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INITIAL PUBLIC OFFER

(IPO)
Presented By :
Gaurav Kumar Mishra
Deep Chatterjee
Amit Kumar
Kunal Vohra
Manish Shukla

CONTENTS
Classification of Issues
Primary Market / New issue market
Placement of issue
Offer through prospectus
Offer for sale
Private placement
Rights issue
Book building
Red herring prospectus
Pricing of issue
Intermediaries to issue
Lead Manager
Registrar
Bankers to issue
Underwriters
Green Shoe Option
Reliance IPO
Ashoka Buildcon

CLASSIFICATION OF ISSUES
Issues
Public

Rights

Initial Public
Offering (IPO)
Fresh
Issue

Preferential

Follow on Public
Offering (FPO)

Offer for
Sale

Fresh
Issue

Offer for
Sale

PRIMARY MARKETS OR NEW


ISSUE MARKET
Primary markets - include all types of securities
- being sold for the first time

After being offered in the primary market, it


becomes part of the secondary market

Primary market offered consist of


(1) FPOs, new offerings of listed companies that have
sold securities to the public before, and
(2) IPOs, where an unlisted company is selling
securities to the public for the first time

BASIC KEY CONCEPT


Book Building

Refers to the process used in IPO for efficient price


discovery
It is a mechanism where,during the period IPO is
open,bids are collected from investor at various
prices which are above or equal the floor price.The
offer price is determined after the bid closing date
The spread between the floor and the cap of the
price band shall not be more than 20%. The cap
should not be more than 120% of the floor price.
Price is finalized by the book runner and the issuer
company

Issue Price
Price Band
Floor Price
Cut Off Price
Prospectus
Draft offer document

Abridged Prospectus
Lock-in
Listing of securities
Listing Agreements
De-listing of securities

PLACEMENT OF THE ISSUE


Initial issues are floated
1. Through prospectus
2. Bought out deals/offer for sale
3. Private placement
4. Right issue
5. Book building

OFFER THROUGH PROSPECTUS


Invites offers for subscription or purchase of any shares or
debentures from the public
The salient features of the prospectus are
1. General Information about company
2. Capital structure of the company
3. Terms of the present issue
4. Particulars of the Issue - issue-opening, closing and earliest
closing date of the issue
5. Company Management and Project
6. Details of the outstanding litigations
7. Management perception of risk factors
8. Justification of the issue premium
9. Financial Information - cost of the project, projected earnings

OFFER FOR SALE


Promoter places his shares with an investment banker
(bought out dealer or sponsor) who offer it to the
public at a later date
Promoter

Investment Banker

Public

Hold on period is 70 days to more than a year


Bought out dealer decides the price after analyzing
the viability, the gestation period, promoters
background and future projections
Boughs out dealer sheds the shares at a premium to
the public

Contd.
Advantages for the issuing company
helps the promoters to realize the funds without any loss of
time
the cost of raising funds is reduced - For issuing share cost as
high as 10 percent of the cost of the project
helps the new entrepreneurs, not familiar with the capital
market, to raise adequate capital from the market.
a company with no track record of projects, public issues at a
premium may pose problems
possess low risk to investors since the sponsors have already
held the shares for a certain period
Disadvantage
sell at a hefty premium, manipulation of the results, insider
trading and price rigging

PRICING OF ISSUE
Prior to 1992, governed by Controller of Capital Issues Act 1947
Fixation of a fair price on the basis of the net asset value per
share
Era of free pricing in 1992; SEBI does not play any role in price
fixation
Issuer in consultation with Merchant Banker shall decide the
price
FIXED PRICE - company and LM fix a price
PRICE DISCOVERY THROUGH BOOK BUILDING - company
and LM stipulate a floor price or a price band and leave it to
market forces to determine the final price
At premium Companies are permitted to price their issues at
premium
At par value In certain cases companies are not permitted to
fix their issue prices at premium

INTERMEDIATRIES TO ISSUE
Intermediaries to an issue are:
Merchant Bankers to the issue or Book Running Lead Managers
(BRLM)
Registrars to the issue
Bankers to the issue
Auditors of the company
Underwriters to the issue
Solicitors
Advertising agencies
Financial institutions
Government/ statutory agencies

UNDERWRITERS
Underwriting means they will subscribe to the balance shares if
all the shares offered at the IPO are not picked up
Could be a banker, broker, merchant bankeror financial
institution
Insurance against the possibility of inadequate subscription
Done for a commission
The aspects considered before appointing are
(a) experience in the primary market
(b) past underwriting performance and default
(c) outstanding underwriting commitment
(d) the network of investor clientele of the underwriter and
(e) his overall reputation

Green-shoe Option
An option of allocating shares in excess of the shares included in
the public issue
Post-listing price stabilizing mechanism for a period not
exceeding 30 days through a Stabilizing Agent
Issue would be over allotted to the extent of a maximum of 15%
of the issue size
Provides an investor more probability of getting shares
Post listing price may show relatively more stability as compared
to market.

Qualified Institutional Buyer


(QIBs)
Institutional investors who are perceived to possess expertise
and the financial muscle to evaluate and invest in the capital
markets
QIBs Shall Be:
Scheduled Commercial Bank
Mutual Funds
Provident Fund with Min. Corpus of Rs. 25 Crore
Pension Fund with min. Corpus of Rs. 25 Crore
Insurance Companies registered with IRDA
Foreign Institutional Investors registered with SEBI
Venture Capital Fund registered with SEBI
State Industrial Development Corporation

Reliance Power IPO


Issue Open On

15th January 2008

Issue Close On

18th January 2008

Price Band

Rs 405-450 Per Share

Face Value

Rs 10 Per Share

Bid Lot

15 Equity Shares

Issue Size

260,000,000 Shares

Retail Size

68,400,000 Shares

Pre Issue Eq Capital

Rs 20,000 Million

Post Issue Eq Capital

Rs 22,600 Million

Detail about Reliance IPO

Reliance IPO Failure


Heavily hyped & over subscribed by over 15 times
NTPC having capacity of 20000KW is being traded at Rs.200/& new company is proposing a 25000KW after 3 years is being
offered at Rs. 450/- on an IPO
People thought it will touch Rs. 800 on the day of listing & they
will earn huge profits by selling it
But forget the logic of stock market if everyone will sell shares,
then stock price always go down

Ashoka Buildcon
Price band fixed between Rs.297 and Rs.324
Wants to raise Rs. 225 Crore from the this IPO
Issue opens on 24/09/2010 and closes on 28/09/2010
It has been subscribed 1.5 times so far, as per NSE website
Received bids for 93.53 lacs equity shares against issue size of
62.19 lacs shares (Excluding 12.43 lacs shares of QIBs)
QIBs buy 12.43 lacs shares at Rs. 324 on 23/09/2010

THANK YOU