1. Introduction

2. Objective

3. Scope

4. Research Methodology 5. Theoretical Background • • • •


Private Equity Initial Public Offers London Stock Exchange Structured Finance

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1. Data Analysis

2. Observations and Conclusions 3. References




The world of raising capital today extends far beyond Lenders and Banks. There was a time period when borrowers not only from across the borders but domestically looked into banks as a lending options. Although these lenders still exists in India, but now there are options for those who are looking for hybrid features in raising funds. Through private equity, infrastructure bonds, real estate bonds, hedge funds, etc. are the booming options globally and India definitely is a part of it. Recent developments and growth has been seen in various raising funds alternatives. These alternatives typically add economic value to the enterprises who raise funds. They could be in the form of structured products, private equity funds, real estate fund etc. Alternative products are offered to clients who already have some experience with banking sector for a different flavor. Depending on a client's requirements now they are being brought to application and has gain popularity in other countries people. Raising Funds options basically comprises of: - Private Equity - IPO - London Stock Exchange - Structured Finance

Private Equity
A decade ago, India did not figure in most investors definitions of "Asia"- or at least not in a major way. But today The PE/VC investments in India for 2009 was just 0.3% of the total GDP growth, while, in the US, it was 0.7% of the total GDP growth. At its peak in 2007, PE/ VC penetration was 1.2% when GDP grew 8%. In the same year, it was 3.5% of the GDP growth in the US. India witnessed 268 deals worth $4 billion in 2009 against $6 billion raised by India focused funds. Overall, over $40 billion was invested in 1800 companies during 2004-2009. After a turbulent 2009, private equity investments in India displayed steady signs of recovery in the first quarter of 2010. This was helped by improved GDP numbers, stability in the business environment and an impressive recovery in the Indian stock market; which exhibited higher investor confidence, narrowing spreads and reduced volatility. The latest quarter registered the highest value of deals since 2009. For the quarter ended March 2010, total announced deal value was $1,943 million, a jump of more than 185% from $675 million in Q1 2009. Total deal count in Q1 2010 also increased by 35% to 88 deals, up from 65 in Q1 2009. Interestingly, despite the enormous growth in deal value on a quarter-on-quarter basis, the deal count decreased by 11% to 88, down from 99 in Q4 2009.


The first offering of a company’s shares to the public is known as Initial Public Offering. The shares offered may be existing ones held privately, or the company may issue new shares to the public. The IPO Market in India is on the boom as more and more companies are issuing equity shares in the capital market. With the introduction of the open market economy, in the 1990s, the IPO Market went through its share of policy changes, reforms and restructurings. One of the most important developments was the disassembling of the Controller of Capital Issues (CCI) and the introduction of the free pricing mechanism. This step helped in developing the IPO Market in India, as the companies were permitted to price the issues. The Free pricing mechanism permitted the companies to raise funds from the primary market at competitive price.

London Stock Exchange
Since the launch of the market in 1995, AIM has emerged as the most successful growth market of its kind in the world. It has developed rapidly both in terms of the number and diversity of companies admitted to the market, and the range of institutional and retail investors involved. Its success is built on a simplified regulatory environment which has been specifically designed for the needs of small and emerging companies. The Alternative Investment Market ("AIM"), the London Stock Exchange's junior international market, provides one of the best platforms for expanding Indian companies seeking international investment. AIM is the world's leading market for smaller international companies. Currently over 1,293 companies are traded on AIM with a market capitalization of over £56 billion (including, as at December 2009, 29 companies from India and Bangladesh with a market capitalization totaling £3 billion). The leading industry sectors for Indian AIM listed companies by market capitalization are (1) exploration & production and (2) electricity, but other sectors such as real estate holding & development as well as broadcasting & entertainment continue to grow.

Structured Finance
Recent years have witnessed the wide spread of Western financial innovations into developing markets. Globalization and integration of capital markets, started in the 1990s, have made it possible for such big global players as India to adopt new financial strategies which allow increasing liquidity and accelerating development of the capital markets. One of these financial innovations is securitization, the process of transformation of illiquid assets into a security which can be traded in the capital markets. Although the state of securitization in India is far from that of the USA and the UK, the market for securitized assets grows at a fascinating pace.


The basic objectives involved in this particular project are:
1. To find out the various alternative for raising funds in India. 2. Determination of investments into different alternatives to raise funds and their progress over the

years. 3. What is the future of these alternatives and how it will affect the economy of India? 4. Justifying the reliability of funds being raised.


The alternatives for raising funds are gaining popularity all over the world so India cannot remain behind. The progress India has shown over the years especially in private equity is remarkable. In the year 2009 we saw a downturn but since the beginning of 2010 in the first quarter only it has been recovered. Real estate sector is a basic building block of any economy. India being a developing country has gone far ahead of other countries lying in third world countries but still there is a lot room of improvement of the infrastructure. For this a lot funds have come up and contributing hand in its full-fledge development. The new concept of Real Estate Investment Trusts (REITs) and funds has increased the pace of development to a great extent. India now can raise money on other REITs like the Singapore etc. but the main step will be when India has its own REIT which is not very far from now. The structured finance with the securitization process has given advancement to the traditional lending process of the banks. Globalization being a limelight word has given opportunity to the domestic borrowers to move across the boundaries. World has become a small place to live in. Like the IPOs which can be raised in Indian Stock Market are restricted not only to it but London Stock Exchange and Singapore Exchange are serving the same purpose. With the above mentioned some examples the purpose of raising funds are accomplished. The development and growth happening throughout the world have generated more opportunities for the enterprises to move across the borders to fulfill its capital needs.


Foreign land supporting in the financing of capital needs of Indian entrepreneurs apart from the domestic financing. The overall picture of these has been looked with reference to its progress in India. This project has majorly concentrated on large funds needed and shows some glimpse of investments being happening in these areas to prove its success. . Also giving opportunity to foreigners to set up in India and contributing to its prosperity. International Stock Exchanges like London Stock Exchange and Singapore Exchange were considered apart from Structured Finance with the help of Securitization. real estate which also includes infrastructure. Success of the resources being generated reliably and in turn makes the investors in the profitable state.RESEARCH METHODOLOGY The research methodology which has been followed is quite simple and straight. • • First of all various raising funds alternatives were shortlisted. • • Various private equity funds came to India and who exited from here. Traditional banks were not discarded from the list as basic concentration was on the alternative for raising funds. • 6 . so private equity.

Buy-out: acquisition of a significant portion or a majority control in a more mature company. The acquisition normally entails a change of ownership. it is very difficult to gain access to your money as it is locked up in long-term investments which can last for as long as twelve years. with most private equity funds requiring significant initial investment (usually upwards of $1. Investments typically involve a transformational. or a recapitalization. value-added. Investments in limited partnership interests (which are the dominant legal form of private equity investments) are referred to as "illiquid" investments which should earn a premium over traditional securities. private equity could help you to do this. • • • Considerations for investing in private equity funds relative to other forms of investment include: Substantial entry costs. buy into a business. Once invested. a sale or merger of the company they control. turnaround or revitalize a company. such as a bank. the investors’ returns are dependent on the growth and profitability of your business. buy out a division of your parent company. Special situation: investments in a distressed company. Lenders have a legal right to interest on a loan and repayment of the capital.). irrespective of your success or failure. as shareholders. or a company where value can be unlocked as a result of a one-time opportunity (Changing industry trends. Obtaining private equity is very different from raising debt or a loan from a lender. If you are looking to start up.THEORETICAL BACKGROUND PRIVATE EQUITY Private equity provides long-term. Unlisted securities may be sold directly to investors by the company (called a private offering) or to a private equity fund. committed share capital. Private equity firms generally receive a return on their investments through one of three ways: an IPO. Distributions are • 7 . which pools contributions from smaller investors to create a capital pool. Private Equity investments can be divided into the following categories: • Venture capital: an investment to create a new company. government regulations etc. active management strategy. or expand a smaller company that has undeveloped or developing revenues. The Private Equity sector is broadly defined as investing in a company through a negotiated process.000) plus further investment for the first few years of the fund. to help unquoted companies grow and succeed. Private equity is invested in exchange for a stake in your company and. expand. such as stocks and bonds.000.

private equity fund investment is for those who can afford to have their capital locked in for long periods of time and who are able to risk losing significant amounts of money. For the above mentioned reasons.Purchase of shares from another investor or to reduce gearing via the refinancing of debt. Consistent with the risks outlined above. 3. Private Equity investments can be classified into: 1. Seed stage. which provide interim investments to companies which have already proven their viability but have yet to raise money from public markets. Expansion stage . 4. Given the risks associated with private equity investments.made only as investments are converted to cash. an investor can lose all of its investment if the fund invests in failing companies. • If a private equity firm can't find good investment opportunities. Start-up stage. This is balanced by the potential benefits of annual returns which range up to 30% for successful funds. Replacement capital . it will not draw on an investor's commitment. limited partners typically have no right to demand that sales be made. which invest in companies during the earliest phases of their development.Financing for growth and expansion of a company which is breaking even or trading profitable. private equity can provide high returns. and lower in mezzanine capital funds.Financing provided to research. assess and develop an initial concept before a business has • reached the start-up phase 2.Financing for product development and initial marketing. 8 . with the best private equity managers significantly outperforming the public markets. The risk of loss of capital is typically higher in venture capital funds.

