INDIAN IPO MARKET

HISTORY
The term initial public offering (IPO) slipped into everyday speech during the tech bull market of the late 1990s. Back then, it seemed you couldn't go a day without hearing about a dozen new dotcom millionaires in Silicon Valley who were cashing in on their latest IPO. The phenomenon spawned the term siliconaire, which described the dotcom entrepreneurs in their early 20s and 30s who suddenly found themselves living large on the proceeds from their internet companies' IPOs. INVESTORS are still wary of equities in the 1990s, to blame are the excesses in the primary market in the 1990s. Of the thousands of IPOs (initial public offerings) and offers for sale made between 1994 and 1996, less than a hundred were from companies with track record. Even in this shortlist, only a few managed to complete planned projects and deliver value to investors. The rest just frittered the money away. The primary market of the mid-1990s was merely used as a channel to move public funds into private hands. The Securities and Exchange Board of India (SEBI) was late to wake up to the excesses, but when it did, it improved the disclosure framework, tightened the prerequisites for an IPO, and towards the end of the decade, introduced book-building. ( This route brought to market quality, wealth-creating IPOs such as Hughes Software, i-flex solutions, Maruti, Bharti Tele-Ventures, TV Today and Divi's Labs, to name a few. Yet the corporate sector has still not fully lived down the consequences of the excesses of the mid1990s.)

BRIEF INTORDUCTION ON CURRENT POSITION OF INDIAN IPO MARKET
• India is being lauded as the savior of the ailing global IPO market with $3.3 billion worth of proceeds from eight deals. This makes India the largest IPO market in the world so far this year. • According to Thomson Financial, the bulk of the volumes came from the biggest IPO deal so far this year — Reliance Power's $3 billion IPO on January 21, 2008.

On January 15, 2008, Reliance Power attracted $27.5 billion of bids on the first day of its IPO, equivalent to 10.5 times the stock on offer, thereby, creating India's IPO record. Its upper cut off price was Rs. 450. The proposed IPO was to fund the development of its six power projects across the country.

Emaar MGF’s IPO, at $1.6 billion is estimated to be the second largest IPO in the world so far this year, behind Reliance Power's $3 billion IPO.

Thomson Financial data reveals that India accounts for 49.1% of global IPO proceeds at the moment, compared to just 3.7% same time last year. Significant, given that global IPOs declined 36.1% over the last one year.

The Indian capital market has performed quite well in 2007. It raised US$8.3 billion through 95 Initial Public Offers (IPOs). According to the Ernst & Young report, "Globalisation - Global IPO Trend Report 2007" India was the fifth largest market in the world in terms of the number of IPOs and the seventh largest in terms of the proceeds for the year

According to the industry body Assocham.34.591 crore was raised by the realty firms. about Rs.253 crore WHAT IS AN IPO? • An initial public offering (IPO) is the first sale of stock by a company to the public . 2007 to mid-December.• It was the real estate sector which took the maximum advantage of the bullish stock market trends in 2007.119 crore raised in the primary market in the period starting from January 1. Of the Rs.7% of the total funds generated through IPOs.14. FINANCIAL YEAR 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 AMOUNT RAISED THROUHG IPO Rs 1039 crore Rs 17807 crore Rs 21432 crore Rs 23.994 crore Rs 52. real estate players raised the maximum amount of funds from the capital market through IPOs last year. Realty firms picked up around 42.676 crore Rs 24.

Generally. the company offers primary shares this way. This process of selling the new stock issues to prospective investors in the primary market is called underwriting.• An initial public offering (IPO) occurs when a company first sells common shares to investors in the public. it is called as buying from the secondary market. Going public raises cash and provides many benefits for a company. • • Broadly speaking. Going public means a company is switching from private ownership to public ownership. When an investor buys shares from another investor at an agreed prevailing market price. A company that plans an IPO contacts an investment banker who will in turn called on securities dealers to help sell the new stock issue. companies are either private or public. WHAT IS PRIMARY MARKET AND WHAT IS SECONDARY MARKET? When shares are bought in an IPO it is termed primary market. although sometimes secondary shares are also sold as IPOs. the secondary and primary markets are governed by the Security and Exchange Board of India (SEBI). Kinds of public offerings Primary offering – new shares are sold to raise cash for the company . In India. The secondary market involves the stock exchanges and it is regulated by a regulatory authority. The primary market does not involve the stock exchanges.

A single offering may include both of these initial public offering. eligibility norms. 2000. no new cash goes to company. or have incentives otherwise directly tied to shareholder value - Potentially more information about firm (analyst following). .Secondary offering – existing shares (owned by VCs or firm founders) are sold. The aim is towards understanding the various types of issues. The disclosure requirements regarding the issuance of securities are covered in detail in the SEBI (Disclosure and Investor Protection) Guidelines. - Understanding “Issues” This portion tries to cover the basic concepts and questions related to issues (issues in the meaning of issuance of securities). Some benefits/motivations: Additional source of capital Increase debt capacity (give “breathing room” for debt) Stock prices give measure of performance Allows managers to be compensated with options. makes borrowing cheaper. exemptions from the same.

KINDS OF ISSUES Primarily. While public and rights issues involve a detailed procedure. private placements or preferential issues are relatively simpler. issues can be classified as a Public. Rights or preferential issues (also known as private placements). The classification of issues is illustrated below: .

Public issues can be further classified into Initial Public offerings and further public offerings. In a public offering, the issuer makes an offer for new investors to enter its shareholding family. The issuer company makes detailed disclosures as per the DIP guidelines in its offer document and offers it for subscription. The significant features are illustrated below:

Initial Public Offering (IPO)

It is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuer’s securities.

Further public offering (FPO)

It is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.

Rights Issue (RI)

It is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best suited for companies who would like to raise capital without diluting stake of its existing shareholders unless they do not intend to subscribe to their entitlements.

Private placement

It is an issue of shares or of convertible securities by a company 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. A private placement of shares or of convertible securities by a listed company is generally known by name of preferential allotment. A listed company going for preferential allotment has to comply with the requirements contained in Chapter XIII of SEBI (DIP) Guidelines pertaining to preferential allotment in SEBI (DIP) guidelines include pricing, disclosures in notice etc, in addition to the requirements specified in the Companies Act.

Free-pricing abused As controls over pricing of equity were abolished in 1992, prudence took a backseat as companies set about raising funds at fancy prices; the pricing was justified with helpful projections of profitability dished out even by ICICI, IDBI, IFCI, Kotak Mahindra and Enam Securities, leave alone the plethora of lesser-known investment banking outfits. The earnings projections were vastly out of tune with reality. There was no element of the risk of business cycle built into them; in many cases, it appeared as if the price had been fixed, and the revenue and earnings numbers generated to justify it. That the IDBI's stock traded at the offer price for just a couple of days over an eight-year period and, subsequently, well below that price, tells the tale of abuse of free-pricing. Not surprisingly, this put investors off; they had patronised such IPOs in a big way as the first few offers in the free-pricing mode — of IFCI, Bank of Baroda, Infosys and Satyam Computer — delivered value. Corporate greed was penalised, as investor apathy ensured that between 1998 and 2001, the number of IPOs/offers for sale could be counted on the fingers of one hand. . A colossal misconception This period was also witness to a popular notion that equity was the cheapest source of the funding, as the premium element was perceived as carrying no cost. What companies failed to recognise in this process — they were also encouraged by investment banks seeking more

IPO opportunities — was that their capital cost could only be the same as the investor's expected rate return. By assuming and assigning a zero-cost to the premium element, companies converted what is, inarguably, the most expensive source of finance to the cheapest one. This led to an overhang on equity across Corporate India, with funds being mobilised in the domestic and global markets through the issuance of global depository receipts. As this understanding of the cost was not clued to reality, it soon fell apart.

Capacity overhang The primary market boom of the mid-1990s also ensured excess of a different kind: A fad for capacity creation across a range of commodities, with the possible exception of aluminium and copper. Cement and steel were good examples. Buoyed by high cement and steel prices, and expectations of consistent double-digit growth in demand that was attributed to liberalisation of the economy, several firms set up cement and steel capacities. Binani Zinc, Sanghi Polesyter and the Rajan Raheja group and the DLF group (both cited backward integration to construction as the reason for their cement foray) set up large-sized cement units. Jindal Vijayanagar, Essar Steel, Bhushan Steel, Ispat Industries and Lloyds Steel completed the steel story. The effect of the overcapacity still exerts pressure on profitability. For instance, in cement, a better balance between demand and supply is expected only two years from now. This binge effectively ensured that even in the small number of companies where projects were implemented — without exception marked by time and cost-overrun — investors have had nothing to show by way of wealth accretion. Only the IPOs of the past two-and-half years have changed that. If the ongoing bullish phase is used to perpetrate excesses, the consequences would not be any different. Corporate India needs to walk a different path now, both for its sake as well as in the interest of investors.

to the initial public offering (IPO) of equity shares or any other security which may be converted into or exchanged with equity shares at a later date. IPO grade 1: Poor fundamentals IPO grade 2: Below-average fundamentals IPO grade 3: Average fundamentals IPO grade 4: Above-average fundamentals IPO grade 5: Strong fundamentals IPO grading has been introduced as an endeavor to make additional information available for the investors in order to facilitate their assessment of equity issues offered through an IPO. currency of instruments etc. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India. The Chapter contains provisions relating to pricing. IPO GRADING IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI.Qualified Institutions Placement It is a private placement of equity shares or securities convertible in to equity shares by a listed company to Qualified Institutions Buyers only in terms of provisions of Chapter XIIIA of SEBI (DIP) guidelines. Such grading is generally assigned on a five-point point scale with a higher score indicating stronger fundamentals and vice versa as below. disclosures. .

