Vaibhav Jain
Associate Director INMACS MANAGEMENT SERVICES LIMITED Mobile: Email: +91-98681 44380


What’s happening ?
•Deregulation •Globalization •Quick access to information •More perfect Market place •Technological Convergence

•Complexities •Consolidation •Competition •Co-petition •Obsolescence •Talent Retention •Volatility •



The Current Environment

Equity Market

There are two segments in the equity market
» Primary market - Market for new issues of securities » Secondary market - The market where securities are traded after they are initially offered in the primary market.

issue only debt in the form of dated securities and treasury bills in the primary market » » .Primary Market . both Central and State.Introduction »Companies issue both equity and debt in the primary market  »Governments.

.Introduction »Through the primary market issues.Primary Market . governments and companies raise funds for fresh investments and repayment of previous loans taken from the public »An issue can be a public issue or private placement »An issue where allotment is made to less than 50 persons is a private placement.

Right Issue 3.Primary Market-Key Concepts »Different Types of Issues: 1.Preferential Allotment v  .Public Issue ØInitial Public Offering: v Fresh Issue v Offer for Sale ØFuture Public Offering: v Fresh Issue v Offer for Sale 2.

Primary Market-Key Concepts »Book Building ØDesigned to ascertain demand Øfor the securities at various price levels Øwithin a price band Øto facilitate discovery of Øthe Issue Price »Auction of Securities .

Part A   Related Regulations .

Allotment. Return of Allotment -Power to SEBI under section 55 A relating to Issue & transfer of securities Securities Contract (Regulation) Act. 1956 -Provisions Relating to Prospectus -Provisions on Minimum Subscription.Capital Market RegulationEnabling Framework Companies Act. 1956 Securities and Exchange Board of India .

Rule 19(2)(b) . Initial Listing Requirement : any is required to satisfy the exchange that : securities are offered to the public for subscr 11 . d to public . and uilding method o QIBs .prior to 4.SCRR.6.2010 ü ü ü or a Government company . 100 core . Rs .

Amendment dated 4.SCRR. and hin 2 years .6. It can increase the public shareholding by issuan 12 .2010 ü ü ü Continuous Listing Requirement : ber of issued shares of a class or kind .

Enabling Framework-SEBI ü ü ü of Capital Issues (Control) Repeal Ordinance and capital Issues (control) Re protection of investor's interest is now primarily the responsibility of the Sec 13 .

2009 Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market. Regulations. 1994 SEBI (Registrars to an Issue and Share Transfer Agents) Regulations. 1997 Dec 09. May 19. Regulations. 1994 May 31. 1993 SEBI (Merchant Bankers) Regulations. 2009 July 17. 2003 Feb 20. Regulations 2009 Issue of Capital and Disclosure Investor Protection and Education Fund. 1993 Dec 22. 1996 Nov 14. 2003 July 11.Enabling…. 2003 Prohibition of Insider Trading (Amendment) Regulations.SEBI Regulations Date 2009 Aug 26. 1992 Key Regulations Requirement. 1996 SEBI (Foreign Institutional Investors) Regulations. 1995 SEBI (Bankers to an Issue) Regulations. 1995 July 14. 2003 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 SEBI (Mutual Funds) Regulations. 1992 14 .

ICDR ations : 111 E OF CAPITAL AND DISCLOSURE R y ( Regulation 3 ): ssue – IPO & FPO sue tial Issue ares d Institutional Placement ( QIP ) epository Receipts ( IDRs ) .Enabling….

lock-in Public. Allotment Procedure. Basis ures in the Offer Document ns of Issuer & Intermediaries with respect to Public Issue & Right Issu eferential Issue. Reservations.ICDR Regulations 2009 ü ü ü ns for Public Issues & Right Issue for public gard to Promoters contribution. Bonus Issue & IDRs . Green Shoe Option. QIP.