Consequently. and 9 . 2001-2003 .PE becomes risk averse and activity declines: Not surprisingly.14 million. In fact.52 million in 2001 (b) The number of early-stage deals fell sharply from 142 in 2000 to 36 in 2001 (c) Late-stage deals and Private Investments in Public Equity (PIPEs) declined from 138 in 2000 to 74 in 2001.14 million in 2000 to $8.Beginning of PE activity in India: The Indian private equity (PE) market roughly started in 1996-1997 and it scaled new heights in 2000 primarily because of the success demonstrated by India in assisting with Y2K related issues as well as the overall boom in the Information Technology (IT).The above stages can be explained by the diagram which is shown below: The stages of Private Equity Bridge/Mezzanine Liquidity Event Buyouts Expansion Capital Follow-on Venturing Finance Later Stage Seed/Start Up Development Stage Concept Stage Reengineering Restructuring The Stages of PE Investment in Indian Scenario 1996-1997 . the investing in India came “crashing down” when NASDAQ lost 60% of its value during the second quarter of 2000 and other public markets (including those in India) also declined substantially. the total value of such deals done in India in 2000 was $1. Telecom and the Internet sectors. the PEs started investing less money and in more mature companies in an effort to minimize the risks. For example: (a) The average deal size more than doubled from $4.16 billion and the average deal size was approximately US $4. which allowed global business interactions to become much easier. during 2001-2003.

This decline broadly continued until 2003.Renewed investor interest and activity: Since India’s economy has been growing at 7%-8% a year. US $1. and since some sectors. have been growing at 12%-14% a year. including the services sector and the high-end manufacturing sector. For example.48 billion (excluding debt financing). the number of deals and the total dollars invested in India has been increasing substantially.(d) Investments in Internet-related companies fell from $576 million in 2000 to $49 million in 2001. m o n t h s 2004 onwards . investors renewed their interest and started investing again in 2004.65 billion in investments were made in 2004 surpassing the $1. Financial/legal/business DD. and during the first half of 2006. Management meetings and site visits. Execute NDA with interested funds. We forecast that the total investment in 2006 is likely to be $6.16 billion in 2000 by almost 42%. Non-binding Formal Due-Diligence Exclusivity agreement with selected funds. PE firms have already invested $3. Addressi Investment Approvals 10 . PE INVESTMENT PROCESS 3 6 Investment Banker (IB) prepares IM and Financial Model in discussion with the Comp Preliminary Screening IB shares a teaser with PE funds to gauge interest.3 billion. a number that is more than five times the amount invested in 2000.2 billion in 2005. These investments reached US $2. As Figure 1shows. Share IM and Management Meetings & Model Assessment PE investors solicit clarifications.

professional competence. • Whether the applicant is regulated by an appropriate foreign regulatory authority or is an income tax payer. Funds transf 11 . • Whether the applicant is a fit and proper person.REGULATORY FRAMEWORK The SEBI Regulations. general reputation of fairness and integrity. pension fund. information to the stock exchange. to an applicant as a Foreign the transaction is wherever the Board shall consider the following conditions for eligibility: completed. several legal/regulatory formalities need to be completed FVCI Regulations. university fund. among others. financial soundness. • Whether the applicant has been granted necessary approval by the Reserve Bank of India for making investments in India. which can impact overall financing plans of foreign venture capital funds. c) Not more than 33. • Whether the applicant is an investment company. charitable institution or any other entity incorporated outside India. investment partnership. The SEBI FVCI Regulations prescribe the following investment guidelines. experience. by way of equity. or submits a certificate from its banker of its or its promoter's track record where the applicant is neither a regulated entity nor an income tax payer. specify the investment criteria for venture capital and private equity investors seeking to invest in Indian companies. and it must achieve the investment conditions by the end of its life cycle. (e. A foreign venture capital investor proposing to carry on venture capital activity in India may register with the Securities and Exchange Board of India (SEBI). • Whether the applicant is an asset management company. whose shares are proposed to be listed. investment manager or investment management company or any other investment vehicle incorporated outside India. granting post which. • The applicants track record. endowment fund. Final Negotiations & Closure Completing conditions precedent. FIPB consent etc..33% of the investible funds may be invested by way of: (i) Subscription to initial public offer of a venture capital undertaking. a) The foreign venture capital investor must disclose its investment strategy and life cycle to SEBI. • Whether the applicant is authorized to invest in venture capital fund or carry on activity as a foreign venture capital investors.67% of the investible funds must be invested in unlisted equity shares or equity linked instruments. mutual fund. (ii) Debt or debt instrument of a venture capital undertaking in which the foreign venture capital investor has already made an investment.Forrequired the certificate the ‘money goes in’ and Venture Capital Investor.g. subject to fulfilling the eligibility criteria and other requirements contained in the SEBI Post this process. b) At least 66. investment trust. Executing definitive agreements. Eligibility Criteria . • The applicant has not been refused a certificate by the Board. Board Approval.

one key advantage of registering under the SEBI FVCI Regulations is that at the time of an IPO of the investee company. The provisions of the IT Act regarding taxation on distributed profits (dividend). a foreign venture capital investor can maintain a foreign currency or rupee account with an authorized Indian bank. postal services. subject to a lock-in period of one year. initiate action for suspension or cancellation of the registration of such Foreign Venture Capital Investor: The board may suspend the certificate• • • • • Contravenes any of the provisions of the Act or these regulations. A company. a SEBI-registered foreign venture capital investor will not be subject to the one-year lock-in period in respect of pre-issue share capital held by it. if they are registered with SEBI and in compliance with Indian government and SEBI Regulations. Subject to RBI approval. gets listed on a stock exchange. A foreign venture capital investor. The FEMA Regulations prescribe the sectoral limits on foreign investments into India. PROCEDURE FOR ACTION IN CASE OF DEFAULT. before issuing shares to a foreign venture capital investor situated abroad.(iii) Preferential allotment of equity shares of a listed company. The funds held in such accounts can be used for investment purposes. Without prejudice to the appropriate directions or measures under regulation 19.The FIPB has the right to suspend or cancel certificate of registration.The income of venture capital companies or funds set up to raise funds for investment in venture capital undertakings is tax exempt. Apart from tax exemptions. Does not submit periodic returns or reports as required by the Board. depending on the quantum of investment. defense and agricultural activities. The consideration amount for investment can be paid out of inward remittances from abroad through normal banking channels. The income of such companies and/or funds will continue to be exempt. INCOME TAX ACT. Venture capital companies or funds are exempt from withholding tax in respect of income distributed to their investors. atomic energy and related projects. Does not co-operate in any enquiry or inspection conducted by the Board. which is inter alia engaged in the print media sector. Fails to furnish any information relating to its activity as a Foreign Venture Capital Investor as required by the Board. apply to the Reserve Bank of India (RBI) for permission to invest in an Indian venture capital undertaking. a venture capital fund or in a scheme floated by a venture capital fund. broadcasting. subsequent to the investment. can through SEBI. in which its funds are invested. if the undertaking. it may after consideration of the investigation report. must obtain the approval of the Foreign Investment Promotion Board or Secretariat of Industrial Assistance. (iv)The equity shares or equity linked instruments of a financially weak or a sick industrial company whose shares are listed. distributed income and deduction of tax at source do not apply to venture capital companies or funds. FEMA REGULATIONS prescribe the manner in which a foreign venture capital investor can make investments. 1961. 12 . Furnishes to the Board information which is false or misleading in any material particular.

having standard operating procedures etc.The board may cancel the certificate• • • When the Foreign Venture Capital Investor is guilty of fraud or has been convicted of an offence involving moral turpitude. the Foreign Venture Capital Investor has been guilty of repeated defaults of the nature mentioned in the regulation 21. or Foreign Venture Capital Investor does not continue to meet the eligibility criteria laid down in these regulations. • Streamlined Processes & Adherence to Regulations: E. bringing their own relationships and networks to bear for portfolio company (e. ADVANTAGES OF PRIVATE EQUITY • Strategic Direction: Helping Investee Companies in Strategic Decision Making.g. 13 . • Ability to Provide Better Incentives for managers since the PE Firms’ incentives are investment aligned.. putting an Indian healthcare company in touch with foreign healthcare company for best practices sharing). • Longer Investment Horizons: Enables a company to plan better & take long term view of maximizing decisions as opposed to “quarterly earnings-driven” actions only.g. insistence on the audit being conducted by top 4 audit firms. • Fewer Reporting Requirements & Lesser Bureaucracy.