In such an event all grades obtained for the IPO will have to be disclosed in the offer documents. Since issuance of observation by SEBI and the grading process. - IPO grade/s cannot be rejected. as well as the company’s financial position. - However the issuer has the option of opting for another grading by a different agency. - While the actual factors considered for grading may not be identical or limited to the following. 2007. must contain the grade/s given to the IPO by all CRAs approached by the company for grading such IPO.- IPO grading can be done either before filing the draft offer documents with SEBI or thereafter. advertisements etc. The company desirous of making the IPO is required to bear the expenses incurred for grading such IPO. while arriving at an IPO grad  Business Prospects and Competitive Position i. the grade has to be disclosed as required under the DIP Guidelines. However. as the case may be. on or after 1st May. is required to obtain a grade for the IPO from at least one CRA. function independently. - IPO grading is intended to run parallel to the filing of offer document with SEBI and the consequent issuance of observations. A company which has filed the draft offer document for its IPO with SEBI. the Prospectus/Red Herring Prospectus. - Further information regarding the grading process may be obtained from the Credit Rating Agencies. Irrespective of whether the issuer finds the grade given by the rating agency acceptable or not. Industry Prospects Company Prospects . the competitive strengths of the company that would allow it to address the risks inherent in the business(es) and capitalise on the opportunities available. IPO grading is not expected to delay the issue process. - The IPO grading process is expected to take into account the prospects of the industry in which the company operates. the areas listed below are generally looked into by the rating agencies. ii.

Since IPO grading does not consider the issue price. All grades obtained for the IPO along with a description of the grades can be found in the Prospectus. the lowest being Grade 1 . management quality and corporate governance practices The grades are allocated on a 5-point scale. Further the Grading letter of the Credit Rating Agency which contains the detailed rationale for assigning the particular grade will be included among the Material Documents available for Inspection.     Financial Position Management Quality Corporate Governance Practices Compliance and Litigation History New Projects—Risks and Prospects It may be noted that the above is only indicative of some of the factors considered in the IPO grading process and may vary on a case to case basis. IPO grading is done without taking into account the price at which the security is offered in the IPO. An IPO grade is NOT a suggestion or recommendation as to whether one should subscribe to the IPO or not. the investor needs to make an independent judgment regarding the price at which to bid for/subscribe to the shares offered through the IPO. Abridged Prospectus. IPO grade needs to be read together with the disclosures made in the prospectus including the risk factors as well as the price at which the shares are offered in the issue. and highest Grade IPO Grading is intended to provide the investor with an informed and objective opinion expressed by a professional rating agency after analyzing factors like business and financial prospects. issue advertisement or any other place where the issuer company is making advertisement for its issue.

- The grading is intended to be an independent and unbiased opinion of a rating agency. The grading is intended to be an independent and unbiased opinion of that agency.etc. However. SEBI does not pass any judgment on the quality of the issuer company. it provides disincentives for weak companies to come to the market in the hope of raising easy capital. it brings about greater level of investor sophistication.  Firstly. the need for a tool to help investors make better-informed decisions and judge the quality of issues hitting the market is undisputed. .  And fourthly. Though the move to make IPO assessment mandatory has drawn some critical comments.  Secondly. the investor needs to make his/her own independent decision regarding investing in any issue after studying the contents of the prospectus including risk factors carefully.  Thirdly. SEBI does not play any role in the assessment made by the grading agency. it is relief for individual investors from information overload. SEBI’s observations on the IPO document are entirely independent of the IPO grading process or the grades received by the company. it improves information content through a professional and independent assessment. An IPO assessment brings four major pluses. irrespective of the grade obtained by the issuer. Rating IPO POWERFUL GUIDANCE TOOL SEBI's proposal to make the IPO assessment available to investors is a step in the right direction.

3. Prepare Prospectus – Streamlined version of registration statement. Select Underwriter . • Bookbuilding – “Book Building” means a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to .Provides procedural. before the IPO. Formal summary that provides information on an issue of securities. financial advice .Ultimately buys issue from company (at “issue price”) . Prepare Registration Statement – for approval of SEC (in accord with Securities Act of 1933).ARRANGING AN IPO 1. Set price • Road show – Talks organized to introduce company to potential investors. 4. for consideration by potential investors.Ultimately sells it to public (at “offer price”) 2.

document or information memoranda or offer document. not commit to selling all of issue. The underwriter then approaches investors with offers to sell these shares. • • Syndicate: Group of underwriters formed to sell a particular issue Spread . Selling the shares • Best efforts offering IPO method in which underwriter promises to sell as much as possible. Common methods include: • • • Dutch auction Firm commitment Best efforts . • Firm commitment offering: Method in which underwriter buys the whole issue. advertisement." The company offering its shares.be issued by means of a notice.Difference between public “offer price” and price paid by underwriter (“issue price”). bears all risk. The sale (that is. called the "issuer. Biggest part of underwriter compensation." enters a contract with a lead underwriter to sell its shares to the public. PROCEDURE OF SALE OF IPO’S IPOs generally involve one or more investment banks as "underwriters. circular. 5. the allocation and pricing) of shares in an IPO may take several forms. give best effort.

the lead underwriter in the main selling group is also the lead bank in the other selling groups. Multinational IPOs may have as many as three syndicates to deal with differing legal requirements in both the issuer's domestic market and other regions. such as the Magic Circle firms of London and the white shoe firms of New York City. take the highest commissions—up to 8% in some cases. in addition to separate syndicates or selling groups for US/Canada and for Asia. Three basic IPO costs . The client pays no commission to purchase the shares of a public offering. IPOs typically involve one or more law firms with major practices in securities law. Because of the wide array of legal requirements. an issuer based in the E. A broker selling shares of a public offering to his clients is paid through a sales credit instead of a commission. but some shares are also allocated to the underwriters' retail investors.e.• • Bought deal Self Distribution of Stock A large IPO is usually underwritten by a "syndicate" of investment banks led by one or more major investment banks (lead underwriter). 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. For example. the offering will include the issuance of new shares. the purchase price simply includes the built-in sales credit. may be represented by the main selling syndicate in its domestic market. However. the underwriters keep a commission based on a percentage of the value of the shares sold. Usually. as well the secondary sale of existing shares. Usually. the lead underwriters. Europe.U. intended to raise new capital. Upon selling the shares. certain regulatory restrictions and restrictions imposed by the lead underwriter are often placed on the sale of existing shares. Usually. the underwriters selling the largest proportions of the IPO. i. Public offerings are primarily sold to institutional investors.

Used for virtually all U.S. but usually the biggest cost! Public issues after the IPO Seasoned Offering (SEO) – An equity issue by a firm after its IPO General Cash Offer . roughly. 2. 3. preparing and printing prospectus. not complex issues where underwriter’s “stamp of approval” may have value. Spread: Difference between public “offer price” and price paid by underwriter (“issue price”). - Covers financing plans up to 2 years ahead Speeds up issue process. legal counsel. don’t have to issue all at once Usually used for relatively “garden variety” issues.Sale of securities open to all investors by an already public company. as end-of-first-trading-day price minus offer price   A hidden cost.1. Underpricing: Difference between what stock is offered at and what it’s really worth Can be measured. etc. Administrative costs: for preparing registration. equity and debt issues Shelf Registration – A procedure created by SEC “Rule 415” that allows firms to file one registration statement for several issues of the same security. Deepak Parekh to head SEBI panel on primary market .

With investor protection high on its agenda. Case study PKO BANK POLSKI IPO Issuer PKO Bank Polski . which advises the regulator on policy matters pertaining to the development of the primary market. It would also advise SEBI on changes in legal framework to introduce simplification and transparency in systems and procedures in the primary market. Chairman.- THE Securities and Exchange Board of India (SEBI) has reconstituted its Primary Market Advisory Committee (PMAC). The terms of reference of the reconstituted 18-member committee include advising SEBI on issues related to regulation and development of primary market. HDFC. - The committee will be chaired by Mr Deepak S Parekh. SEBI has asked its reconstituted PMAC to advise it on the matters relating to regulation of intermediaries for ensuring investor protection in the primary market.

case study The price band for Future Capital Holdings' (FCH) IPO was fixed at Rs. The Future Capital Holdings offered 10.3 billion) Pre Offer Post Offer 52% 10% 0.6 billion (US$ 2. The subscription for the issue began on January 11 and closed on January 16. . retain 52% 3 November 2004 10 November 2004 377 million shares.5% of Offering (all secondary) Price Range Offer Price Offer Size PLN 17. The IPO launched in mid-January.16% of its equity through the IPO.0% 0. all secondary Reverse Greenshoe option covering 6.700-765.Seller Pricing Date First Trading Date Shares Offered Reverse Greenshoe The State Treasury of Poland. The Future Capital IPO is expected to mop up nearly Rs.5-20.0 38% Shareholders Polish Treasury Employees Free Float 100.5 per share PLN 7.490 crore from the market.0 Tranche Sizes Polish retail: Polish institutions: International institutions: 42% 35% 23% Listing Warsaw Stock Exchange (No GDRs) Future Capital Holdings.5 per share PLN 20.