ICDR……… Regulation 4  Reg4 provides for following general eligibility conditions for the issue… ü Issuer. director or person in control of any other company which is debarred from accessing capital market ü Issuer to make application to one or more recognized stock exchanges for listing of shares ü Issuer to enter into agreement with a depository for demat of specified securities ü All partly-paid up equity shares have been made fully paid-up ü Made firm arrangements of finance through verifiable means towards 75% of the stated means of finance excluding the amount to be raised through the issue or thru internal accruals . its promoter group or directors or persons in control of the issuer should not be debarred from accessing capital market ü Promoters. directors or persons in control of the issuer should not be a promoter.

ICDR ……. 5  Reg 5 deals with the appointment of merchant banker and other intermediaries:  üIssuer to appoint one or more merchant bankers. obligations and responsibilities of merchant bankers shall be disclosed as “Inter-Se Allocation of Responsibilities” üIssuer to appoint other intermediaries such as Registrar. syndicate members in consultation with the lead merchant banker üLead Merchant Bankers to submit a due diligence certificate to SEBI at the time of submission of offer document  . collection bankers.Reg. one of whom shall be a lead merchant banker üRights.

 .ICDR ……Reg. at least 50% of the revenue for the preceding full year earned from the activity indicated by the new name. 26 (Regarding IPO) Very Important   Reg 26(1) provides that issuer shall make an IPO if : ü it has Net tangible assets of at least 3 crores in each of the three preceding full years ü It has a track record of distributable profits for at least 3 out of immediately preceding 5 years ü its net worth of at least 1 crore rupees in each of the preceding three full years ü Aggregate of the proposed issue and all previous issues made in the same financial year does not exceed 5 times its pre-issue net worth as per audited balance sheet ü In case of change in name within the last one year.

Regulation 26 Very Important  Reg 26(2) provides that if the issuer does not satisfy any of the conditions .   Reg 27 relates to FPO and says that company can make an FPO if last two conditions specified in Reg26(1) are fulfilled otherwise it has to fulfill the conditions specified in Reg 26(2) . it can still make an IPO if : 1. Issue is made through book building process and at least 50% of the net offer to public is allotted to QIBs.10 crore OR Issuer undertakes to provide market making for at least 2 years from the date of listing.   Minimum post-issue face value capital is Rs.ICDR …….  OR  At least 15% of the project cost is contributed by scheduled commercial banks and at least 10% of the net offer to public is allotted to QIBs  BOTH CONDITIONS TO BE SATISFIED  2.

issue shall be open for minimum 3 days and max 10 days including days for which issue is kept open in case of revision in price-band.ICDR ……Regulation 30-68 Reg 30 deals with pricing and price band: üIssuer may mention floor price or price band in RHP  OR  Issuer may announce floor price or price band at least 2 working days before bid opening in IPO and at least 1 day before bid opening in FPO in newspapers üCap on the price</= 120% of the floor price üFloor Price/Final Price not to be less than face value ü Reg 32 deals with Lock-in period: üIn case of IPO promoters share not less than 20% of post issue capital has to be locked in for 3 years ü Reg 46 .   .

10 . The annualised trading turnover of the Equity Shares of the Company during 6 calendar months immediately preceding the month > 2 % of the weighted avg . Listed on NSE & BSE > 3 years from date of registering the Prospectus with RoC b .Fast Track Issuance criteria a . Redressed > 95 % of the complaints of the investors till the end of Qtr preceding the month of registering Prospectus with the RoC . Average Market Capitalization > Rs 5000 Crore c . No . of Equity Shares listed d . e .ICDR… Reg. Issuer has been in compliance with the equity listing agreement for a period of > 3 years preceding date of registering .

cause notices have been issued or prosecution proceedings initiated or pending against the Company or its Promoter  g. The impact of auditors ’ qualifications . No change in the Management since IPO  » . No show .  h . on the audited accounts in respect of those financial years for which such accounts are disclosed in Prospectus does not exceed 5 % of the net profit or loss for respective years .Fast Track Issuance criteria  f. The entire shareholding of the promoter group is held in Demat form i.ICDR… Reg 10 .

Part B   The Process .