Merrill Lynch. Citigroup Property Investors ($125 million). Norwest. Morgan Stanley. The policy changes introduced by the Government in FDI guidelines have created a lot of interest among the foreign investors. StanChart PE.5 billion for investments in Indian realty. IT & ITES was followed by BSFI (9 deals worth $94 million). A report by property consultants Jones Lang LaSalle estimates that $10 billion foreign investment is expected to be injected into the Indian real estate sector in the next 12-18 months.PRIVATE EQUITY HAPPENING IN INDIA Private Equity firms invested about US$2. Lehman Brothers. Colony Capital and Starwood Capital. 14 . KKR and New Silk Route's $217 million investment into Coffee Day Resorts and TPG Growth's $115 million investment into Clean Tech firm Greenko Group. the IT & ITES industry registered 13 deals worth $193 million during Q1'10. Other top investments reported during Q1'10 included Quadrangle Capital Partners' $300 million investment into telecom tower infrastructure company TowerVision India. The largest investment during the quarter was the $425 million investment into power generation firm Asian Genco by General Atlantic. Industry sources say over 90 foreign investors are already in the country tapping investment avenues. Morgan Stanley ($70 million). INDIAN REAL ESTATE AND PRIVATE EQUITY The PE investor’s participation in Real Estate is really high. Warburg Pincus. according to a study by Venture Intelligence. Led by Actis' $50 million investment into BPO company Integreon Managed Solutions. Warren Buffett’s Berkshire Hathaway. Nearly two dozen US funds are raising $3. But the real attraction for foreign investors is potential investment returns of 25 per cent and more in Indian projects that might be hard to come by in the US and in Western Europe today. Those who have already raised or are in the process of raising the funds include Wall Street powerhouses such as the Blackstone Group ($1 billion). apart from JP Morgan.000 million across 56 deals during the quarter ended March 2010. Goldman Sachs and Everstone. Venture Capital and Late Stage investments accounted for 16 and 18 deals respectively during Q1 '10. Goldman Sachs ($1 billion). a research service focused on Private Equity and M&A transaction activity in India.

and to cash in on an improving economy. India has never seen more than 20 exits in a year. Nearly half a dozen private equity (PE) firms are preparing for at least a dozen portfolio exits as they reach the end of their investment horizons. Its environment is also being driven by reform savvy team at the center who has kept the momentum going all through 2009 while the world was just limping back to normalcy from the rashes of 2008/09. Global. Sequoia Capital Fund exit from Kerala-based nonbanking financial company Manappuram General Finance and Leasing Ltd is just the beginning of an ava. Tarang Software Technologies Pvt. AppLabs and Dr Lal are expected to bring returns of four or five times. AppLabs among the many others Indecomm. PE have already exited 10 firms and lined up another 20 for the rest of the year. Ltd.lanche of high-return exits lined up for the year.EXIT OF PRIVATE EQUITY IN INDIA India PE firms are riding on a wave of exits making them eye popping baggers. there have been 10 exits against three last year. Thus the returns are pure equity returns which underlie the tremendous potential of India as an Investment destination. While good going PE can keep doing the good work. What makes the exits so remarkable and standout from the rest of the world. In 2010. is the fact that PE firms in India are leveraged 1x. Sequoia picked up returns of five times from its Manappuram exit and is estimating returns of eight times from its high profile portfolio company SKS Microfinance Ltd. The flood of profitable exits would help further establish India as an investment destination for PE funds.. Just Dial. The Average deal exit is able to make 4x while 20x returns on the upper range is not unheard of (VATECH deal by ICICI Ventures). India’s largest microcredit firm that’s set for an initial public offering (IPO) in July. 15 . The record number of exits is also being driven by the overwhelming amount of FDI and FII flows into India which is allowing the PE firms to rotate out of their investments. Sequoia alone plans to exit the following companies: Indecomm.Logic Inc. But in the first three months of 2010 alone.

Appointment of other intermediaries: – Co-managers and advisors – Underwriters – Bankers – Brokers and principal brokers – Registrars • • Filing the prospectus with SEBI: The prospectus or the offer document communicates information about the company and the proposed security issue to the investing public. Filing of the prospectus with the registrar of the companies: once the prospectus have been approved by the concerned stock exchanges and the consent obtained from the bankers. If SEBI or public does not communicate its observations within 21 days from the filing of the offer document. the company should print the prospectus. underwriters and others. The quantity in which prospectus is printed should be sufficient to meet requirements. This must be published atleast 10 days before the opening of the subscription list. registrar. Appointment of lead managers: the lead manager is the merchant banker who orchestrates the issue in consultation of the company. All the companies seeking to make a public issue have to file their offer document with SEBI. the initial listing application must be made to the concerned stock exchanges with the listing fees. • Printing and dispatch of prospectus: After the prospectus is filed with the registrar of companies. the company can proceed with its public issue. They should be send to the stock exchanges and brokers so they receive them atleast 21 days before the first announcement is made in the news papers.INITIAL PUBLIC OFFER PROCEDURE FOR IPO • Approval of BOD: Approval of BOD is required for raising capital from the public. 16 . • Promotion of the issue: The promotional campaign typically commences with the filing of the prospectus with the registrar of the companies and ends with the release of the statutory announcement of the issue. • Statutory announcement: The issue must be made after seeking approval of the stock exchange. must be filed with the registrar of companies. auditors. • Filing of initial listing application: Within 10 days of filing the prospectus. the prospectus signed by the directors. with the required documents as per the companies act 1956.

closing and earliest closing date of the issue. Offer through Prospectus According to Companies (Amendment) Act 1985. The draft prospectus has to be sent to the Regional Stock Exchange where the shares of the company are to be listed and also to all other stock exchanges where the shares are proposed to be listed. brokers and underwriters. when it would close. • • Allotment of shares: Proportionate system of allotment is to be followed. capital structure. Prospectus is distributed among the stock exchanges. brief description of the issue. issue to be listed at. After scrutiny if there is any clarification needed. • Establishing the liability of the underwriters: If the issue is undersubscribed. Bought Out Deals (Offer for Sale) 17 . Private Placement and Book Building. the liability of the underwriters has to be established. lending financial institutions and the stock exchanges in which they are to be listed should approve the prospectus. projected earnings and other such details. The stock exchange scrutinizes the draft prospectus. brokers to the issue. application forms for shares of a company should be accompanied by a Memorandum (abridged prospectus). • Processing of applications: Scrutinizing of the applications is done. The prospectus should contain details regarding the statutory provisions for the issue. The allotment formalities should be completed within 30 days. highlights and risk factors. The board. registered office of the company. the stock exchange writes to the company and also suggests modification if any. cost of the Project. and the banks where the applications can be made. In simple terms a prospectus document gives details regarding the company and invites offers for subscription or purchase of any shares or debentures from the public. During the period the subscription is kept open. Bought out deals/offer for sale. PLACEMENT OF THE IPO Initial public offers are floated through Prospectus. board of directions. Listing of the issue: The detail listing application should be submitted to the concerned stock exchange along with the listing agreement and the listing fee.• Collections of applications: The Statutory announcement specifies when the subscription would open. program of public issue – opening. the bankers will collect the applications on behalf of the company. collecting branches of the bankers and to the lead managers.

Through private placement equity shares. The actual price is then discovered based on these bids. 3. mutual funds. In addition to the main sponsor. According to the book building process. the gestation period.Here. the promoter places his shares with an investment banker (bought out dealer or sponsor) who offers it to the public at a later date. In a bought out deal. Private Placement In this method the issue is placed with a small number of financial institutions. Each investor states how many shares s/he wants and what s/he is willing to pay for those shares (depending on the price band). preference shares. Book Building Process • The company does not come out with a fixed price for its shares. Listed public limited company as well as closely held private limited company can access the public through the private placement method. The stock is placed with issue house client with the medium of placing letter and other documents which taken together contribute a prospectus. High net worth individuals and employees of the company. The bought out dealer decides the price after analyzing the viability. there could be individuals and other smaller companies participating in the syndicate. promoters’ background and future projections. cumulative convertible preference shares. The special feature of the private placement is that the issues are negotiated between the issuing company and the purchasing intermediaries. The hold on period may be as low as 70 days or more than a year. THE PROCESS • 18 . 2. Retail investors: Anyone who bids for shares under Rs 50. A bough out dealer sheds the shares at a premium to the public. three classes of investors can bid for the shares: 1. corporate bodies and high net worth individuals. In other works in a bought out deal. giving the information regarding the issue. Mostly in the private placement securities are sold to financial institutions like Unit Trust of India. Qualified Institutional Buyers: Mutual funds and Foreign Institutional Investors. The sponsors hold on to these shares for a period and at an appropriate date they offer the same to the public. and merchant banking subsidiaries of commercial banks and so on. proving is the essential element to be decided. Bids are then invited for the shares. instead. debentures and bonds are sold. insurance companies. The financial intermediaries purchase the shares and sell them to investors at a later date at a suitable price. an existing company off-loads a part of the promoters’ capital to a wholesaler instead of making a public issue.000 is a retail investor. it indicates a price band that mentions the lowest (referred to as the floor) and the highest (the cap) prices at which a share can be sold. The wholesaler is invariably a merchant banker or sometimes just a company with surplus cash.