It has currently 46 million sq ft under development in various projects and a massive land bank of over 10.FCH had filed the red herring prospect with the Securities and Exchange Board of India (SEBI) in September 2007. 2007 . $19..500 crore (approx. The post-issue dilution would be over 10. 550 per share. During the issue that will remain open for public subscription from June 11 to June 14.5 %. in which government had raised around Rs. DLF will offer 175 million equity shares of Rs.4 billion). commercial and retail area developed. The ONGC issue. After the issue the promoters' stake in the company is expected to come down to 74. which is relaunching.27 percent. Advanta India IPO Announcement / Companies & Industry April 03. and had received the regulator's approval in January 2008. June 11. DLF.6 billion) was an offer for sale. $2.720 crore (approx. making it among the top ten listed firms in the country above India's top private bank ICICI Bank. DLF's public issue would be the largest IPO.1 billion. has fixed a price band of Rs. is the largest real estate development company in India in terms of residential. $23 billion). 10. an initial public share offer to raise up to Rs. It has persence in all verticals of real estate including Special Economic Zones (SEZs). 9625 crore (approx. At Rs. 2 each through 100 percent book-build route.5 billion. its market cap would rise to Rs. valued at $20. $17. In fact. $2.200 acre. according to AC Nelson report.6 billion. Pantaloon Retail's 61 per cent holding in Future Capital will come down to 55 per cent DLF launches India's biggest IPO Real estate developer DLF Ltd. Wipro Ltd. Currently the promoters' holding in the company is around 83 %. 500-550 per share. and top lender State Bank of India. 93.

including its operating subsidiaries.000 Equity Shares of Rs 10 for cash at a premium that was decided through the 100% Book-Building Process at Rs 640 per equity share (the “Issue”). The shares are proposed to be listed on the National Stock Exchange and the Bombay Stock Exchange Limited. and the Issue was subscribed 3.98 times. The Book Running Lead Managers to the Issue are YES Bank Limited. Thailand and Argentina.380. IPO Subscription Avon Weighing Systems IPO received an overwhelming response from the investors as the issue was subscribed by over 45 times..47 times withover 1. The Company. has fixed the Issue Price for its initial public offering of 3.28 lakh shares. It is a global leader in technical plant breeding and in the application of biotechnology to develop new hybrids and varieties of field crops and broad acre vegetable seed products. The Price Band for the Issue was fixed between Rs 600 and Rs 650 per equity share.31 crore shares bid against reserve portion of 20. UBS Securities India Private Limited and SSKI Corporate Finance Private Limited. production and sales of a range of hybrid seeds for cereals and oilseed crops. 2007. April 3. one of the leading generic agrochemical companies in the world with operations in the United States. China. is engaged in the research. The Issue received good response from Qualified Institutional Buyers (“QIB”) and the QIB portion was subscribed 6. 2008 — IPO. Avon Weighing Systems IPO June 16th. Australia. Australia. Latin America and Europe. This is after a long time that a fixed price Public issue has hit the markets and people have shown good interest by oversubscribing the issue . 2007: Advanta India Limited (the “Company”). Advanta India Limited is a subsidiary of United Phosphorus Ltd. The subscription to the Issue closed on March 30. an international agronomic seed company with principal operations in India. and a subsidiary of United Phosphorus Limited. Headquartered in Bangalore.MUMBAI.

the company attracted $27.by 44 times.5 times the stock on offer.37 crore equity shares priced at Rs. thereby. India Anil Ambani. 2007 with a public issue over 1. it is presently developing 13 medium and large-sized power projects with a combined planned installed capacity of 28. 2008. Along with its subsidiaries.5 billion of bids on the first day of its initial public offering (IPO). Avon Weighing IPO is proposed to be listed on the BSE and the Book Running Lead Manager to the issue is Keynote Corporate Services. creating India's IPO record. Datamatics Financial Services Limited is the Registrar to the issue. N. Reliance Power Limited Type Founded Headquarters Key people Industry Website Public company 2007 Mumbai. The proposed IPO was to fund the development of its six power projects across the country whose completion dates are scheduled from December 2009 to March 2014. Reliance Energy Limited. A media report suggested that. an Indian private sector power utility company along with the Anil Dhirubhai Ambani Group promotes Reliance Power. a part of the Reliance Anil Dhirubhai Ambani Group. "It is a reflection of world . Avon Weighing IPO subscription started on 9th June. 650-700. equivalent to 10. was established to develop. if the company’s stock price were to cross Rs. 450.co. Founder and Chairman Electricity generation http://www.reliancepower. 10 each closed today for subscription. Anil Ambani would go past L.in/ Reliance Power Limited. The upper cut off price for the bid was Rs. construct and operate power projects in the domestic and international markets. Mittal to become the richest Indian.200 Initial public offering and controversies On January 15.

. The complaint also resulted in a public interest litigation being filed against the company. an Indian private sector power utility company along with the Anil Dhirubhai Ambani Group promotes Reliance Power. placed some restrictions based on a complaint about the formulation of the IPO. Reliance Energy Limited. Along with its subsidiaries. Investors seem to be confident in the future of Indian economy. However. the Supreme Court of India passed a ruling that the IPO would go ahead even if any order is passed by any Indian court against the venture. The Securities and Exchange Board of India.. At markets. the markets were still reeling after the January 2008 stock market volatility.community in the future of India. Chidambaram told the media about the IPO." Indian Finance Minister. SOME TERMS IN IPO INDUSTRY Offer document Means Prospectus in case of a public issue or offer for sale and Letter of Offer in case of a rights issue which is filed Registrar of Companies (ROC) and Stock Exchanges.200. Reliance Power debuted on the stock markets on February 11. An offer document covers all the relevant information to help an investor to make his/her investment decision. which is an organization that regulates the activity in the Indian stock market. and concerns over speculation that the issue was overpriced sent the stock plummeting soon after its listing. However. 2008. Draft Offer document . it is presently developing 13 medium and large-sized power projects with a combined planned installed capacity of 28. P.

Letter of offer Means the offer document prepared by company for its rights issue and which is filed with the Stock Exchanges. such details are not shown in the Red Herring prospectus filed with ROC in terms of the provisions of the Companies Act. Red Herring Prospectus It is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. .Means the offer document in draft stage. SEBI may specifies changes. the details of the final price are included in the offer document. The offer document filed thereafter with ROC is called a prospectus. It contains all the salient features of a prospectus. in the draft Offer Document and the issuer or the Lead Merchant banker shall carry out such changes in the draft offer document before filing the Offer Document with ROC/SEs. Hence. The draft offer documents are filed with SEBI. The letter of offer contains all the disclosures as required in term of SEBI(DIP) guidelines and enable shareholder in making an informed decision. it is a process of price discovery and the price cannot be determined until the bidding process is completed. The Draft Offer document is available on the SEBI website for public comments for a period of 21 days from the filing of the Draft Offer Document with SEBI. It accompanies the application form of public issues. in such a case will notify the floor price or a price band by way of an advertisement one day prior to the opening of the issue. atleast 21 days prior to the filing of the Offer Document with ROC/ SEs. the number of shares and the upper and lower price bands are disclosed. On the other hand. In the case of book-built issues. This means that in case price is not disclosed. An RHP for and FPO can be filed with the ROC without the price band and the issuer. if any. 1956. Only on completion of the bidding process. Abridged Prospectus Means the memorandum as prescribed in Form 2A under sub-section (3) of section 56 of the Companies Act. an issuer can state the issue size and the number of shares are determined later.

The requirements are detailed in Chapter IV. Chapter XIII and Chapter XIIIA of DIP guidelines. SEBI (DIP) Guidelines have stipulated lock-in requirements on shares of promoters mainly to ensure that the promoters or main persons who are controlling the company. Placement Document Means document prepared by Merchant Banker for the purpose of Qualified Institutions placement and contains all the relevant and material disclosures to enable QIBs to make an informed decision . The requirements are detailed in Chapter IV of DIP guidelines.in on shares/ securities allotted through QIP route.Abridged letter of offer Means the abridged version of the letter of offer. Promoter The promoter has been defined as a person or persons who are in over-all control of the company. There is lock-in on the shares held before IPO and also on shares acquired through preferential allotment route. However there is no lock. who are instrumental in the formulation of a plan or programme pursuant to which . shall continue to hold some minimum percentage in the company after the public issue. Listed company is required to send the abridged letter of offer to each and every shareholder who is eligible for participating in the rights issue along with the application form. Lock-in “Lock-in” indicates a freeze on the shares. A company is also required to send detailed letter of offer upon request by any Shareholder.

the securities are offered to the public and those named in the prospectus as promoters(s). holds 10% or more. any spouse of that person. sister or child of the person or of the spouse). E-IPO A company proposing to issue capital to public through the on-line system of the stock exchange for offer of securities can do so if it complies with the requirements under Chapter . an issue with green shoe option provides more probability of getting shares and also that post listing price may show relatively more stability as compared to market. which is granted to a company to be exercised through a Stabilizing Agent. This is an arrangement wherein the issue would be over allotted to the extent of a maximum of 15% of the issue size. 'Promoter Group' includes the promoter. any company in which 10% or more of the share capital is held by the promoter or an immediate relative of the promoter' or a firm or HUF in which the 'Promoter' or any one or more of his immediate relative is a member. if they are acting as such merely in their professional capacity are not be included in the definition of a promoter. or any parent. a subsidiary or holding company of that company. any company in which a company specified in. In case promoter is a company. any company in which the promoter holds 10% or more of the equity capital or which holds 10% or more of the equity capital of the Promoter. any company in which a group of individuals or companies or combinations thereof who holds 20% or more of the equity capital in that company also holds 20% or more of the equity capital of the issuer company. of the share capital.e. Green-shoe Option A Green Shoe option means an option of allocating shares in excess of the shares included in the public issue and operating a post-listing price stabilizing mechanism for a period not exceeding 30 days in accordance with the provisions of Chapter VIIIA of DIP Guidelines. It may be noted that a director / officer of the issuer company or person. brother. any HUF or firm in which the aggregate share of the promoter and his immediate relatives is equal to or more than 10% of the total. and all persons whose shareholding is aggregated for the purpose of disclosing in the prospectus "shareholding of the promoter group". From an investor’s perspective. In case the promoter is an individual. an immediate relative of the promoter (i.