.Process of collection of Application to Refund Bank Application Form Investor Bidding Center Registrar Allotment Letters/ Refund Orders / Certificates Stock Exchange Processing Server Electronic Data Capture Stamping / and Dispatch Verification Reconciliation Data Analysis Printing of Refund Orders Preparation of Basis Generation and Creation of Allotment as per basis.

evised Time Line Schedule for IPO / FP Application Form with supporting documents Investor Bidding Center Data Capture Schedule with complete details T+2 Bank Final Certificate by Bank T+6 EB for validation by Bank T+2 Credit of Shares to Investors Account T+11 Trade T+12 Stock Exchange El In ec ti tr al m on ap lot ati ic pr me on bi ov nt o al T f d by +7 bas SE by is on RT A of T+ & 8 T+ 1 Depositori es RTA commence validation with Depositories T+2 till T+4 and prepare rejected schedule by T+5 RTA Printi ng of Refund Orders Completion of despatch of refund warrants T+10 .

issue price is decided. . business. etc. »On the basis of bids received. »Period for bidding is indicated »Bids are collected and the book is closed. but not the price.Book Building »The company appoints a merchant banker as a book runner »The company issues a prospectus that has information about issue size. promoters. The price range is indicated.

Net tangible Assets>Rs.Net worth >= Rs. 2.1crore in each of preceding 3 years 4.Track Record of Distributable profits in 3 out of preceding 5 years 3.Bidding-Normal Book Building Process Issue Size : 10000 shares Price Band : Rs .If name change in last 1 year then 50% of revenues should be from activity indicated by new name. 208   205   200   Yes Yes Yes Yes 28 .3crore in preceding 3 years. 200 210 Price Deman Category % of Points d Built of Issue Investor Size 210   2000 1000 2000 5000 4500 1500 5000 11000 5000 2000 5500 12500 8000 7000 7000 22000 QIB NIB Retail   QIB NIB Retail   QIB NIB Retail   QIB NIB Retail   20% 10% 20% 50 % 45% 15% 50% 110 % 50% 20% 55% 125 % 80% 70% 70% 220 % Category Allotment under Regulation 26(1) No Allotment Under Regulatio n 26(2) No Allotment Under Regulation 26(1) upto 50% 15 35 Allotment Under Regulation 26(2) Min 50 15 35 QIB NIB Retail 5 Conditions U/r 26(1) of ICDR Yes No 1.Proposed issue+all previous issues in one year<= 5 times pre-issue net-worth 5.

Public Issue Pricing »Till 1992. The price is decided by the company now with advice from the merchant bankers. the price was fixed by the Controller of Capital Issues. »After SEBI was established in 1992. we have moved to free pricing. .

they fix slightly lower prices.Free pricing of a public issue »Fixed-price: The issuer fixes the price well before the actual issue. The prices are slightly higher than the fixed-price method. . To ensure full subscription. » »Book-building: The price is decided through the book-building process.

Capital Expenditure + Change in WC FCFF is discounted by WACC for a given time horizon 2 Comparable trading multiple EPS * P / E ratio = Price factors are considered in combination before deciding cing could be “fixed price” or “discovered thru auction 31 .Methods of pricing an IPO 1 Discounted Cash Flow Method .uses FCFF FCFF = EBIT ( 1 .T )+ Depreciation .

Pricing issues for FPO ü No guidelines exist for pricing FPO ü FPOs are typically priced at a discount to CMP CMP Discount 5% 7.85 .12.74% 25.30 220 401.9% FPO Price (Rs) 201 203 300-350 ü ü NTPC ü REC ü NMDC 211.3% .