3. ISSUE TYPE OFFER PRICE DEMAND PAYMENT RESERVATIONS 19 . 2. 7. 3. etc. 4. Allocation of securities is made to the successful bidders. A Book should remain open for a minimum of 5 days. The Issuer specifies the number of securities to be issued and the price band for orders. 5. Book Building is a good concept and represents a capital market which is in the process of maturing. the issue size gets frozen based on the price per share discovered through the book building process. 1. On the close of the book building period the 'book runner evaluates the bids on the basis of the evaluation criteria which may include Price Aggression Investor quality Earliness of bids. Bids can be revised by the bidder before the issue closes. Generally. The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'. Bids cannot be entered less than the floor price. 2. the numbers of shares are fixed. The book runner of the company concludes the final price at which it is willing to issue the stock and allocation of securities. 8. Investors place their order with a syndicate member who inputs the orders into the 'electronic book'. 6. The Issuer also appoints syndicate members with whom orders can be placed by the investors.1. 4. This process is called 'bidding' and is similar to open auction.

it is filed with the Registrar of Companies or the Stock Exchange. is available on a real time basis on the BSE website during the bidding period. its financials and how the issue will be priced. they have to be made. Book Building Issues A 20 % price band is offered by the issuer within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding. 50 % of the shares offered are reserved for applications below Rs. and at various prices. 10 % advance payment is required to be made by the QIBs along with the application. while other categories of investors have to pay 100 % advance along with the application. An offer document is the document that contains all the information you need about the company. Demand for the securities offered. The Draft Offer Document is the offer document in the draft stage. except that it will have all the information as a draft offer document. It must be filed with SEBI at least 21 days before the company files it with the RoC/ Stock Exchange. 1 lakh and the balance for higher amount applications. 35 % for small investors and the balance for all other investors. Once the changes are made. the market regulator. however. Red Herring Prospectus is just like the above. it will. Any company making a public issue is required to file the draft offer document with the Securities and Exchange Board of India. you can check it out on the SEBI Web site. That is because the Red Herring Prospectus is used in book building issues only. REGULATIONS DOCUMENTS REQUIRED • A company coming out with a public issue has to come out with an Offer Document/ Prospectus. not have the details of the price or the number of shares being offered or the amount of issue. It will tell you why the company is coming is out with a public issue. During this period. 50 % of shares offered are reserved for QIBS.Fixed Issues Price Price at which the Demand for the securities are offered and securities offered is would be allotted is made known only after the known in advance to the closure of the issue investors 100 % advance payment is required to be made by the investors at the time of application. where the details of the final price are known only after bidding is concluded. If SEBI demands any changes. PLAYERS • • • • • Co-managers and advisors Underwriters Lead managers Bankers Brokers and principal brokers • • • • 20 .

at least fifty per cent. (c) It has a net worth of at least one crore rupees in each of the preceding three full years (of twelve months each). of the revenue for the preceding one full year has been earned by it from the activity indicated by the new name. (b) (i) The minimum post-issue face value capital of the issuer is ten crore rupees. of the net offer to public to qualified institutional buyers and to refund full subscription monies if it fails to make allotment to the qualified institutional buyers. for at least three out of the immediately preceding five years: Provided that extraordinary items shall not be considered for calculating distributable profits.• • Registrars Stock exchanges. (e) If it has changed its name within the last one year. the issuer has made firm commitments to utilize such excess monetary assets in its business or project. of which not more than fifty per cent are held in monetary assets: Provided that if more than fifty per cent of the net tangible assets are held in monetary assets. or (ii) The issuer undertakes to provide market-making for at least two years from the date of listing of the specified securities. or (ii) At least fifteen per cent. of the cost of the project is contributed by scheduled commercial banks or public financial institutions. if: (a) It has net tangible assets of at least three crore rupees in each of the preceding three full years (of twelve months each). (1) An issuer not satisfying any of the conditions stipulated in sub-regulation (1) may make an initial public offer if: (a) (i) The issue is made through the book building process and the issuer undertakes to allot at least fifty per cent. of which not less than ten per cent shall come from the appraisers and the issuer undertakes to allot at least ten per cent of the net offer to public to qualified institutional buyers and to refund full subscription monies if it fails to make the allotment to the qualified institutional buyers. subject to the following: 21 . It has a track record of distributable profits in terms of section 205 of the Companies Act. (d) The aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed five times its pre-issue net worth as per the audited balance sheet of the preceding financial year. 1956. ELIGIBILITY CONDITIONS for IPOs (1) An issuer may make an initial public offer.

(2) An issuer shall not make an allotment pursuant to a public issue if the number of prospective allottees is less than one thousand.. (b) Outstanding options granted to employees pursuant to an employee stock option scheme framed in accordance with the relevant Guidance Note or Accounting Standards.○ The market makers offer buy and sell quotes for a minimum depth of three hundred specified securities and ensure that the bid-ask spread for their quotes does not. exceed ten per cent. if the conversion price of such convertible debt instruments was determined and disclosed in the prospectus of the earlier issue of convertible debt instruments. equity shares may be offered for sale to public if such equity shares have been held by the sellers for a period of at least one year prior to the filing of draft offer document with the Board in accordance with sub regulation. 22 . 1956 and these regulations. (1) An issuer may make an initial public offer of convertible debt instruments without making a prior public issue of its equity shares and listing thereof. shall be at least five per cent. if any. the holding period of such convertible securities as well as that of resultant equity shares together shall be considered for the purpose of calculation of one year period referred in this sub-regulation: Provided further that the requirement of holding equity shares for a period of one year shall not apply: (a) In case of an offer for sale of specified securities of a government company or statutory authority or corporation or any special purpose vehicle set up and controlled by any one or more of them. (1) Subject to provisions of the Companies Act. (3) No issuer shall make an initial public offer if 12[as on the date of registering the prospectus with the Registrar of Companies] there are any outstanding convertible securities or any other right which would entitle any person any option to receive equity shares after the initial public offer: Provided that the provisions of this sub-regulation shall not apply to: (a) A public issue made during the currency of convertible debt instruments which were issued through an earlier initial public offer. which is engaged in infrastructure sector. ○ The inventory of the market makers. (1) Of regulation 6: Provided that in case equity shares received on conversion or exchange of fully paid-up compulsorily convertible securities including depository receipts are being offered for sale. as on the date of allotment of the specified securities. issued by the Institute of Chartered Accountants of India in this regard. at any time. of the proposed issue.

• The increase in the capital: An IPO allows a company to raise funds for utilizing in various corporate operational purposes like acquisitions. in lieu of business and invested capital which had been in existence for a period of more than one year prior to such approval. without dividing the authority as in case of partnership. This is extremely helpful as the company provides the employees with stock incentive packages and the investors are provided with the option of trading their shares for a price. (1) No issuer shall make an initial public offer. ADVANTAGES OF IPO IPO has a number of advantages. Increased wealth: The founders of the companies have an affinity towards IPO as it can increase the wealth of the company. mergers. This works in favor of the company as it is helpful in case the company is looking for acquisition or merger.(b) If the specified securities offered for sale were acquired pursuant to any scheme approved by a High Court under sections 391-394 of the Companies Act. the issuer has obtained grading for the initial public offer from at least one credit rating agency registered with the Board. • • 23 . research and development. 1956. working capital. It also provides the share holders of the company with the present value of the shares. IPO helps the company to create a public awareness about the company as these public offerings generate publicity by inducing their products to various investors. Liquidity: The shares once traded have an assigned market value and can be resold. expanding plant and equipment and marketing. unless as on the date of registering prospectus or red herring prospectus with the Registrar of Companies. Valuation: The public trading of the shares determines a value for the company and sets a standard.

the nominated adviser must undertake sufficient due diligence. Admission documents relating to a public offer in the UK will require the approval of the FSA. disposals and related party transactions Admission documents not pre-vetted by the Pre-vetting of admission documents by the FSA Exchange. advise the company of its primary or secondary market disclosure requirements and liaise with the Exchange and the company’s other advisers. The admission document requirements are based on the FSA (Financial Service Authority) Prospectus Rules requirements with certain (optional) exclusions. Key differences between AIM and the Main Market AIM No minimum number of shares to be in public hands Main Market Minimum 25% shares in public hands No trading record requirement (minimum three Normally three year trading record required years if available) Prior shareholder approval required only for Prior shareholder approval required for significant reverse takeovers and fundamental disposals transactions. The FSA will vet an AIM admission document where it is also a prospectus under the Prospectus Directive Nominated adviser and broker required at all Sponsors needed for new applicants and significant times transactions 24 .LONDON STOCK EXCHANGE Regulatory environment AIM companies are governed by the AIM Rules for Companies which set out the requirements and guidance for companies quoted or wishing to be quoted on AIM. including significant acquisitions. As required by the AIM Rules for Nominated Advisors. A nominated adviser must be retained at all times to advise and guide the directors and ensure that the company complies with the AIM Rules for Companies on an ongoing basis. Role of the nominated adviser The initial role of the nominated adviser is to ensure that the company is appropriate to be quoted on AIM and ensure that the AIM Rules are complied with on flotation.

preparation and planning Eligibility for admission continuing obligations/filing requirements General suitability and initial considerations Planning and good preparation are crucial to a successful flotation. being IFRS (or equivalent standards for non-EEA companies – see overleaf) Sufficient working capital for at least 12 months from the date of admission Adequate financial reporting procedures • • • • • 25 . unaudited interim financial information with comparatives is required  At a minimum. Appropriateness of the financial track record Quality of management information and financial reporting procedures Tax planning Legal housekeeping Management and employee incentives Preparation of a company website.000 Appropriate corporate governance measures.high standards are expected The decision to float Once you have decided to float you will need to critically appraise your existing business. These requirements may be analyzed into the following areas: General suitability . as Comply with Combined Code or explain why not agreed with the nominated adviser . Eligibility for admission A company must meet the eligibility requirements as set out in the AIM Rules. the last two years of the financial information must be restated onto the basis to be applied in the issuers next annual accounts. identifying the extent to which it will meet the AIM admission requirements. The following are the key suitability issues that you will need to consider: Preparation of a well constructed. The main requirements are set out below: Main eligibility requirements Appointment and retention of a nominated adviser and broker* Production of an admission document Preparation of financial information for inclusion in the admission document  Three years of audited financial information (if available)  If the financial information is more than nine months old.No minimum market capitalization Minimum market capitalization of £700. attractive investor ‘story’ Establishing an experienced board of directors and management team corporate governance implications Suitability of existing capital and organization structure.