The reason behind this is that companies want long-term investors who hold their stock.11A of DIP Guidelines. The syndicate members are mainly appointed to collect and entre the bid forms in a book built issue. The double standard exists and there is nothing we can do about it because they have the buying power.18 of DIP Guidelines . but your broker may blacklist you from future offerings Institutional investors flip stocks all the time and make big money. not traders. Flipping Flipping is reselling a hot IPO stock in the first few days to earn a quick profit. Such buy back or safety net arrangements shall be made available only to all original resident individual allottees limited up to a maximum of 1000 shares per allottee and the offer is kept open for a period of 6 months from the last date of dispatch of securities. and you'll be strongly discouraged by your brokerage. The appointment of various intermediaries by the issuer includes a prerequisite that such members/registrars have the required facilities to accommodate such an online issue process. Syndicate Member The Book Runner(s) may appoint those intermediaries who are registered with the Board and who are permitted to carry on activity as an ‘Underwriter’ as syndicate members. Safety Net Any safety net scheme or buy-back arrangements of the shares proposed in any public issue shall be finalized by an issuer company with the lead merchant banker in advance and disclosed in the prospectus. This isn't easy to do. Because . There are no laws that prevent flipping. The details regarding Safety Net are covered under Clause 8.

Here. The underwriter bears a risk which is much higher in soft underwriting. in issues made through book building. Thus.of flipping. Issuers and merchant bankers are required to ensure online display of the demand and bids during the bidding period. immediately places those shares with institutional players. This is the Open book system of book building. The underwriter guarantees a fixed amount to the issuer from the issue. the book is not made public and the bidders will have to take a call on the price at which they intend to make a bid without having any information on the bids submitted by other bidders. the issue is devolved on underwriters and they have to bring in the amount by subscribing to the shares. Under closed book building. Hard underwriting Hard underwriting is when an underwriter agrees to buy his commitment at its earliest stage. Open book/closed book Presently. . Soft underwriting Soft underwriting is when an underwriter agrees to buy the shares at later stages as soon as the pricing process is complete. the soft underwriter has the option to invoke a force Majeure (acts of God) clause in case there are certain factors beyond the control that can affect the underwriter’s ability to place the shares with the buyers. the investor can be guided by the movements of the bids during the period in which the bid is kept open. The risk faced by the underwriter as such is reduced to a small window of time. it's a good rule not to buy shares of an IPO if you don't get in on the initial offering. He then. Many IPOs that have big gains on the first day will come back to earth as the institutions take their profits. in case the shares are not subscribed by investors. Also.

it is subject to the discretion of the post issue lead manager. This process is followed in case of proportionate allotment. firm allotment. This issue price is called “Cut off price”. Retail. The actual discovered issue price can be any price in the price band or any price above the floor price. etc. Differential pricing Pricing of an issue where one category is offered shares at a price different from the other category is called differential pricing. The net offer to the public means the offer made to the Indian public and does not include firm allotments or reservations or promoters’ contributions. the number of successful allottees is determined. In DIP Guidelines differential pricing is allowed only if the securities to applicants in the firm allotment category is at a price higher than the price at which the net offer to the public is made. The oversubscription ratio is then applied to the number of shares applied for and the number of shares to be allotted for applicants in each of the buckets is determined. Within each of these categories. SEBI (DIP) guidelines permit only retail individual investors to have an option of applying at cut off price.Cut Off Price In Book building issue. Non-Institutional Buyers (NIBs). The oversubscription ratios are then calculated for each of the categories as against the shares reserved for each of the categories in the offer document. the issuer is required to indicate either the price band or a floor price in the red herring prospectus. the bids received are aggregated under different categories i. In case of allotment for QIBs. This is decided by the issuer and LM after considering the book and investors’ appetite for the stock. the bids are then segregated into different buckets based on the number of shares applied for. Qualified Institutional Buyers (QIBs).. . Then.e. Basis of Allocation/Basis of Allotment After the closure of the issue.

a ‘Qualified Institutional Buyer’ shall mean: A . is a “Resident Retail Individual Investor” . multilateral and bilateral development financial institutions. provident Funds with minimum corpus of Rs. G .2. J . Any entities falling under the categories specified above are considered as QIBs for the purpose of participating in primary issuance process. insurance Companies registered with the Insurance Regulator and Development Authority (IRDA). E . I . 25 crores) These entities are not required to be registered with SEBI as QIBs. Application Supported by Blocked Amount (ASBA) Means an application for subscribing to an issue containing an authorization to block the application money in a bank account. H . foreign institutional investor registered with SEBI. 1956. venture capital funds registered with SEBI. D . 25 crores K . B . public financial institution as defined in section 4A of the Companies Act. scheduled commercial banks. ASBA Investor Means an Investor who intends to apply through ASBA process and a. mutual funds. In terms of clause 2. pension Funds with minimum corpus of Rs. C . F . state Industrial Development Corporations.2B (v) of DIP Guidelines. foreign Venture capital investors registered with SEBI.Qualified Institutional Buyer (QIBs) Qualified Institutional Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets.

accessing the value of the subsidiary. has agreed not to revise his/her bid. Public Offering Price . to fund its own operation or return value to shareholders. with single option as to the number of shares bid for. This means that after the public offering. The parent company may retain this majority stake forever or may slowly dissolve their ownership over time. is not bidding under any of the reserved categories. public trends. growth rates and even investor confidence. they look at a number of factors. the parent company will still have a controlling stake of the new public company. e. is bidding at cut-off.POP The price at which new issues are offered to the public by an underwriter. but retains a majority stake in the company after issuance. c. is applying through blocking of funds in a bank account with the SCSB. 1994 which offers the service of making an Applications Supported by Blocked Amount and recognized as such by the Board) Minority IPO An initial public offering in which a parent company spins off one of its subsidiaries or divisions. d. This type of IPO allows the company to raise funds. .b. When underwriters determine the public offering price. Self Certified Syndicate Bank (SCSB) It is a Banker to an Issue registered under SEBI (Bankers to an Issue) Regulations. Some of these include the company's financial statements (how profitable it is).

Because an IPO's issuer tends to know more about the value of the shares than the investor. When the offer price is lower than the price of the first trade.DPO When a company raises capital by marketing its shares directly to its own customers.Underpricing The pricing of an initial public offering (IPO) below its market value. employees. A stock is usually only underpriced temporarily because the laws of supply and demand will eventually drive it toward its intrinsic value. distributors and friends in the community. suppliers. DPOs are an alternative to underwritten public offerings by securities broker-dealer firms where a company's shares are sold to the broker's customers and prospects. On the other hand. they don't have the restrictions that are usually associated with bank and venture capital financing. Quiet Period . Additionally. It is believed that IPOs are often underpriced because of concerns relating to liquidity and uncertainty about the level at which the stock will trade. a DPO will typically raise much less than a traditional offering. the stock is considered to be underpriced. Direct Public Offering . a company must underprice its stock to encourage investors to participate in the IPO. Direct public offerings are considerably less expensive than traditional underwritten offerings. the more underpriced they will have to be in order to compensate investors for the risk they are taking. The less liquid and less predictable the shares are.

you can't talk about your stock to anybody for 3 months. are restricted from issuing any earnings forecasts or research reports for the company. if the stock falls in . During this time. enlarged the "quiet period" from 25 days to 40 days on July 9. and other parties are legally restricted in their ability to discuss or promote the upcoming IPO. Even if they sell all of the issued shares. If you take your company public. The effect of initial underpricing an IPO is to generate additional interest in the stock when it first becomes publicly traded. There are two time windows commonly referred to as "quiet periods" during an IPO's history. If a stock is offered to the public at a higher price than the market will pay. During this time. However. This can lead to significant gains for investors who have been allocated shares of the IPO at the offering price. The quiet period usually lasts either 40 or 90 days from the IPO.In terms of an IPO. 2002. generally the lead underwriters will initiate research coverage on the firm. IPOs both globally and in the US have been underpriced. issuers. analysts. When the quiet period is over. The first and the one linked above is the period of time following the filing of the company's registration statement. Pricing Historically. insiders and any underwriters involved in the IPO. the underwriters may have trouble meeting their commitments to sell shares. the period where an issuer is subject to a SEC ban on promotional publicity. the NASD and NYSE have approved a rule mandating a 10-day quiet period after a secondary offering and a 15-day quiet period both before and after expiration of a "lock-up agreement" for a securities offering. company insiders. In other words. but before SEC staff declare the registration statement effective. Regulatory changes enacted by the SEC as part of the Global Settlement. The danger of overpricing is also an important consideration. The other "quiet period" refers to a period of 40 calendar days following an IPO's first day of public trading. Further to this. underpricing an IPO results in "money left on the table"—lost capital that could have been raised for the company had the stock been offered at a higher price.

take many factors into consideration when pricing an IPO. fixes a price or The price is arrived at through the process of book building. Following this. it may lose its marketability and hence even more of its value. The process of determining an optimal price usually involves the underwriters ("syndicate") arranging share purchase commitments from lead institutional investors. This information is not sufficient. where .value on the first day of trading. with the help of its lead managers. Investment banks. Issue price A company that is planning an IPO appoints lead managers to help it decide on an appropriate price at which the shares should be issued. There are two types of issues one where company and LM fix a price (called fixed price) and other. but high enough to raise an adequate amount of capital for the company. Who decides the price of an issue? Indian primary market ushered in an era of free pricing in 1992. There are two ways in which the price of an IPO can be determined: • • Either the company. therefore. Note: Not all IPOs are eligible for delivery settlement through the DTC system. the guidelines have provided that the issuer in consultation with Merchant Banker shall decide the price. The company and merchant banker are however required to give full disclosures of the parameters which they had considered while deciding the issue price. SEBI does not play any role in price fixation. There is no price formula stipulated by SEBI. which would then either require the physical delivery of the stock certificates to the clearing agent bank's custodian. or a delivery versus payment ("DVP") arrangement with the selling group brokerage firm. and attempt to reach an offering price that is low enough to stimulate interest in the stock.

