An Overview of Domestic and Overseas Markets

In House Congress, Mumbai At Grand Hyatt, April 29, 2008


Domestic Stock Exchanges 
Initial Public Offering ( IPO )  Offer for Sale  Public Issue by Listed Companies including Rights

Issue  Qualified Institutions Placement ( QIP )  Preferential Allotment

Qualified Institutional Buyers (QIBs) Retail Investors Non Institutional Investors .

1992 SEBI (Disclosures and Investor Protection) Guidelines . 1996 Foreign Exchange Management Act. 2000 ( DIP Guidelines ) Securities Contracts (Regulation) Act. 1956 Listing Agreements with the Stock Exchanges The Depositories Act.ƒ ƒ ƒ Companies Act. 1999 ( FEMA ) ƒ ƒ ƒ ƒ . 1956 Securities and Exchange Board of India Act.

ƒ Eligibility criteria for primary issuance (IPO or Offer for Sale) i. iv. Rs. 50% revenues from activity suggested by new name Aggregate of all issues in one financial year not to exceed 5 times issuer s pre issue net worth . 3 Crores (Net Tangible Assets) in last 3 years Rs. iii. 1 Crore (Net Worth) in last 3 years Distributable profits for 3 years in last 5 years In case of change of name. v. ii.

ƒ Book Building Method  50% net offer to QIBs . OR  2 years of compulsory market making post issue .OR  Project has 15% participation from financial institutions/scheduled commercial banks of which 10% comes from appraisers AND  10 Crores minimum post issue face value capital.

ƒ Exemptions from eligibility criteria  a banking company  a corresponding new bank  an infrastructure company (conditions apply) Project must be appraised Not less than 5% of the project cost must be from appraisers  rights issue by a listed company .

ƒ Pricing  Free pricing of shares  Issuer company free to fix face value of the shares offered subject to: If price of share is Rs. 500 or more. 500 then face value of share must be Rs. 1 If price of share is less than Rs. then face value can be less than 10 but must be more than Re. 10 .

000 Crores  95% of investor grievances redressed (till last quarter)  No SEBI proceedings pending  Entire shareholding in dematerialized form .Fast Track Method (Introduced by SEBI in November 2007) ƒ  Listed companies making a public offering  Rights Issue SEBI approval of prospectus not required if:  Issuer company is listed for last three years  Average market cap is greater than Rs 10.

Other Requisites for public offerings .

1956. Conditions of preferential issue (Chapter XIII of DIP Guidelines) Pricing as per the DIP guidelines Continuous listing (Minimum public shareholding) Existing shares of proposed allottee(s) in demat form Lock in of pre-preferential allotment shareholding No sale and transfer any equity shares for past 6 months Non-transferability of instruments Allotment must be completed within 15 days .Issue of shares or of convertible securities by a company to a select group of persons under Section 81(IA) of the Companies Act.

Issue of shares or of convertible securities by a company to Qualified Institutional Buyers ( QIBs ) (Chapter XIIIA of DIP Guidelines) Eligibility: Equity shares listed for one year preceding the date of notice to shareholders Minimum public shareholding to be maintained Note: No placement to QIB who is promoter or related to promoter Pricing as per the DIP guidelines Non applicability of Chapter XIII of DIP guidelines .

where the issue size is less than or equal to Rs. ƒ Transfer restriction for 1 year (except on a stock exchange) ƒ Minimum 10% allotment to mutual funds . 250 Crores ƒ No single allottee shall be allotted more than 50% of the issue size. 250 Crores  5.Conditions: ƒ Minimum Number of allottees:  2. where the issue size is greater than Rs.

ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ Credit rating required Debenture trustee must be appointed Debentures not to be issued for acquisition of shares or providing loan to any company belonging to the same group. (Not to apply to FCDs converting within 18 months) Company to create Debenture Redemption Reserve ( DRR ) Debentures to be redeemed as per offer document Offer document to specify the assets on which security is created and ranking of the charge Premium amount and time of conversion to be determined by issuer company and disclosed Interest rate on debentures to be freely determined by issuer company .

1993 SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations. 2003 . 1993 SEBI (Registrars to an Issue and Share Transfer Agents)Regulations.ƒ ƒ ƒ ƒ ƒ ƒ ƒ SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997 (Takeover Code) SEBI (Prohibition of Insider Trading) Regulations 1992 SEBI (Bankers to an Issue) Regulations. 1992 SEBI (Underwriters) Regulations. 1994 SEBI (Merchant Bankers) Regulations.

New exchange for SMEs 21 days gap between closing and listing to be shortened to 7 days QIBs to pay 100% upfront for IPOs .

Indian Companies can raise capital overseas by issue of: Depository Receipts Global Depository Receipts ( GDRs ) Bonds Foreign Currency Convertible Bonds ( FCCBs ) Foreign Currency Exchangeable Bonds ( FCEBs ) Euro Bonds American Depository Receipts ( ADRs ) Note: Indian companies listing overseas must either before or simultaneously list on the Indian stock exchanges .