26 .* The nominated adviser and broker must be registered with the Exchange. See the London Stock Exchange website for a list of approved nominated advisers and brokers.

if made public. would result in a substantial movement in the share price must be notified without delay The annual accounts must be signed and published within six months of the year end Half-yearly reports must be published within three months of the period end and contain primary statements with comparatives. as a minimum Annual report and accounts Half-yearly reports (unaudited) 27 .Month 1 General • • • • • • • • • • • • Month 2 Month 3 Month 4 P A T H F I N D E R D A D A Y I M P A C T Appointment of key advisors Preparation of investor story General planning & preparation Business and financial due diligence Financial reporting procedures review Working capital review Financial information Legal due diligence Draft legal documents Admission document verification Drafting admission document Nominated advisor verification process • • • Pre-marketing Broker research Preparation of roadshow Reporting Accountants Legal Advisors Regulation and Documentati Marketing Announcement of possible flotation Continuing obligations and financial reporting The main continuing obligations and financial reporting requirements: Nominated adviser and broker Price sensitive information An Exchange approved nominated adviser and broker must be retained at all times New developments which.

a new class of securities is to be admitted or the transaction qualifies as a reverse takeover Lock-in arrangements Where a company's main activity is a business which has not been independent and revenue earning for at least two years. certain related parties and employees must not dispose of their shares for one year Website A website showing information on the business and all information made available to shareholders over the past 12 months must be maintained Example of the Alternative Structures Followed by Indian Companies on AIM Foreign Co with Indian assets Isle of Man Fund Model Isle of Man Issuance of GDRs Indian Co Promethean India Mauritius Eros International AIM Great Eastern Noida Toll Bridge Indian Company 28 .Significant transactions Reverse takeovers require re-admission to AIM including publication of an admission document and shareholder approval Disposals in a twelve month period exceeding 75% in any of the class tests set out in the AIM Rules require publication of a circular and shareholder approval An announcement is required for substantial transactions exceeding 10% of any of the class tests and outside the ordinary course of business and related party transactions exceeding 5% of any of the class tests Further issues An admission document will only be required where a prospectus is required under the Prospectus Rules.

29 .

073.79) depending on the market capitalization of the company on the – of • • • • • • • • • • • • • 30 .000 based on a conversion rate of £1= INR73. solicitors. broker. reporting accountants. business. track record and prospects Brief research analyst for preparation of pre-IPO research note Finalize the admission document • • Verification exercise– confirmation by the directors that all the statements of facts and of opinion in the admission document are correct Release preIPO research note Hold road shows with institutions and other potential investors Set size and price range having established investors' appetite Finalize all documentation • • • • Pricing and allocation on confirmation of the level investors' interest Closing Formal application for AIM admission submission to the London Stock Exchange of: Admission document in electronic form Completed application form NOMAD confirmation that the company has complied with the AIM Rules in connection with the admission application Payment of the AIM initial listing fee –  £6.PROCESS FOR JOINING AIM The AIM IPO process takes from start to finish on average six months and includes some key steps: Phase 1 Phase 2 Phase 3 Phase 4 Preparation (6-3 months prior to admission) Review and marketing preparation (12-6 Weeks prior (6-1 week(s))prior to admission) to admission Pricing and closing Offering (Week prior to admission) • Appoint and instruct advisory team in the UK nominated adviser ("NOMAD"). its history.750 (INR 449. registrars and public relations company Agree a timetable and any structuring issues Legal and financial due diligence on the company Accounting documents: – – – Long form accountant' s report Working capital report Short form accountant' s report • • • Valuation Marketing presentation so potential investors can familiarize themselves with the company.000 to INR  5.085 to £68.

and Specific requirements for an AIM company following admission such as the maintenance of a website with up-to-date management and financial information on the company and the posting to shareholders of the company's annual accounts within six months of the financial year end. REQUIREMENTS FOR AN AIM IPO The role of the NOMAD is critical to the IPO process as it is for the NOMAD to determine the company's suitability for an AIM admission. employees. These are comprehensive and wide ranging in scope and include: Detailed factual information about the company to be included in the admission document such as financial information. a summary of the company's constitutional documents and material contracts as well as details of directors. However. Additional rules must be complied with by investing companies and mining. • • • • 31 . before admission to AIM. Companies can be established trading businesses or at their start-up stage. The AIM Rules are published by the London Stock Exchange and set out the rules and responsibilities that an AIM company must comply with.AIM indices The main indices are: FTSE AIM 50 UK Index (UK domiciled only) FTSE AIM 100 Index (UK and international) FTSE AIM All-Share Index (UK and international) Each index has specific eligibility criteria relating to general liquidity and free float requirements. oil and gas companies wishing to join AIM. The NOMAD is responsible for the company's compliance with the AIM Rules for Companies (the "AIM Rules") on and following admission. major shareholders and board practices. a company must comply with the following: • • The company must be a public company (or equivalent) in order to be able to offer its shares to the public The securities to be admitted to trading must be freely transferable and must be eligible for electronic settlement to enable investors to pay for and receive their securities through a paperless settlement system known as CREST in the UK The company must have and must retain at all times a NOMAD and broker Published accounts must conform to International Accounting Standards. In some sectors. such as IT and biotechnology. companies come to the market at the pre-profit stage to enable them to fund the necessary research and development. There are no specific suitability criteria for companies wishing to join AIM.

The NOMAD will guide the company on its ongoing compliance with the AIM Rules. they will only be permitted to buy and sell shares at specific times significant acquisitions and changes to the business may require the prior approval of shareholders after admission Overall. (b) average of the weekly high and low of the closing prices of the related shares quoted on a stock exchange during the two weeks preceding the relevant date. The key considerations to bear in mind are: Increased disclosure and reporting requirements for the company Impact on management time during the IPO process and afterwards in fulfilling continuing obligations and managing investor relations Additional responsibilities and restrictions on directors.Other considerations An AIM company is required to comply with a number of ongoing obligations. 1956  Some important considerations: ○ Listing: Requires to be prior or simultaneously listed in India ○ Investors: OCBs and Indian residents (other than mutual funds) cannot subscribe ○ Issue Expenses: capped at 4% of the issue size ○ End-use: Proceeds cannot be used for investments in ‘stock market’ or ‘real estate’ ○ Pricing: not less than (a) Average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during the six months preceding the relevant date. An AIM company must also pay an annual listing fee of £4. GDR PROCESS  Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme. 2000 (SEBI DIP Guidelines)  Companies Act.79). the directors must be prepared for closer scrutiny of the company and greater accountability to shareholders once it is admitted to AIM.000 based on a conversion rate of £1= INR 73. 1993 as amended  from time to time  FDI Policy and sector specific guidelines  Listing Agreements  SEBI (Disclosure and Investor Protection) Guidelines. ○ Voting Rights: in line with companies act and applicable regulations in case of banking company ○ SEBI Takeover Code: not triggered on mere holding of GDRs ○ Dual Fungibility • • • • • 32 .925 (being approximately INR 363. For example.

Advantages of Fund Model: • Companies engaged in sector subject to end. • No ceiling on issue expenses.AIM FUND MODEL Mauritius Company has the option of getting registered as a Foreign Venture Capital Investor (FVCI) under the SEBI (FCVI) Regulations. 1961.use restrictions under GDR route can approach the fund route such as Real Estate Companies.       33 . 2000. which are generally applicable to purchase/sale of shares by a non-resident under the FEMA Regulations. FVCI not to be Promoter under DIP Guidelines. No Double Taxation: FVCI provided pass through status under Section 115U of the Income Tax Act. • No placement restrictions. Advantages of Registering as a FVCI No FIPB approval: Single window clearance from SEBI Exemption from Pricing Norms: No entry or exit pricing restrictions. No Lock-in for Pre-Issue share held by FVCI under the DIP guidelines in the case shares of VCU is proposed to be listed.marketability to diverse set of investors including OCBs.

• • • • • 34 . number of shares to be in the public hands or minimum market capitalization No minimum on funds raised (unless the company is an investing company – that is a company whose primary business is to invest its funds in the securities of other companies or the acquisition of a particular business . prior trading record.BENEFITS AND REASONS FOR WANTING TO JOIN AIM Indian companies have been attracted to AIM for its specific key which case it must raise at least £3 million) No requirement to have an office in the United Kingdom No restriction on the type of business or industry sector No securities regulator involvement in the Initial Public Offer ("IPO") process Ongoing regulation of AIM companies is set at a level intended to create and maintain investor confidence No need (under English law) to be listed in India (Indian law does require a listing in India before an overseas listing but it is possible to create a structure to avoid this requirement). which are: • • No minimum admission criteria in terms of company size.