Only the retail investors have the option of bidding at ‘cut-off’. What does “price discovery through book building process” mean? “Book Building” means a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for the securities is assessed on the basis of the bids obtained for the quantum of securities offered for subscription by the issuer.the company and LM stipulate a floor price or a price band and leave it to market forces to determine the final price (price discovery through book building process). Instead. a. the red herring prospectus contains either the floor price of the securities offered through it or a price band along with the range within which the bids can move. Hence. b. The Issuer company can mention a price band of 20% (cap in the price band should not be more than 20% of the floor price) in the Draft offer documents filed with SEBI and actual price can be determined at a later date before filing of the final offer document with SEBI/ROCs. This method provides an opportunity to the market to discover price for securities. What are Fixed Price offers? An issuer company is allowed to freely price the issue. After the . The basis of issue price is disclosed in the offer document where the issuer discloses in detail about the qualitative and quantitative factors justifying the issue price. the Red Herring prospectus does not contain a price. The applicants bid for the shares quoting the price and the quantity that they would like to bid at. Book Building in Detail How does Book Building work? Book building is a process of price discovery.

The shares to be allotted on “firm allotment category” . by issuing press release and also indicating the change on the relevant website and the terminals of the syndicate members.bidding process is complete. The basis of Allotment (Refer Q. The basis of issue price is disclosed in the offer document. In other words. The issuer is required to disclose in detail about the qualitative and quantitative factors justifying the issue price. What is a price band? The red herring prospectus may contain either the floor price for the securities or a price band within which the investors can bid. subject to the total bidding period not exceeding thirteen days. thus completing the issue process. 15. The final prospectus with all the details including the final issue price and the issue size is filed with ROC. What is firm allotment? A company making an issue to public can reserve some shares on “allotment on firm basis” for some categories as specified in DIP guidelines. It is up to the company to decide on the price or the price band. in consultation with Merchant Bankers. The price band can have a revision and such a revision in the price band shall be widely disseminated by informing the stock exchanges. Who decides the price band? It may be understood that the regulatory mechanism does not play a role in setting the price for issues. Allotment on firm basis indicates that allotment to the investor is on firm basis. In case the price band is revised.j) is then finalized and letters allotment/refund is undertaken. the bidding period shall be extended for a further period of three days. it means that the cap should not be more than 120% of the floor price. the ‘cut-off’ price is arrived at on the lines of Dutch auction. The spread between the floor and the cap of the price band shall not be more than 20%. DIP guidelines provide for maximum % of shares which can be reserved on firm basis.

Who is eligible for reservation and how much? In a book built issue allocation to Retail Individual Investors (RIIs). the allotment to the Qualified Institutional Buyers (QIBs) was on a discretionary basis. Shareholders of the promoting companies in the case of a new company and shareholders of group companies in the case of an existing company. Prior to the SEBI Circular on DIP Guidelines dated September 19. 2005. This is a transitory provision pending .can be issued at a price different from the price at which the net offer to the public is made provided that the price at which the security is being offered to the applicants in firm allotment category is higher than the price at which securities are offered to public. Foreign Institutional Investors (including non resident Indians and overseas corporate bodies). Reservation on competitive basis can be made in a public issue to the Employees of the company. In case the book built issues are made pursuant to the requirement of mandatory allocation of 60% to QIBs in terms of Rule 19(2)(b) of SCRR. Preference while doing the allotment There cannot be any discretion in the allotment process. Non Institutional Investors (NIIs) and Qualified Institutional Buyers (QIBs) is in the ratio of 35:15: 50 respectively. Indian and Multilateral development Institutions and Scheduled Banks. What is reservation on competitive basis? Reservation on Competitive Basis is when allotment of shares is made in proportion to the shares applied for by the concerned reserved categories. the respective figures are 30% for RIIs and 10% for NIIs. Indian Mutual Funds. This however has been amended and all allottees are allotted shares on a proportionate basis within their respective categories.

000. Securities as well as the price at which the underwriter . The draft prospectus to be circulated shall indicate the price band within which the securities are being offered for subscription.1.harmonization of the QIB allocation in terms of the aforesaid Rule with that specified in the guidelines. The underwriters shall maintain a record of the orders received by him for subscribing to the issue out of the placement portion. How is the Retail Investor defined as? ‘Retail individual investor’ means an investor who applies or bids for securities of or for a value of not more than Rs. The copy of the draft prospectus filed with the Board may be circulated by the Book Runner to the institutional buyers who are eligible for firm allotment and to the intermediaries eligible to act as underwriters inviting offers for subscribing to the securities. The book-building facility shall be available as an alternative the company to the extent of the percentage of the issue which can be reserved for firm allotment.00. GUIDELINES ON BOOK BUILDING An issuer company proposing to issue capital through book building shall comply with the following: 75% Book Building Process In an issue of securities to the public through a prospectus the option for 75% book building shall be available to the issuer company subject to the following: The option of book-building shall be available to all body corporate which are eligible to make an issue of capital to the public. The Book Runner on receipt of the offers shall maintain a record of the names and number of securities ordered and the price at which the institutional buyer or underwriter is willing to subscribe to securities under the placement portion.

one f or the private placement portion and the other for the public subscription The Book Runner and other intermediaries associated with the book building process shall maintain records of the book building process. (xvi) The issuer company shall open two different accounts for collection of application moneys. The Board shall have the right to inspect such records. subject to the requirements make an issue of securities to the public through a prospectus in the following manner a. Provided that the Book Runner shall have an option of requiring the underwriters to the net offer to the public to pay in advance all monies required to be paid in respect of their underwriting commitment. Bidding Form There shall be a standard bidding form to ensure uniformity in bidding and accuracy. or b. . ) ) Procedure for bidding: The method and process of bidding shall be subject to the following: Bid shall be open for at least three working days and not more than seven working days which may be extended to a maximum of ten working days in case the price band is revised. thereafter the prospectus shall be filed with the Registrar of Company. Bidding shall be permitted only if an electronically linked transparent facility is used.shall subscribe to the securities. 100% of the net offer to the public through book building process. (xv) On determination of the issue price within two day. Offer to Public Through Book Building Process An issuer company may. 75% of the net offer to the public through book building process and 25% at the price determined through book building. the price and the number of securities that the investor wishes to bid. The bidding form shall contain information about the investor.

GUIDELINES ON INITIAL PUBLIC OFFERS THROUGH THE STOCK EXCHANGE ON-LINE SYSTEM (e-IPO) A company proposing to issue capital to public through the on-line system of the stock exchange for offer of securities shall comply with the requirements as contained in this Chapter in addition to other requirements for public issues as given in these Guidelines. (iii) The Board shall have the right to inspect the records. The company shall enter into an agreement with the Stock Exchange(s) which have the requisite system of on-line offer of securities. investors other than retail individual investors and Qualified Institutional Buyers. Provided that 50% of net offer to public shall be mandatorily allotted to the Qualified Institutional Buyers. c) not more than 50% of the net offer to the public shall be available for allocation to Qualified Institutional Buyers. Agreement with the Stock exchange. wherever applicable. The agreement mentioned in the above clause shall specify inter-alia.The bidding form before being issued to the bidder shall be serially numbered at the bidding centres and date and time stamped. books and documents relating to the Book building process and such person shall extend full co-operation. ) Allocation / Allotment Procedure In case an issuer company makes an issue of 100% of the net offer to public through 100% book building process. responsibilities and obligations of the company and stock exchange (s) inter se. a) not less than 35% of the net offer to the public shall be available for allocation to retail individual investors. (ii) The Book Runner/s and other intermediaries in the book building process associated shall maintain records of the book building prices. . duties. the rights.e. Maintenance of Books and Records (i) A final book of demand showing the result of the allocation process shall be maintained by the book runner/s. b) not less than 15% of the net offer to the public shall be available for allocation to non institutional investors i. in case the issuer company is making a public issue.

The names of brokers appointed for the issue alongwith the names of the other intermediaries. Mode of operation The company shall. shall be considered as ‘collection centres’. the brokers. Responsibility of the Lead Manager The Lead Manger shall be responsible for co-ordination of all the activities amongst various intermediaries connected in the issue / System. shall appoint brokers of the exchange. Appointment of Registrar to the Issue The company shall appoint a Registrar to the Issue having electronic connectivity with the Stock Exchange/s through which the securities are offered under the system. the broker shall pay such amount. so appointed accepting applications and application monies. Listing The company may apply for listing of its securities on an exchange other than the exchange through which it offers its securities to public through the on-line system. Lead managers to the issue and Registrars to the Issue shall be disclosed in the prospectus and application form.The agreement may also provide for a dispute resolution mechanism between the company and the stock exchange. For the purposes of this Chapter. The broker/s so appointed. after filing the offer document with ROC and before . who are registered with SEBI. for the purpose of accepting applications and placing orders with the company. shall collect the money from his/their client for every order placed by him/them and in case the client fails to pay for shares allocated as per the Guidelines. namely. Appointment of Brokers The stock exchange.