» ASBA process. retail discounts to employees in the reservation portion also limited to application size Rs . 2008 as an alternate mode of payment for resident retail investors . 10 crore in a book built public issue . 1 lakh . . application size for and value of allotment to an employee under employee reservation capped at Rs . » Pre .IPO allotment / transfer must be disclosed .Special issues » Employee reservation is now capped at up to 5 % of the post issue capital instead of 10 % of issue size ( as under the DIP Guidelines ). ICDR Regulations introduced the concept of » The anchor investors in 2009 . capital structure must be frozen at DRHP stage and details of any proposed pre . expanded in 2009 to all categories of bidders excluding qualified institutional bidders .IPOs .IPO allotment / transfer : Under ICDR Regulations .allowing up to 30 % allocation at a price equal to or above issue price to QIBs buyers applying for shares of a minimum value of Rs . 1 lakh . introduced on July 30 .

Performance of IPOs  There is no guarantee that IPO performance will always be profitable IPO price Price-02.4 38.35 % change 15.83 11.00 Shree Ganesh Jewellery         .25 486.46 48.05 56.00 Tarapur Transformers75.00 Goenka Diamond & Jewels Ltd House Ltd Persistent Systems IL & FS Transportation 135.00 258.00 310.2010 63.5 56.40 74.76 »  Company  Parabolic Drugs Ltd 75.20 288.07.00 114.8 44.90 260.

if any IPO Grading (for unlisted companies)   35 . refund Legal opinions (including 10b-5 style banks) disclosure letter) Experts.IPO/FPO intermediaries and advisors and transaction agreements Intermediaries + Advisors   Transaction agreements and important documents Letters of engagement for advisors Book running lead managers Auditors Auditors’ comfort letters Legal Counsel: Domestic and Registrar’s agreement Issue agreement international Registrar to the issue Syndicate agreement Depositories (NSDL/CDSL) Escrow agreement Syndicate members Underwriting agreement Escrow collection banks (incl.

refund and dispatch of certificates .Role of the Lead Merchant Banker »Due diligence of the issue disclosures »Making underwriting arrangements »Setting up minimum number of collection centers »Taking care of allotment.

Ensuring that proper grievance handling mechanism is in place at its 37 .Registrar to Issue 1 . Collecting Forms 2 . In time and In Full Credit to Demat Account 6 . Record of applications received and rejected and monies received . Dispatch of letters of allotment / Confirmation of Allocation Note (“ CAN ”)/ refund orders 7 . Providing correct data in time to enable the Selling Shareholder and the Company to determine and finalize the basis of allocation and allotment 5 . transferred to Public Offer Account and refunds 4 . Processing 3 .

Auditor in Public Issue üAccording to ICDR auditor to the issue will be Auditor of the Company . All financial information specified in this item must be re . PART . ü üFurther SEBI ( ICDR ) Regulations .audited for one full financial year and the stub period .A ( 2 )( IX ) of ICDR shall be certified by only those auditors who have subjected themselves to the peer review process of the Institute of Chartered Accountants of India ( ICAI ) and hold a valid certificate issued by the ‘ Peer Review Board ’ of the ICAI . by the auditor certifying them in case where the financial statements were audited by   . 2009 specify that :   The financial information specified in DRHP / RHP / Prospectus under Schedule VIII .

»If the application form is incomplete. »You can receive the shares in your demat account. . it will be rejected and amount will be refunded.How to apply for a public issue? »Get an application form from a share broker or Apply Online »Fill up the form and submit it with the amount to the collecting centre.Guidance .

Factors to look for while applying for IPO »Promoters track record in terms of experience. performance. reputation »Risk factors in the offer document »Financial forecasts for the business/project »Issue price in relation to the face value »Listing details »The registrar. bankers to the issue .Guidance . lead manager.

etc »Subscribe to the publications of investor associations »Attend the investors meetings of the investor associations regularly »Browse the websites of SEBI. CNBC TV 18. NSE and BSE .Sources of Information »Read a reputed financial daily to understand the economy and the market »Watch the business news on television » Bloomberg UTV.Guidance .

new challenges” .Learn Continuously or Die -Jim Harris ‘The Learning Paradox’ to being flexible and adaptable.

personal@gmail. Personal: vaibhav1986@gmail.Thank You Vaibhav Jain Associate Director INMACS MANAGEMENT SERVICES LIMITED Mobile: Email: +91-98681 44380 .

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