Global Tele-Systems Ltd. An MBS market can help small HFCs with good origination capabilities and limited balance sheet strength in staying profitable and concentrate on the housing loan origination. Ashok Leyland Finance. the ABS market in India can hope to see a lot of activity in future. With NHB actively looking towards the development of a Secondary Mortgage Market (SMM) in the country [2]. In the Indian context. The transaction was rated AA. One of the first publicized structured finance transactions in India was the Rs. While the activity in the ABS market is picking up in India. Tata Finance was the sole investor in the pass through certificates issued by the SPV. Consumer Loan. transfer of secured assets as required for securitization. student loan. In April last year. issued India’s first MBS issuance in August 2000 *. the MBS market in India could soon overtake the other securitization transactions in the country. CMBS) As we discussed above. With favorable legislation and taxation regime. the MBS market in India is nascent . 1999). healthcare receivables and ticket receivables to even future asset receivables. IIDL raised finances on the BOLT (Build Operate Lease Transfer) model on the strength of its future cash flows from IPCL and limited support from L&T. however. Mortgage Backed Securities (MBS.National Housing Bank (NHB). The asset in question could vary from Auto Loan/Lease/Hire Purchase. in partnership with HDFC and LIC Housing Finance. 4. we split the securitization market into the following four broad areas: Asset Backed Securities (ABS) Asset backed Securities are the most general class of securitization transactions. the number of investors for securitized paper is very limited. The potential of MBS in India. MBS constitutes about 76% of the securitized debt market in the US. Kotak Mahindra and Magma Leasing have been securitizing their portfolio of auto loans to buyers like ICICI and Citibank over the past 2-3 years.09 billion non convertible debenture program by India Infrastructure Developers Ltd (IIDL).STRUCTURED FINANCE To analyze the potential of securitization India. an SPV set up for building and operating a 90 MW captive co-generation power plant for IPCL (March. In contrast. Companies like TELCO. The most important roadblocks for MBS in India are lack 35 . is huge. there are taxation and legal uncertainties with the securitization vehicle.(SO) by CRISIL. In India. ICICI has done several bilateral asset backed securitization deals including securitizing DOT (Department of Telegraph) receivables from Sterlite Industries and Usha Beltron. While many of the deals are bilateral portfolio buyouts. RMBS. can attract a stamp duty as high as 10% in some states precluding transaction possibilities. raised approximately USD 32 million by securitizing the future receivables of its consumer telecom business to an SPV named Integrated Call Management Centre. with several of the recent transactions rated by rating agencies like CRISIL and ICRA. ICICI has used the SPV structure * and placed the issuance privately to corporate investors and banks. Credit Card. In the absence of a Securitization Act. there has been moderate amount of activity on the Auto Loan securitization front.

The CDO market in India is. Asset Backed Commercial Paper (ABCP) Asset Backed Commercial Paper (ABCP) is usually issued by Special Purpose Entities (ABCP Conduits) set up and administered by banks to raise cheaper finances for their clients **. Creation of asset pool and its sale The originator/seller (of assets) creates a pool of assets and executes a legal true sale of the same to a special purpose vehicle (SPV). The taxation and accounting treatment for CDOs needs to be clarified. India’s securitization market may not be mature currently for instruments like ABCPs. An SPV in such cases is either a trust or a company. i. Credit Risk It must be made abundantly clear at the very outset that the accretions on the asset-backed security. as may be appropriate under applicable law. likely to grow slowly owing to its complexities.e. the investors will have a direct ownership interest in the underlying assets. CDOs can also help banks in restructuring their stressed assets. 2. management of which would usually rest with an independent board of directors. however. Issuance of the securitized paper This activity is usually performed by the SPV. Apart from legal requirements.. including insolvency. such cash flows would also be not influenced by events affecting the condition of the originator. interest. Design of the instrument however would be based on the nature of interest that investors would have on the asset pool. 4. CDOs can help banks to proactively manage their portfolio. In the case of pass-through issuances. ABCP conduits are usually ongoing concerns with new CP issuances taking out the previous ones. By the same argument. CLO. Collateralized Debt Obligations (CDO. are entirely dependent on the performance of the pooled assets. while pay-through are debt issued by the SPV secured by the assets and their cash flows. SECURITIZATION PROCESS Essential features of a securitization transaction comprise the following: 1. ICICI made an aborted attempt to do a CBO issuance in August 2000. amortization and redemption payments. Pool Selection 36 . 3. an active ABCP market requires a large number of investors who understand the instrument and have appetite.of mortgage foreclosure norms and the high incidence of stamp duty for assignment of mortgage necessary for securitization. setup to carry out a restricted set of activities. and will have nothing to do with the credit of the originator. CBO) In this era of bank consolidations.

etc. vintage. such as appointment of market markers. Often. legal. and credit points of view . Ideal selection would be a random choice among assets conforming only to cash flow or legal criteria. rate. 'Cherry-picking' to include only the highest quality assets in the pool should be consciously avoided.The process of selecting assets to build a securitization pool would take into careful consideration.). including payment servicing and managing relationship with the final obligors must be spelt out clearly through a contractual agreement with the entity that would perform those functions. In addition. substitution of eligible assets in the place of original assets that mature/prepay in order to maintain the level of asset cover would also be required. • Providing liquidity support to investors. 5. Rep. Initial proceeds from securities Initial cash purchases of securities Initial cash proceeds from securities Originator/ Sponsor/ Servicer Purchases credit enhancement Issuer Transfers loans on receivables Underwriter Issues securities Distributes securities Cash flows Structure Investors Credit Enhancer ADVANTAGES OF SECURITIZATION Provides credit enhancement for the asset pool. Obligors Remit principal and interest payments "Passes through" principal and interest payments Forwards principal and interest payments Trustee / Inv. Administration Formal delineation of duties and responsibilities relating to administration of securitized assets. minimum and maximum loan size. maturity and concentration limits (geographic. • Independent credit rating of the securitized paper from a well known credit rating agency. single-borrower. 37 . by a letter of credit ● Liquidity: Selling a portfolio results in availability in ready cash. such as type of asset. and. loan characteristics that are important from a cash flow. for example. the following features are often included as part of a securitization transaction: • Credit enhancement to support timely payments of interest and principal and to handle delinquencies. ● Raise cheaper funds: Experience in the US and Europe shows that Securitization is a cheaper form of raising finance for the originator than the traditional forms of debt financing.

residential mortgages. credit card receivables. 38 . which are not marketable in their original forms. lease/hire receivables. Transfer of Risks: Transfer of assets to a Special purpose Vehicle (SPV) results in transfer to all associated risks such as risk of default. are converted into marketable securities. currency risk and inherent risk.● Convert of Marketable Securities: Assets such as personal loan.

the deal count decreased by 11% to 88. Total deal count in Q1 2010 also increased by 35% to 88 deals. stability in the business environment and an impressive recovery in the Indian stock market. total announced deal value was $1.943 million. which exhibited higher investor confidence.DATA ANALYSIS PRIVATE EQUITY Private Equity Deal Flow in India After a turbulent 2009. despite the enormous growth in deal value on a quarter-on-quarter basis. For the quarter ended March 2010. up from 65 in Q1 2009. a jump of more than 185% from $675 million in Q1 2009. private equity investments in India displayed steady signs of recovery in the first quarter of 2010. Interestingly. This was helped by improved GDP numbers. down from 99 in Q4 2009. The latest quarter registered the highest value of deals since 2009. 39 . narrowing spreads and reduced volatility.

The median deal amount and the average value in Q1 ’10 increased to $10 million and $26 million respectively as the volume of larger deals (Particularly deals > $100million) increased.Total number of Venture Capital investments announced in Q1 2010 stands at 17 with an announced value of $117 million as against 23 deals at an announced value of $88 million in Q1 2009 and 37 deals amounting to $180 million in Q1 2008. 40 .

07 79 Q 1’ 08 68 Q 1’ 09 20 Q 1’ 10 12 0 120 2 315 3 161 18 20 24 25 18 13 18 36 38 48 20 46 4 7 23 25 4 9 1 2 6 9 2 4 0 2 6 15 1 4 Q 1’ 0 Q 1’ 0 Q1.5 Und er $5 Mn $5$25 Mn $25$50 Mn $5 0$100 Mn $100 Mn + 6 3 8 1 8 6 1 4 6 5 2 4 2 4 4 5 2 0 9 1 2 0 4 3 0 42 62 38 17 497 588 222 52 9 35 1 21 4 83 2 433 805 126 381 620 129 Undis close d Unde r $5 Mn $5$25 Mn $25$50 Mn $50$100 Mn $100 Mn + Q 1’ 05 25 Q 1’ 06 47 Q 1. 07 Q1 ’08 Q1 ’09 Q 1’ 10 41 .