What is the role of a Lead Manager? (pre and post issue) In the pre-issue process.opening of the issue. and one regional daily with wide circulation at the place where the registered office of the issuer company is situated. The issuer discloses the addresses. make an issue advertisement in one English and one Hindi daily with nation wide circulation. Role of intermediaries a. scheduled commercial banks and public financial institutions. telephone/fax numbers and email addresses of these intermediaries. Solicitors. Auditors of the company. c. the Lead Manager (LM) takes up the due diligence of company’s operations/ management/ business plans/ legal etc. SHELF PROSPECTUS Shelf prospectus shall apply to the issues of securities to be made by public sector banks. In addition to this. the issuer also discloses the details of the compliance officer appointed by the company for the purpose of the issue. 1992 is eligible to act as a Book Running Lead Manager to an issue. Registrars to the issue. etc. Other activities of the LM include . are the intermediaries to an issue. Underwriters to the issue. Bankers to the issue. syndicate members. The provisions of these guidelines relating to public issues shall apply in respect of such issues. Who are the intermediaries in an issue? Merchant Bankers to the issue or Book Running Lead Managers (BRLM). b. Who is eligible to be a BRLM? A Merchant banker possessing a valid SEBI registration in accordance with the SEBI (Merchant Bankers) Regulations.

Registrar(s). as the name suggests. coordinate non-institutional allocation.drafting and design of Offer documents. The post issue activities including management of escrow accounts. Prospectus. The Lead manager coordinates with the Registrar to ensure follow up so that that the flow of applications from collecting bank branches. Advertising Agency and Bankers to the Offer is also included in the pre-issue processes. The BRLMs shall ensure compliance with stipulated requirements and completion of prescribed formalities with the Stock Exchanges. carries out all the activities of ensuring that the funds are collected and transferred to the Escrow accounts. Appointment of other intermediaries viz. intimation of allocation and dispatch of refunds to bidders etc are performed by the LM. A merchant banker is required to do the necessary due diligence in case of QIP mechanism. ROC and SEBI including finalisation of Prospectus and ROC filing. The LM also draws up the various marketing strategies for the issue. e. d. which include the finalization of trading and dealing of instruments and dispatch of certificates and demat of delivery of shares. statutory advertisements and memorandum containing salient features of the Prospectus. with the various agencies connected with the work such as the Registrar(s) to the Offer and Bankers to the Offer and the bank handling refund business. The merchant banker shall be responsible for ensuring that these agencies fulfill their functions and enable it to discharge this responsibility through suitable agreements with the Company. The Lead Merchant Banker shall ensure that Bankers to the Issue are appointed in all the mandatory collection centers as specified in DIP Guidelines. The post Offer activities for the Offer will involve essential follow-up steps.. processing of the applications and other matters till the basis of allotment is finalized. Printers. What is the role of a registrar? The Registrar finalizes the list of eligible allottees after deleting the invalid applications and ensures that the corporate action for crediting of shares to the demat accounts of the applicants is done and the dispatch of refund orders to those applicable are sent. The LM also ensures follow-up with bankers to the issue . dispatch security certificates and refund orders completed and securities listed. What is the role of bankers to the issue? Bankers to the issue.

The company and the investment bank will first meet to negotiate the deal. they state that they have ensured that they are in compliance with SEBI. other agencies. A company could theoretically sell its shares on its own. Merrill Lynch. Underwriting is the process of raising money by either debt or equity (in this case we are referring to equity). an investment bank is required . and on the basis of such examination and the discussions with the Company. projected profitability. the Government and any other competent authority in this behalf. we need to know how an IPO is done. the type of securities to be   . but realistically. price justification. a process known as underwriting. f. and other materials in connection with the finalization of the offer document pertaining to the said issue. disputes with collaborators etc.. The biggest underwriters are Goldman Sachs. if not impossible.to get quick estimates of collection and advising the issuer about closure of the issue. Lehman Brothers and Morgan Stanley. To understand why. When a company wants to go public. Credit Suisse First Boston. Items usually discussed include the amount of money a company will raise. Question on Due diligence The Lead Managers state that they have examined various documents including those relating to litigation like commercial disputes. etc. its Directors and other officers. independent verification of the statements concerning the objects of the issue. The Underwriting Process Getting a piece of a hot IPO is very difficult. the first thing it does is hire an investment bank. patent disputes.it's just the way Wall Street works. You can think of underwriters as middlemen between companies and the investing public. based on the correct figures.

Of course. they form a syndicate of underwriters. the success of the road show and. investment banks are hesitant to shoulder all the risk of an offering. For example.issued and all the details in the underwriting agreement. The deal can be structured in a variety of ways. which aren't known at that time. in which they investigate and make sure all material information has been disclosed. management background. This document contains information about the offering as well as company info such as financial statements. This isn't an easy decision: it depends on the company. the securities are sold on the stock market and the money is collected from investors    . the investment bank puts together a registration statement to be filed with the SEC. This is an initial prospectus containing all the information about the company except for the offer price and the effective date. In a best efforts agreement. where the money is to be used and insider holdings. Once all sides agree to a deal. Also. Once the SEC approves the offering. a date (the effective date) is set when the stock will be offered to the public. any legal problems. One underwriter leads the syndicate and the others sell a part of the issue. As the effective date approaches. During the cooling off period the underwriter puts together what is known as the red herring. Instead. most importantly. in a firm commitment. Finally. the underwriter sells securities for the company but doesn't guarantee the amount raised. the underwriter guarantees that a certain amount will be raised by buying the entire offer and then reselling to the public. With the red herring in hand.where the big institutional investors are courted. the underwriter and company attempt to hype and build up interest for the issue. however.also known as the "dog and pony show" . current market conditions. They go on a road show . it's in both parties' interest to get as much as possible. the underwriter and company sit down and decide on the price. The SEC then requires a cooling off period.

. General Information about the company. the company also makes a note on the forward looking statements. B. Cover Page The Cover Page of the offer document covers full contact details of the issuer company. Other details such as Credit Rating. This information is disclosed in the initial pages of the document and it is also clearly disclosed in the abridged prospectus. A. risks in relation to the first issue. etc are disclosed if applicable. and the particulars regarding listing. the details of brokers/syndicate members to the Issue. IPO Grading. credit rating (in case of debt issue). the issuer’s management gives its view on the Internal and external risks faced by the company. This is with a view to help the reader navigate through the content of an offer document. C. summary of consolidated financial. Here. the offering details in brief. price and amount of instruments offered and issue size.Guide to understand an Offer Document This section basically tries to tell the reader about the structure of presentation of the content in the Offer Document. if opted for. Introduction The introduction covers a summary of the industry and business of the issuer company. It is generally advised that the investors should go through all the risk factors of the company before making an investment decision. number. the merchant bankers and their responsibilities. lead managers and registrars. Risk Factors Here. the nature. operating and other data.

Legal and other information Outstanding litigations and material developments. litigations involving the company and its subsidiaries. tax benefits are covered. subsidiary details.debenture trustees (in case of debt issue). insurance. . interim use of funds. Important details of capital structure. funds requirement. promoters and group companies are disclosed.). investment approvals (FIPB/RBI etc. business strategy. etc. funding plan. sources of financing for the balance fund requirement. management and board of directors. basis for issue price. indebtedness. Financial Statements Financial statement. E. technical approvals. basic terms of issue. Also material developments since the last balance sheet date. monitoring agency. F. changes in accounting policies in the last three years and differences between the accounting policies and the Indian Accounting Policies (if the Company has presented its Financial Statements also as per Either US GAAP/IAS are presented. industry-regulation (if applicable). history and corporate structure. sources of financing of funds already deployed. main objects. D. book building process in brief and details of underwriting Agreements are given here. compensation. government approvals/licensing arrangements. schedule of implementation. About us This presents a review of on the details of the business of the company. are disclosed. exchange rates. funds deployed. currency of presentation dividend policy and management's discussion and analysis of financial condition and results of operations are given. competitive strengths. corporate governance. related party transactions. all government and other approvals. objects of the offering.

the following information is covered: authority for the Issue. consents. terms of payment and payment into the escrow collection account. issues otherwise than for cash. revaluation of assets. designated date. outstanding preference shares. option to subscribe in the issue. capitalization of reserves or profits. general instructions. nomination facility to investor. previous issues for cash.G. fees payable to the lead managers. escrow mechanism. shares of the company. expenses of the issue. brokerage and selling commission. bidding bids at different price levels. announcement of statutory advertisement. build up of the book and revision of bids. face value and issue price. disclaimer in respect of jurisdiction. issue procedure. issuance of confirmation of allocation note("can") and allotment in the issue. underwriting commission. method of proportionate . book building procedure if applicable. H. prohibition by SEBI. . minimum subscription. expert opinion. letters of allotment or refund orders. disclaimer clause. Other regulatory and statutory disclosures Under this head. stock market data for equity. disposal of application and application moneys. listing. impersonation. the following information is covered: Terms of the Issue. electronic registration of bids. signing of underwriting agreement and filing of prospectus with SEBI/ROC. instructions for completing the bid form. classes of shares. previous issues. basis of allotment or allocation. disclaimer clause of the stock exchanges. who can bid. outstanding debentures or bonds. mode of payment of dividend. eligibility of the company to enter the capital market. fees payable to the issue management team. distribution of information to investors. Offering information Under this head. commission and brokerage on. interest on refund of excess bid amount. other instructions. maximum and minimum bid size. previous rights and public issues. fees payable to the registrars. changes in the auditors in the last 3 years. submission of bid form. rights of the equity shareholder. ranking of equity shares. promise vis-à-vis performance in the past issues and mechanism for redressal of investor grievances. market lot. purchase of property. bid form. bidding process. payment instructions. price discovery and allocation.

etc.allotment. Other Information This covers description of equity shares and terms of the Articles of Association. undertaking by the company. I. declaration. etc. utilization of issue proceeds. communications. restrictions on foreign ownership of Indian securities. dispatch of refund orders. material contracts and documents for inspection.. definitions and abbreviations. Resource mobilization in primary market ..

.

.

Resource mobilization in private placement market .

