBs) and global or American depository receipts
(GDRs or ADRs)), the Securities Exchange Board of India (SEBI) has with effect
from May 8, 2006 inserted Chapter XIIIA into the SEBI (Disclosure & Investor
Protection) Guidelines, 2000 (the DIP Guidelines), to provide guidelines for
Qualified Institutional Placements (the QIP Scheme). The QIP Scheme is open to
investments made by Qualified Institutional Buyers (which includes public
financial institutions, mutual funds, foreign institutional investors, venture capital
funds and foreign venture capital funds registered with the SEBI) in any issue of
equity shares/ fully convertible debentures/ partly convertible debentures or any
securities other than warrants, which are convertible into or exchangeable with
equity shares at a later date (Securities). Pursuant to the QIP Scheme, the Securities
may be issued by the issuer at a price that shall be no lower than the higher of the
average of the weekly high and low of the closing prices of the related shares
quoted on the stock exchange (i) during the preceding six months; or (ii) the
preceding two weeks. The issuing company may issue the Securities only on the
basis of a placement document and a merchant banker needs to be appointed for
such purpose. There are certain obligations which are to be undertaken by the
merchant banker. The minimum number of QIP allottees shall not be less than two
when the aggregate issue size is less than or equal to Rs 250 crore; and not less
than five, where the issue size is greater than Rs 250 crore. However, no single
allottee shall be allotted more than 50 per cent of the aggregate issue size. The
aggregate of proposed placement under the QIP Scheme and all previous
placements made in the same financial year by the company shall not exceed five
times the net worth of the issuer as per the audited balance sheet of the previous
financial year. The Securities allotted pursuant to the QIP Scheme shall not be sold
by the allottees for a period of one year from the date of allotment, except on a
recognized stock exchange. This provision allows the allottees an exit mechanism
on the stock exchange without having to wait for a minimum period of one year,
which would have been the lockin period had they subscribed to such shares
pursuant to a preferential allotment.

1.6 Benefits of qualified institutional placements

Time saving:

QIBs can be raised within short span of time rather than in FPO, Right Issue takes
long process.
Rules and regulations:
In a QIP there are fewer formalities with regard to rules and regulation, as
compared to follow-on public issue (FPO) and rights Issue.
A QIP would mean that a company would only have to pay incremental fees to the
exchange. Additionally in the case of a GDR, you would have to convert your
accounts to IFRS (International Financial Reporting Standards). For a QIP,
companys audited results are more than enough
Cost-efficient:
The cost differential vis--vis an ADR/GDR or FCCB in terms of legal fees, is
huge. Then there is the entire process of listing overseas, the fees involved. It is
easier to be listed on the BSE/NSE vis--vis seeking a say Luxembourg or a
Singapore listing.
Lock-in:
It provides an opportunity to buy non-locking shares and as such is an easy
mechanism if corporate governance and other required parameters are in place.

How it works/Example:
The employee receives a tax benefit upon exercise of a qualified stock
option because the individual does not have to pay ordinary income tax on the
difference between the strike price and the fair market value of the issued shares.
Instead -- if the shares are held for 1 year from the date of exercise and 2 years
from the date of the grant -- the employee pays taxes at the long-term capital gains
tax rate (which is usually lower than the ordinary income tax rate).
Qualified stock options usually have a strike price set at or above
the stock's market price on the date of issue. But qualified stock options cannot be
exercised until several years in the future and usually expire ten years after
issuance or upon termination, whichever comes first.
Let's suppose that shares of Company A currently trade at $10. Company A creates
an incentive for its employees to grow the company and increase the share price by
awarding qualified stock options with a $15 strike price that can be exercised after
ten years. If the stock price is $16 ten years later, each employee who was granted

qualified stock options makes a $1 profit upon exercising the option. A person in
the 28% marginal income tax bracket will pay taxes at the longterm capital gains rate instead (15% until 2012).
Although qualified stock options have more favorable tax treatment than nonstatutory share options (NSOs), they require the shareholder to hold on to them for
a longer period of time in order to receive optimal tax treatment, increasing the
overall risk of the options