The sector saw 1 deal at a value of $35 million in Q1 2010.SECTORAL BREAKDOWN Sector Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Information Technology Materials Telecommunicati ons Services Utilities Volume Value Average Deal Size 29 19 13 22 16 19 10 35 37 97 17 5 2 23 5 7 19 1 4 5 440 95 26 403 82 131 134 35 112 484 Utilities. which have significantly contributed to private equity deal value in Q1 2010. they accounted for more than 68% of total private equity deal value during the quarter. Coffee Day Resorts & Hotels Ltd. • • The Oil & Gas Exploration & Production sub-industry led this sector with 2 deals in Q1 2010. Energy accounted for 1. Ltd. Consumer Discretionary & Financials were the most targeted sectors for investment with deals worth $484 million. • • Materials were not popular among the investors.7% of deals in Q1 2010. and Asian Genco Pte Ltd. Other sectors contributing to the deal volume were Industrials & Utilities accounting for 7 and 5 deals each. 42 . The major private equity deals were investments in Star Health & Allied Insurance. Other sectors. • Invested capital decreased by 60% from the $324 million spent in Q4 2009. Tikona Digital Networks Pvt. Industrials accounted for 6. Together. Coastal Projects Pvt. The most active sectors in terms of deal volume was Financials with 23 deals in the quarter..3% of deals in Q1 2010.. are Information Technology and Industrials accounting for 14% of total deal value. • Deal volume in Q1 2010 decreased by 63%. Ltd. followed by Information Technology and Consumer Discretionary with 19 and 17 deals respectively. $440 million and $403 million respectively in Q1 2010.

Top 5 States by Deal Value States Volume Value ($ Mn) Maharashtra Karnataka 21 14 420 313 43 . • The sector accounted for 24. • Healthcare saw 5 deals at a value of $82 million in Q1 2010.• Consumer Discretionary accounted 22. • Utilities industry saw 5 deals at an announced value of $484 million in Q1. The sector accounted for 4.7% of deals in Q1 2010.8% of deals in Q1 2010. manufacturing clusters and consumer markets has brought to the fore key locations that have witnessed increased Private Equity investment. • Information Technology accounted for 6. Consumer Staples accounted for 4. Regional Outlook A detailed analysis on the existing and developing infrastructure. The sector accounted for 20. 2010. • • The Agricultural Products sub-industry led this sector with 4 deals in Q1 2010.9% of deals in Q1 2010. The sector accounted for 5.9% of deals in Q1 2010.6% of deals in Q1 2010.9% of deals in Q1 2010. for • • • The Financials sector saw 23 deals at a value of $403 million in Q1 2010. 7 • Telecommunication Services saw 4 deals at an announced value of $122 million.2% of deals in Q1 2010.

Andhra Pradesh Tamil Nadu Delhi 5 7 5 109 82 90 Mumbai Bangalore Hyderabad Chennai Delhi 21 14 4 6 5 420 313 102 75 90 Top 5 Cities by Investment Cities Volume Value ($ Mn) 44 .

Kohlberg Kravis Roberts & Co. Norwest Venture Partners and Everstone Capital invested $425 million (INR 19. Thacher & Bartlett acted as legal advisor to KKR and Dua Associates. Standard Chartered Private Equity Indivision India Partners.. Goldman Sachs Investment Management. Sequoia Capital India. Buyer Morgan Stanley Infrastructure Partners.33 billion) in Asian Genco Pte Ltd. New Silk Route Partners and Standard Chartered Private Equity acquired 20% stake in Bangalore based Coffee Day Resorts & Hotels Ltd... Deutsche Bank AG Value ($ Mn) 425 Coffee Day Resorts & Hotels Ltd. Star Health & Allied Insurance Co. Goldman Sachs. Oak Investment Partners. Asian Genco is an infrastructure company with investments in Indian power generation assets and engineering services businesses. Everstone Capital Kohlberg Kravis Roberts & Co. Sequoia Capital India. Tikona Digital Network Pvt. New Silk Route Partners. 200 107.OVERVIEW OF TOP DEALS IN INDIA Target Asia Genco Pte Ltd. Coastal Projects Pvt. Tatva Legal advised Coffee Day on the deal. The Carlyle Group Fidelity International Ltd. • Morgan Stanley Infrastructure Partners. and others invest $200 MN in Coffee Day Resorts & Hotels Ltd. The company will use the proceeds to increase the number of retail outlets and also add international locations to its portfolio in Austria. General Atlantic LLC . owns and operates hotels and resorts. Ltd. Ltd. for a price of $200 million (INR 9. Goldman Sachs ICICI Ventures Ltd. Ltd.21 billion). • • • • • • 45 . Pakistan and Dubai.1 100 55. Coffee Day Resorts & Hotels Ltd. Ltd. Wong Partnership LLP acted as legal advisor to Asian Genco Pte Ltd. on the deal.15 Morgan Stanley Infrastructure Partners and others invest $425 MN in Asian Genco Pte Ltd. • Kohlberg Kravis Roberts... Simpson. General Atlantic LLC. Baring Private Equity Asia. Norwest Venture Partners. a wholly owned subsidiary of Amalgamated Bean Coffee Trading Co. The company will use these funds for grow their power generation assets across India. AZB Partners.

MAPE Advisory Group acted as financial advisor to Star Health and Ernst & Young advised the investors on the deal. provides individual and group health insurance products in India. for a price of $100 million (INR 4. India Infoline Investment Services Pvt. Sequoia Capital India and Carlyle Group acquired 40% stake in Chennai based Star Health & Allied Insurance Co. Tikona Digital Networks designs and develops wireless broadband services for home and enterprise customers in India. Himachal Pradesh and several north-eastern states. • Deutsche Bank AG. Indivision India Partners and Oak India Investments acquired 70% stake in Mumbai based Tikona Digital Networks Pvt.5 billion). The company will use the funds to expand its network coverage to 50 cities by 2010 from 10 cities. Sun TV Network Ltd. IT applications and multimedia content services over any broadband or IP centric network. Ltd. Ltd. Nalanda India Fund The India Private Equity Fund. Ltd. Kerala. Sequoia Capital India. for a price of $107. and others invest $55 MN in Coastal Projects Pvt. Fidelity International Ltd. Tano India Private Equity Fund EXIT TYPE Buyback Buyback Open Market IPO M&A DEAL VALUE ($) 323 72 61 58 44 • • • 46 . Star Health & Allied Insurance Co. Exit of Top Private Equity in Q1’ 10 TARGET Aamby Valley Ltd.15 million (INR 2.5 billion). • Goldman Sachs Investment Partners.1 million (INR 5 billion). Ltd.Indivision India Partners and others invest $107 MN in Tikona Digital Networks Pvt. Ravin Cables Ltd. Baring Private Equity Asia acquired 16% stake in Hyderabad based Coastal Projects Pvt. Motilal Oswal Investment Advisors acted as the financial advisor to Coastal Projects on the deal. TDN provides edge voice. Karnataka. Oriental Global Tamarind Fund Pte Ltd. Ltd. is executing over 300 kms of tunnel work in Andhra Pradesh. ICICI Venture and others invest $100 MN in Star Health & Allied Insurance • • • • ICICI Venture Ltd.25 billion). BUYER Siva Ventures Ltd. Coastal Projects Pvt. The deal values the target company at $250 million (INR 11. Jubilant Foodworks Ltd. Fidelity International Ltd. Ltd.. The company will use the funds for the working capital purposes. for a price of $55. video. JP Morgan Partners Reliance India Power Fund. Ltd. Ltd.

which is ahead of financial services with an average exit valuation of $318. 37 companies were bought by foreign corporates (5.8 million.8X) and PE/VC firms acquired about 15 companies (7X).2 million. 16 through buyback (2.31 billion is expected to be raised in the coming months. And.7X) and 15 through IPO (4. IPOs can be an attractive vehicle to tap domestic as well as Foreign Institutional Investment. Given that SEBI has recently announced anchor investors to participate in this fund raising channel. a total of USD 3. 8-10x. 38% of exits were made at above $80 million valuation. About 39 companies were acquired by domestic corporates (2. As per the exit valuation. education sector stands at the top with an average of $367 million. and 10 were in the 4-6 X range. In comparison there were only 9 exits each in Q1’09. 70% exits generated under 4X returns. About 2-3 each exits were made in 6-8X. As per software sector leads with the higher number of exits and higher exit multiples. About 28 exits were made at below 2X returns.44 million in Q1.4X). which is the lowest across sectors. 60 exits were made through strategic sale (2. Additionally they provide a good exit option for most PE investors that have a short term. valuation distribution. it could make an exit valuation of an average of $28.Western Expressway Project in Mumbai 47 . engineering ($192 million) and retail ($190 million) also lead the average exit valuations.4X). 2010. IPO With several real estate players having submitted a red herring prospectus to SEBI. BPO/KPO ($229 million).to-medium term investment horizon.8X). 19 were below 2-4X range. Though During 2004-2009.There were 32 exits worth $824. 22 through secondary sale (9. About 17 exits were made in the $100-500 million range while about six exits were in the above $500-million range. 10-16X and above 16X return multiples.2X). DEALS IN INDIA Time Period 2007 2007 2008 2008 Investor Deutsche Bank and Other PE Players DE Shaw Symphony Capital Lehman Brothers Real Estate Partners Size USD Million 425 400 450 185 Investment Lodha Group SPV DLF Assets DLF Assets 50% Stake in Unitech.

educational institutions. Special Economic Zones (SEZ) and building hospitals. developing commercial real estate. They basic attraction of FDI is in hotel development. recreational facilities. hospitality. tourism. builders are going out of their way to be different and provide quality services. As the competition in the market is intense. 48 . SEZs in NCR Maytas Properties 60% stake in sale HBS Realtors 15% stake in Keystone Realtors SPV investment with Shobha Developers 15% stake in Akruti City SPV SPV with Parsvanath Deveoplers STRUCTURED FINANCE The boom and the relaxation in FDI are also attracting interest from foreign investors to invest in India and many are seen tying up with the local developers in expanding their business.2008 2008 2009 2009 2009 2009 2009 Citygroup property Investors Infinite India Investment Management IL&FS Investment Advisors Sun Apollo Purna Partners IL&FS Realty Partners Red Fort Capital 160 150 67 60 47 44 19 40% stake sale in BPTP Ltd. resorts. housing and construction projects. infrastructure projects regional & local level. built-up infrastructure. township development.