Any company making an initial public offer of equity share or any other security convertible at a later date into equity shares and proposing to list them on the OTCEI.Eligibility norms .2 of Chapter II of these guidelines subject to its fulfilling the following besides the listing criteria laid down by the OTCEI: i. has appointed at least two market makers (one compulsory and one additional market maker). ii.GUIDELINES FOR OTCEI ISSUES Any company making an initial public offer of equity share or any other security convertible at a later date into equity shares and proposing to list them on the Over The Counter Exchange of India (OTCEI) shall comply with all the requirements specified in these guidelines: . . it is sponsored by a member of the OTCEI and. is exempted from the eligibility norms specified in Clause 2.

.Any offer for sale of equity share or any other security convertible at a later date into equity shares resulting out of a Bought out Deal (BOD) registered with the OTCEI is exempted from the eligibility norms specified in Clause 2. projections based on the appraisal done by the sponsor who undertakes to do market making activity in the securities offered in the proposed issue can be included in the offer document subject to compliance with other conditions contained in the said clause. shall not delist its securities from OTCEI for a minimum period of three years from the date of admission to dealing of such securities on OTCEI.Any offer for sale of equity share or any other security convertible at a later date into equity shares resulting out of a Bought out Deal (BOD) registered with OTCEI is exempted from the pricing norms specified in Clause 3.2 of Chapter II of these guidelines subject to the fulfillment of the listing criteria laid down by the OTCEI.1) of Chapter VI of these guidelines. .2 of Chapter III of these guidelines subject to the following conditions: i) The promoters after such issue shall retain at least 20% of the total issued capital with the lock-in of three years from the date of the allotment of securities in the proposed issue. Provided that the issuer company which has made issue of capital under Clause above.12. for the purpose of Clause (6. Projections In case of securities proposed to be listed on OTCEI. Pricing Norms . and ii) At least two market makers (One Compulsory and one additional market maker) are appointed in accordance with the Market Making guidelines stipulated by the OTCEI.

etc.GUIDELINES FOR BONUS ISSUES A listed company proposing to issue bonus shares shall comply with the following: (a) No company shall. The bonus issue shall be made out of free reserves built out of the genuine profits or share premium collected in cash only. . (ii) If there is no such provision in the Articles the company shall pass a Resolution at its general body meeting making provisions in the Articles of Associations for capitalisation. Resolution Consequent to the issue of Bonus shares if the subscribed and paid-up capital exceed the authorised share capital. a Resolution shall be passed by the company at its general body meeting for increasing the authorised Capital. pending conversion of FCDs/PCDs. The Company (a) has not defaulted in payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal on redemption thereof and (b) has sufficient reason to believe that it has not defaulted in respect of the payment of statutory dues of the employees such as contribution to provident fund. bonus etc. (i) The Articles of Association of the company shall contain a provision for capitalisation of reserves. through reservation of shares in proportion to such convertible part of FCDs or PCDs. Board of Directors must implement the proposal within a period of six months from the date of such approval and shall not have the option of changing the decision. (b) The shares so reserved may be issued at the time of conversion(s) of such debentures on the same terms on which the bonus issues were made. issue any shares by way of bonus unless similar benefit is extended to the holders of such FCDs/PCDs. gratuity.

00 2008 AUSTRAL COKE & PROJECTS LIMITED 3 07/08/200 8 to 83 13/08/200 8 65 72.753 Lakhs excluding Promoter Contributio n of Rs 30Jul2008 . Ltd LIMITED and Ashika Capital Ltd Brlm Allbank Finance Limited Co Brlm PL Capital Markets Private 248.) No of RS.00 2008 196 Not eligible in F&O segme nt 4 NU TEK INDIA LIMITED 29/07/200 8 to 128 01/08/200 8 56 45 Rs 170 to Rs 192 Rs 140 to Rs15 0 27192 Aug.Saffron Capital 90 Advisors Private Limited and Elara Capital (India) Private Limited Brlm INDIA INFOLINE 128.60 Brlm ALLBANK FINANCE LIMITED CoBrlm SAFFRON CAPITAL ADVISORS PRIVATE LIMITED.14 aggregatin g to Rs.00 2008 Not eligible in F&O segme nt Not eligible in F&O segme nt Not eligible in F&O segme nt 5 VISHAL Brlm Keynote INFORMATIO 345.9 11150 Aug.12 14 Equity TO Shares RS. Iss of ue Date Issue Size Price Bidd Pric of (lakh Rang ing e Listi shares) e cent (Rs ng ers . 10. Name of N the issue o. Limited. PAST ISSUES AT NSE Sr . LTP Book Running Lead Manager Date of Issue No.6 Rs 04164 196 SepTO Rs .Certificate A certificate duly signed by the issuer company and counter signed by statutory auditor or by Company Secretary in practice to the effect that the provision of clause. Corporate Services and N 40 IDBI Capital Market TECHNOLOG Services Limited IES LIMITED BIRLA COTSYN INDIA LIMITED 7.50632 Rs 50 TO Rs 55 55 * 2 RESURGERE Brlm Motilal Oswal MINES & Investment Advisors 148.00 2008 6 60 (.NEXGEN CAPITALS LIMITED and CHARTERED CAPITAL AND INVESTMENT LIMITED 21/07/200 8 to 100 24/07/200 8 30/06/200 85 8 to 09/07/200 8 49 27. LIMITED and SPA 55 MERCHANT BANKERS LIMITED 11/08/200 8 to 41 13/08/200 8 50 44.) Introd uced in F&O along with IPO $ Not eligible in F&O segme nt Not eligible in F&O segme nt 1 20 MICRONS LIMITED KEYNOTE CORPORATE SERVICES LTD 08/09/200 8 to 46 11/09/200 8 58 43.5 Rs 263 to Rs 272 01270 Sep. MINERALS Pvt Ltd Co Brlm PL 55 INDIA Capital Markets Pvt. of me mbe rs No.

to Rs 00 80 Rs 105 to Rs 115 Rs 175 to Rs 190 Rs 200 to Rs 210 Rs 175 to Rs 195 04Jul2008 Not Eligible SEJAL ARCHITECTU 46. 35. Intensive Fiscal 55 Services Private Limited 52 71.83768 Rs 540 to Rs 610 21540 Apr.5 22150 Apr. Morgan KSK ENERGY Stanley India Company 218. to Rs 00 38 11Jul2008 Not Eligible 9 66.00 2008 Not Eligible - 15/04/200 SREI Capital Markets 8 to Limited and Sobhagya 139 17/04/200 Capital Options Limited 8 25/03/200 8 to 141 02/04/200 8 64 40 Rs 32 to Rs 35 35 Rs 125 to Rs 150 * Not Eligible 154. VENTURES Private Limited.1572 Rs 70 74. 35 LIMITED Lehman Brothers Securities Private Limited and Edelweiss Capital Limited.9 BRLM Keynote 24/03/200 8 to 141 27/03/200 8 50 23.1 CoBrlm Canara Bank5 Merchant Banking Division 7 23/06/200 8 to 131 25/06/200 8 60 346.25 . CENTRUM CAPITAL 65 LIMITED 53 37.11 RS.58392 04195 Jun. IDFC-SSKI Private Limited.00 2008 5 Eligible .5 Almondz Global 0 Securities Limited 48 55 Rs 115 to Rs 125 08125 Jul.00 2008 Not Eligible 12 Allbank Finance Limited 59 32.0 Investment Advisors 0 Private Limited 56 66.00 2008 Not Eligible TITAGARH 17 WAGONS LIMITED BRLM KOTAK MAHINDRA CAPITAL 664.00 2008 Not Eligible ARCHIDPLY 10 INDUSTRIES LIMITED Motilal Oswal 35.3665 Lacs Brlm Kotak Mahindra Capital Company Limited. COMPANY LIMITED Co 95 BRLM JM Financial Consultants Private Limited 13.24 140 TO 240 JulRS. subject to SEBI approv al 8 12/06/200 8 to 61 20/06/200 8 09/06/200 8 to 121 17/06/200 8 11/06/200 8 to 105 17/06/200 8 09/06/200 8 to 80 12/06/200 8 26/05/200 8 to 72 30/05/200 8 12/05/200 8 to 119 15/05/200 8 08/05/200 8 to 165 13/05/200 8 48 100 Rs 36 38.5 190 * Not Eligible ANU’S 13 LABORATORI ES LIMITED GOKUL REFOILS 14 AND SOLVENT LIMITED AISHWARYA 15 TELECOM LIMITED KIRI DYES AND 16 CHEMICALS LIMITED Almondz Global Securities Limited 52 38.) Equity Rs 27 30 07- Not .9 Saffron Capital Advisors 11 RAL GLASS 0 Private Limited LIMITED NIRAJ CEMENT STRUCTURA LS LIMITED 58 91.2 210 * Not Eligible Anand Rathi Financial Services Limited and 265. CoBrlm Axis Bank Limited LOTUS EYE CARE HOSPITAL LIMITED FIRST WINNER INDUSTRIES LIMITED Brlm Keynote Corporate Services Ltd.00 2008 Not Eligible 18 Sita Shree 11/03/200 95 48 (.94155 01115 Jul.