1956  SEBI DIP Guidelines  Issue of Foreign Currency Convertible Bonds and Ordinary      Shares (Through Depository Receipt Mechanism) Scheme 1993 ( FCCB Scheme ) Issue of Foreign Currency Exchangeable Bonds Scheme. 2004 External Commercial Borrowing Policy ( ECB Policy ) Foreign Direct Investment Policy ( FDI Policy ) .2008 Foreign Exchange Management Act. Companies Act. 1999 ( FEMA ) Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations.

ƒ ƒ ƒ ƒ ƒ ƒ DRs represent shares of an Indian company trading on a foreign stock exchange The DR holders are part of foreign holding in a company but unlike FDI. DRs have become popular because of two-way fungibility No prior approval of SEBI. investors in DRs do not enjoy voting rights DRs of most Indian companies experienced a sharp fall due to market meltdown. recently the DRs have recovered and trading turnovers have improved. RBI or government is required for issue of DRs No restrictions on the use of proceeds except investment in real estate and the stock markets . However.

ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ Foreign currency convertible bonds are debt instruments which are convertible into equity of the company at a later point of time Both FDI and ECB policies are applicable Coupon rate must not exceed 300 basis points over SBI PLR RBI approval required for companies other than companies who can access ECB under automatic route and for all companies raising more than US$ 500 million Restriction on use of proceeds US$ 20 million can be raised for rupee expenditure Proceeds to be parked abroad till required in India Preferred by companies for raising funds for overseas expansions and acquisitions .

which is called the offered company.  The issuing company must be a part of the promoter group and must hold the equity shares being offered at the time of issuing FCEBs. . 2008  A security offered by an issuing company and subscribed to by investors living outside India and exchangeable into equity shares of another company. FCEB Scheme was notified on February 15. The offered company has to be a listed company. which is engaged in a sector eligible to receive FDI and eligible for ECB.

 RBI is still considering the instrument  No guidelines for FCEBs issued by RBI yet  RBI is unsure how FCEBs would work within existing framework of ECB Policy  Lack of transparency regarding use of the funds according to RBI  Issues on monitoring of the FDI cap on companies when bonds raised by one company gets converted into equity of another company. .

Only very large companies therefore list on NYSE .Choice of stock exchange depends upon: Depth of the Market Availability of Funds Regulatory Requirements  NewYork Stock Exchange (NYSE) NYSE has 11 Indian companies listed on NYSE. Positive: IFRS accounting norms permitted Negative: SOX compliance is very costly.

London s AIM has been very successful in attracting overseas companies/funds lower entry barriers a lighter touch on regulation and compliance comparative flexibility . NASDAQ Listing is expensive 3 Indian companies listed  London Stock Exchange (LSE) (Main Market) Caters to large companies Has been a favorite with large Indian companies Regulatory requirements are stringent  Alternative Investment Market (AIM) Constituted in 1995.

 Luxembourg Stock Exchange (LuxSE) Traditional favourite Listing is expeditious Cost of raising funds at Luxembourg is lower. compared to NYSE or NASDAQ Compliance requirements are less stringent  Singapore Stock Exchange (SGX) Listing is less expensive Has large appetite for certain sectors such as shipping Regional hub  Hong Kong Stock Exchange (HKEx) Offers world-class listing platform Costs of listing and compliance are competitive .

 Dubai International Financial Exchange (DIFX) Set up in September 2005 Fast attracting attention especially of SMEs Expeditious listing Closer home and good liquidity  Tokyo Stock Exchange (TSE) Japan is keen to promote TSE and Japanese Depository Receipts ( JDRs ) and attract foreign companies  Asia Pacific Technology Exchange (APTEX) New Australian stock exchange with a focus on technology Plans to become fully operational by second half of 2008 .

Ec M y ft y S pply try Int r st Rat rp rat R s lts Gl bal apital Mark t Sc nari F r ign F nds Infl w Str ngt /W akness f t e L cal rrency .

0 to 8.9% CMIE 9.7% GDP growth forecast for India: 2008-09 IMF 7.5% IBs 7.5% RBI comfort level (Feb 08) Trade Deficit has widened over the past year 5% .GDP growth in India: 2007-08 8.4% Inflation scenario for India: 2008-09 CMIE 5.

4 billion Interest Rates Exchange Rate Rs.25% Rs.98. 39.95 2008-09 (Week ending Apr 18) Repo Rate: 7./$ Year Rs.1 billion Total foreign funds inflow is 2007-08 (till Feb 08) : US$ 56.25 Qtr 2 40.75% to 13.83 39.887 Crores Representing a Y on Y increase of 21% Total foreign funds inflow in 2006-07 : US$ 29.28 2007-08 Qtr 1 41.54 Qtr 3 39.4 billion from currency market in 2007-08 till Feb 08 .47 Qtr 4 39./$ 2006-07 45.75% Reverse Repo Rate: 6% RBI purchased US$ 75.Money supply in the economy as on March 03. 2008 Bank Lending Rates (2007-08) 12.

pressure on the export market due to rupee appreciation. rising inflation rate on one hand.Although there are negative factors like the gloomy global markets. on the other hand India has a strong growth story Lets hope good times are ahead! .

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