However.5B expected to be in technology. growth stage will get $295 million follow-on funding. late stage to get $986 million funding and buyout/ PIPE will get $1. The private equity and venture capital industry is likely to witness estimated investments worth $70-75 billion in 20102015 with existing growth rates. LONDON STOCK EXCHANGE India on London Stock Exchange. the figures would be $478 million in late stage and $274 million in buyout/ PIPE.OBSERVATION AND CONCLUSIONS PRIVATE EQUITY The continuous growth over the years in the private equity has led to an increased expectation. with proactive encouragement and incentives from the government. Retail sector. $1. 2010-2015. a capital of $40 billion was invested in PE funds.e. against $450 million investment so far. Education has a $2 billion potential against $300 million invested so far. In 2015.39 billion funding. It is in the significant stage of attracting investments with competition with its neighbouring countries like China. As per the estimate. of which $7. India is poised to attract higher investments in private equity which may be about $70-75 Billion in coming five years i. will see $2 billion worth investments in next 5 years. 660 companies are likely to attract $22 billion worth follow-on funding in 20102015. $10B of the above investment likely to be Venture Capital.38 billion in buyout/ PIPE in 2010. a $100- billion investment target is possible during this period. • • • • The major highlights of above amount is expected to be: $22B for follow-up funding of current PE-funded companies (660 of the 1800 funded companies).Aim 49 .2 billion in late stage and $1. About $238 million worth follow-on funding will take place in growth stage. $30B in new investments in 2000 companies in top 4 sectors. In 2011. During 2004-2009. $20B-25B in new investments in other sectors.

But there are other sectors worth watching. To begin with. a project to build luxury hotels. at a cost of £10. Tata Steel’s $500 million issue in 2009 was the largest global depository receipt (GDR) listing.particularly as tier-two shopping centres have no rivals so far. West Pioneer Properties West Pioneer Properties floated on Aim in late 2006. And the company's $45m Aim placing in • 50 .is comparatively small. It has acquired a 5 per cent stake in a major highway developer. As many as 66 Indian or India-focused companies are currently part of LSE’s markets.and possibly spectacular . companies such as Vedanta. on weekdays. For instance. at the moment. four Indian companies were at various stages of listing in the summer of 2008. and a further project to build hotels in the grounds of hospitals.l9m. So far.returns. Since September last year. 10 per cent of a company redeveloping a township in Thane. the type of Indian company that has floated on Aim is quite narrow. We like the following companies. for example. and has agreed outline lease terms with prospective retailers including Big Bazaar. a large stake for a similar price in a similar venture in Mumbai.middle-class Indians . are half those in the bigger cities. Noida Toll Bridge Another candidate for an Indian infrastructure portfolio is Noida Toll Bridge. own and operate "consumer-centric" shopping centres in "tier-two cities" outside the main metropolises such as Delhi and Mumbai. for £4. more than 80. a major Indian department store. There are plenty of property ventures. the key market for West Pioneer . which has garnered the largest Indian premium listing in London with a $1 billion issue in 2003. But it's also a market growing at between 10m and 20m a year . which means it is much easier to find tenants and customers . This toll concession should run until 2070. and McDonald's. are success stories in this domain. the popular investment play is backing infrastructure projects. Even when the global financial scene was in a shambles as a result of the slowdown. which have populations of between one and five million.75m. A total of £250m was raised when the company's shares were admitted to Aim in April 2006.• • The current scenario itself waxes eloquent on the goals attained by the Indian players who have managed to get listed on the LSE. near Mumbai. 30 miles north-east of Mumbai. which controls a 553 meter-long bridge connecting the tier-two city of Noida to southern Delhi. the property and infrastructure investor has announced a blizzard of deals. too. Two among them would get listed this year.15bn. And the flow of deals has not stopped there.6 billion. Besides. and have together raised $5. The bridge opened in 2000 and. land prices in these tier-two cities. raising $50m to build. perhaps 60m out of a total population of 1. but as yet no manufacturers or food businesses. Trinity Capital is a good example. across the Yamuna river. with cars paying 18 rupees each way. West Pioneer has nearly completed half a shopping mall in Kaylan. Right now. It has also taken a strategic stake in a shipyard near Mumbai. And. which should produce steady . plus sizeable stakes in an internet technology park.000 vehicles cross it.and Trinity Capital Another feature of Indian companies on Aim is that they don't hang around.

Eros International Plc. Great Eastern Energy Great Eastern Energy is spending $150m drilling 100 coal-bed methane wells in its 210 sq km concession. situated on the Raniganj coalfields in West Bengal. Eredene Capital Plc. To date. 23 wells have been drilled down to 1. The India Film Company Tata Steel Year December 2005 March 2006 April 2005 June 2005 July 2006 November 2006 December 2006 April 2006 May 2006 August 2006 November 2006 December 2006 December 2006 February 2007 March 2007 March 2007 April 2007 June 2007 July 2009 Amount £19 million (shares) $50 million (GDRs) £14 million £15 million £27 million £31 million $40 million £250 million £57 million $100 million £207 million £383 million £360 million £138 million $60 million $65 million $100 million $110 million $500 million As many as 66 Indian or India-focused companies are currently part of LSE’s markets. 51 .6 billion. companies such as Vedanta. well before rivals were interested. It received its exploration permits in 2001. are success stories in this domain. For instance. India Hospitality Group Ishaan Real Estate Hirco Plc. Company Great Eastern Energy Corporation Noida Toll Bridge Company Ltd.000 meters. which has garnered the largest Indian premium listing in London with a $1 billion issue in 2003. Dev Property Development Plc. Western Pioneer Properties Ltd. and have together raised $5. The royalty it will pay on gas output will be just 12. So the next move is to replace the remaining 14-year money. KSK Power Ventures Plc. Naya Bharat Property Company Plc.March 2006 paid off some expensive debt. Evolvence India Plc. Platinum Mining Corporation of India Hardy Oil & Gas Plc.5 per cent. Unitech Corporate Park Plc. and gas will be supplied to industries up to 50km away. with 20 to 30-year money. Trinity Capital Plc. while more recent entrants will be paying 50-70 per cent. Promethean India Plc.

and Residential Mortgage-Backed Securitization. Consequently. much lower than the 68% share it had during the previous year. 52 . towards the fiscal year-end. micro finance loans and small ticket Housing Loans—from other lenders. 41% of that in FY2009. Of the 117 ABS and RMBS transactions executed in FY2010. banks falling short of the target for priority sector loan assets seek to acquire qualifying loan portfolios—such as loans to Small Road Transport Operators.4 billion. There have been no multi-credit Collateralized Debt Obligation (CDO) transactions since FY2005. witnessed a slowdown in FY2010—mainly a fallout of fresh regulatory guidelines—and accounted for only 34% of the total volume. Single corporate loan securitizations [also known as Single Loan Collateralized Loan Obligations (CLOs) or Loan Sell-Offs(LSOs)]. the largest product class in FY2009. 103 transactions pertained to direct assignment of retail loan receivables wherein no specific instrument was issued even as the assignee payouts were rated.Besides. In 2009. cumulatively) reported a 61% improvement in volume during FY2010 over the previous fiscal. ABS. STRUCTURED FINANCE Issuance volume in the Indian structured finance (SF) market shrunk further by 22% in FY20101 over the previous fiscal to Rs. various other Small and Medium Enterprises (SMEs).6 billion far since their listing. Indian companies raised London securities worth $1. 66 Indian or India-focused companies are listed on LSE. or ABS. a number of bilateral deals got rated. Securitization of individual corporate loans in FY2010 was less than half that in FY2009. 426 billion. 153 billion. Collectively. the product class traditionally dominant till FY2008 accounted for around 49% of the total volume in FY2010. Consequently. or RMBS. RMBS accounted for the bulk of the balance 15% volume. Such portfolios are normally sourced from NBFCs since the PSL guidelines do not apply to the NBFC sector. All banks need to have a certain portion5 (stipulated by the RBI) of their advances in the “priority sector” as at the end of the financial year. Nevertheless. in continuation of the trend observed during the previous year. they have raised $5. LSOs amounted to Rs. Tata Steel’s $500 million issue in 2009 was the largest global depository receipt (GDR) listing. In FY2010. LSO’s share in the total securitization activity dipped to around 36% in FY2010. At present. securitization of retail assets ((both AssetBacked Securitization. In FY2010.

com 53 .vccircle.financeasia.economictimes.legallyindia.indiape.REFERENCES www.aspx www.