Issue subject withd to SEBI rawn approv al 26 Tulsi Extrusions 28.P.BRLMCitigroup Global Markets India Private Limited.2 Rs 90 12105 to Rs Mar. to 25Feb- Not .5 Rs 167 to Rs 200 03167 Apr.4 20 TION Securities Limited and 0 CORPORATI SBI Capital Markets ON LIMITED Limited 10/03/200 8 to 95 13/03/200 8 48 165. to Rs 00 85 13Mar2008 Not Eligible 22 BRLM RELIGARE 239. subject to SEBI approv al WOCKHARD 25 T HOSPITALS LIMITED 31/01/200 8 to 130 07/02/200 8 69 Rs22 5 to 250.00 2008 Not Eligible 19/02/200 8 to 144 22/02/200 8 57 1561.9 BRLM Almondz Global 01/02/200 110 8 to 63 57 Rs.HSBC Securities AndCapitalMarkets(Indi a)Private Limited.Kotak Mahindra Capital Company Limited and ICICI Securities Limited Joint Global Coordinators and BRLM-Citigroup Global Markets India Private Limited and Kotak Mahindra Capital Company Limited.Food Products Limited 5 Corporate Services Ltd 8 to 14/03/200 8 Shares aggregatin to Rs g Rs. Morgan India Private Limited. subject to SEBI approv al V-GUARD 21 INDUSTRIES LIMITED GSS AMERICA INFOTECH LIMITED 52.00 2008 0 Not Eligible SVEC 23 CONSTRUCTI ONS LIMITED 04/02/200 Karvy Investor Services 8 to Limited and Centrum 118 13/02/200 Capital Limited 8 50 40 Rs 80 to Rs * 90 Issue withd rawn Not on Eligible 12th Feb 2008 EMAAR MGF 24 LAND LIMITED Global Coordinators and BRLM-Enam Securities Private Limited and DSP Merrill Lynch Limited.4 Anand Rathi Financial 5 Services Limited 18/02/200 8 to 120 21/02/200 8 11/02/200 8 to 146 15/02/200 8 60 80 Rs 80 82.BRLMs ICICISecurities Limited and SBI Capital Markets Limited 01/02/200 8 to 192 11/02/200 8 42 Rs 1025.SSKI GAMMON Private Limited And INFRASTRUC Macquarie India 75.00 105 2008 Eligible .80 85.87097 Rs26 0 * Eligible .40 070 to 400 MarRs.1 19 TURE Advisory Services 0 PROJECTS Private Limited Co LIMITED BRLM Collins Stewart Inga Private Limited RURAL IL&FS Investsmart ELECTRIFICA Securities Limited. 315 30 million APR2008 Eligible BRLM IDFC . ICICI 81.J.Goldman Sachs (India) Securities Private Limited.97495 Rs.44 .7062 530 3 to Rs 630 * Issue withd rawn on 8th Feb 2008 Eligible . SECURITIES LIMITED 50 and EDELWEISS CAPITAL LIMITED 60 34.

Limited.20 200 to 207 FebRs. subject to SEBI approv al IRB BRLM Deutsche Infrastructur Equities India Private 116. Securities Private 25 Limited. Deutsche Equities India Private Limited.40 115 to 450 FebRs.00 2008 0 Rs.57666 FebRs. subject to SEBI approv al 35 FUTURE CAPITAL HOLDINGS LIMITED 11/01/200 8 to 156 16/01/200 8 59 64.85 Not eligible J.11 120 to 110 FebRs.00 2008 7 Rs. ICICI Securities Limited. ABN AMRO Securities (India) Private Limited.00 2008 0 29/01/200 8 to 128 01/02/200 8 48 50 Rs.45 .85 00 2008 Eligible Eligible .00 2008 5 Not Eligib le . Equities India Private 15 Limited.70 010 to 765 FebRs.18 2008 0 Rs.42 195 to 440 FebRs.7457 Not eligible BRLM COLLINS 82.00 2008 0 Not eligible 285.12 135 to 135 FebRs.17 180 to 170 FebRs.5 STEWART INGA 0 PRIVATE LIMITED 57 30.00 2008 0 Eligible .20 .Limited 5 Securities Limited 05/02/200 8 Rs. Enam 165.22 . Kumar 82.3 BRLM Anand Rathi 33 Infraprojects 5 Securities Limited Limited BRLM Kotak Mahindra Capital Company Limited.45 . 27 e Limited Co BRLM Kotak 40 Developers Mahindra Capital Limited Company Limited BRLM Kotak Mahindra Capital Company Limited .18 255 to 185 510. JM Financial 40 Consultants Private Limited. BRLM Almondz Global 45 Securities Limited 28/01/200 8 to 110 31/01/200 8 24/01/200 8 to 90 29/01/200 8 24/01/200 8 to 64 29/01/200 8 21/01/200 8 to 72 24/01/200 8 18/01/200 8 to 96 23/01/200 8 56 35 Rs.ICICI Securities SHRIRAM 249. UBS Securities India Private Limited.13 . 28 Limited Co BRLM EPC LIMITED 40 Motilal Oswal Investment Advisors Private Limited Bang 29 Overseas Limited 31/01/200 8 to 118 05/02/200 8 58 Rs.76 .00545 Not eligible KNR 59.228 Rs.00 2008 5 Rs.29 200 to 300 FebRs.9 BRLM Axis Bank 31 Construction 5 Limited Limited CORDS CABLE 32 INDUSTRIES LIMITED 42 78. and UBS Securities India Private Limited 49 65 Not eligible RELIANCE 34 POWER LIMITED 15/01/200 8 to 208 18/01/200 8 128 2280 Rs.33 . Enam Securities Private 306. JM Financial Consultants Private Limited and J P Morgan India Private Limited CO BRLM Macquarie India Advisory Services Private Limited and SBI Capital Markets Limited Kotak Mahindra Capital Company Limited.ICICI Securities Limited 48 109.12 2008 0 Not eligible ONMOBILE 30 GLOBAL LIMITED BRLM Deutsche 509.

(iii) Reduction in the minimum number of mandatory collection centres in respect of issues above Rs.RECOMMENDATIONS Since the primary market has continued to remain dormant. SEBI considered on priority basis the recommendations made by the “Informal Group on Primary Market”. These relaxations would be applicable to infrastructure companies as defined under Section 10 (23G) of the Income Tax Act. Further. 1961 subject to the condition that their projects are appraised by any Development Financial Institution (DFI) or Infrastructure Development Finance Company (IDFC) or Infrastructure Leasing and Financial Services (IL&FS). 10 crore to 4 metropolitan cities plus the place having the regional stock exchange. 25 crore and above. which were accepted for immediate implementation:— (i) Primary issues to be compulsorily made through the depository mode after a specified date. and accepted most of the recommendations. the projects must also have a participation of at least 5 per cent of the project cost in debt and/or equity by the appraising institution. the SEBI Board decided to grant specific relaxations to public issues by infrastructure companies. the infrastructure company can avail of specified relaxations/exemptions from the existing requirements as per SEBI's Disclosure and Investor Protection Guidelines Relaxations to Public Issues Infrastructure Companies . • In order to facilitate flow of funds to the infrastructure sector. (ii) 100 per cent book building in respect of issues of Rs. including the following. Subject to these conditions.

before making a public/rights issue. A listed company required to meet the entry norm only if the post-issue net worth becomes more than five times the pre-issue net worth. in the event of under-subscription in the public issue. .• Exemption from the requirement of making a minimum public offer of 25 per cent of securities and also from the requirement stipulating 5 shareholders per Rs. • Unlisted company allowed to freely price its securities provided it has shown net profit in the immediately preceding 3 years subject to its fulfilling the existing disclosure requirements. adequate disclosures on justification for the pricing need to be made in the offer documents. Primary Markets Reforms 1997-98 • • Entry barrier for unlisted companies modified as dividend payment in immediately preceding 3 years. • Companies required to make their partly paid-up shares fully paid up or forfeit the same. • Exemption from the requirement to create and maintain a debenture redemption reserve (DRR) in case of debenture issues. However. • Permission to freely price the offerings in the domestic market provided the promotor companies along with equipment suppliers and other strategic investors subscribe to 50 per cent of the equity at the same/higher price as/than the price offered to the public. 1 lakh of offer. • Permission to keep the isues open for 21 days to enable the companies to mobilise funds. • Exemption from the minimum subscription of 90 per cent provided disclosure is made about the alternate source of funding considered by the company.

• The Promoters’ contribution for public issues made uniform at 20% irrespective of the issue size. Corporates with infrastructure projects and Municipal Corporations to be exempted from the requirements of Rule 19(2b) of Securities (Contract) Regulation Rules to facilitate public offer and listing of its pure debt instruments as well as debt instruments fully or partly convertible into equity without the requirement of prior listing of equity but subject to conditions like investment grade rating. Multiple categories of merchant bankers to be abolished and there shall be only one entity viz. • The SEBI (Registrars to an Issue and Share Transfer Agents) Rules and Regulations 1993 have been amended to provide for an arm’s length relationship between the Issuer and the Registrar to the Issue. SEBI has allowed debt instruments to be listed on the Stock Exchanges without prior listing of equity. . • • Only body corporates to be allowed to function as Merchant Bankers. if the Registrar to the issue and the Issuer company are associates. A provision made regarding disclosure of the share holding of the promoters whose names figure in the paragraph on “Promoters and their background” in the offer document. Merchant Banker. Presently. It has now been stipulated that no Registrar to an Issue can act as such for any issue of securities made by any body corporate. • • Appointment of Registrar to an issue for rights issues made mandatory. • Written consent from share holders in regard to lock-in made compulsory for securities to be offered for promoter’s contribution. 1993. the Merchant Banker allowed to perform underwriting activity but required to seek separate registration to function as a Portfolio Manager under the SEBI (Portfolio Manager) Rules and Regulations. With a view to facilitating raising of funds by infrastructure projects..

leasing.• Merchant Bankers to be prohibited from carrying on fund based activities other than those related exclusively to the capital market. etc. not to be allowed to be undertaken by a merchant banker. the existing NBFCs performing merchant banking activities to be given suitable time to restructure their activities. . the activities undertaken by NBFCs such as accepting deposits. bill discounting.