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Issue management

Activities/procedures
Ayush Singhal(3258)

INDIAN DEPOSITORY RECEIPT (IDRs) 

As per the definition given in the Companies (Issue of Indian Depository Receipts) Rules, 2004, IDR is an instrument in the form of a Depository Receipt created by the Indian depository in India against the underlying equity shares of the issuing company. In an IDR, foreign companies would issue shares, to an Indian Depository (say National Security Depository Limited ± NSDL), which would in turn issue depository receipts to investors in India. The actual shares underlying the IDRs would be held by an Overseas Custodian(foreign bank with indian branches), which shall authorise the Indian Depository to issue the IDRs

Eligibility of companies to issue IDRs 

it has net tangible assets of at least Indian Rupee three crore in each of the preceding three full years (of twelve months each), 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, the issuer has made firm commitments to utilise such excess monetary assets in its business or project; it has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least three out of the immediately preceding five years: Provided that extraordinary items shall not be considered for calculating distributable profits; it has a net worth of at least INR one crore in each of the preceding three full years (of twelve months each); 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;      

 

If it has changed its name within the last one year, at least fifty per cent. of the revenue for the preceding one full year has been earned by it from the activity indicated by the new name. Further, Clause 97 in Chapter X stipulates additional requirements from a foreign company intending to make an issue of IDRs: An issuing company making an issue of IDR shall also satisfy the following: the issuing company is listed in its home country; the issuing company is not prohibited to issue securities by any regulatory body; the issuing company has track record of compliance with securities market regulations in its home country.

IDR issue Process
According to SEBI guidelines, IDRs will be issued to Indian residents in the same way as domestic shares are issued. The issuer company will make a public offer in India, and residents can bid in exactly the same format and method as they bid for Indian shares. the company will file a draft red herring prospectus (DRHP), which will be examined by SEBI After SEBI gives its clearance, the company sets the issue dates and files the document with the Registrar of Companies.       

After getting the Registrar¶s registration ticket, the company can go ahead with marketing the issue. The issue will be kept open for a fixed number of days, and investors can submit their application forms at the bidding centers The investors will bid within the price band and the final price will be decided post the closure of the Issue. The receipts will be allotted to the investors in their demat account as is done for equity shares in any public issue

Facts  

NRIs or FIIs cannot purchase or possess IDRs unless special permission of the RBI is taken. The size of an IDR issue should not be less than Rs.50 crores.

Disclosures in a PROSPECTUS for IDRs 
        

Contents of the prospectus Disclaimer The issue General information Risk factors and management perception Dividend policy History of exchange rates in home country Foreign investment and exchange controls In home country Capital structure Financial information

ASBA  

A process developed by the Securities and Exchange Board Of India (SEBI) for applying to IPO. In ASBA, an IPO applicant's account doesn't get debited until shares are allotted to the person. ASBA is an application containing an authorization to block the application money in the bank account, for subscribing to an issue. If an investor is applying through ASBA, his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized, or the issue is withdrawn / failed.

History 
 

ASBA process for initial public offering was launched in September 2008. The 20 Micronsµ (India¶s largest producer of white minerals ) initial public offering (IPO) hit the markets on Sep. 8, 2008 and closed on Sep.11 2008. The offering was issued at a price of Rs 55 a share against the price band of Rs 50-Rs 55 a share. A total of 18,663,800 bids were received from the share offering of 435,063 leading to a subscription rate of upto 4.29 times. Out of 25,003 applications received from retail individual investors from the initial public offering (IPO) of 20 Microns, 2,426 applications (9.70%) were received through ASBA. 

ASBA process facilitates retail individual investors bidding at cut-off, with single option, to apply through Self Certified Syndicate Banks (SCSBs), in which the investors have bank accounts. SCSBs are those banks which satisfy the conditions laid by SEBI. SCSBs would accept the applications, verify the application, block the fund to the extent of bid payment amount, upload the details in the web based bidding system of NSE, unblock once basis of allotment is finalized and transfer the amount for allotted shares, to the issuer.

Still Cannot figure out what is ASBA?   

Application Support Blocked Amount (ASBA) is Bombay Stock Exchange's (BSE) initiative to constantly provide innovative and investor friendly services to obviate the need for refunds. It ensures that the investor¶s funds leave the bank account only upon allocation of shares in public issues. In other words, amount equivalent to shares applied for by the investors is retained only till the IPO process and would be debited from the account only on allotment of shares.  

Using this interface the banks, participating in the IPO process are able to upload the bids with respect to their customers, into the electronic book of BSE. The interface facilitates not only the controlling branch but also the designated branches of the banks to directly upload the bids into the electronic book at BSE. Also, by applying this process, the time length between the issue closing and its listing reduces considerably allowing investors to participate in other IPOs within the time range as well.

Let the numbers speak for themselves!  

Race back to early January, 2008 when Sensex at 21,000 levels, This was the time of two mega IPOs, Kishore Biyani led Future Capital Holdings, part of Future Group that subscribed and Anil Ambani led Reliance Power. The Initial Public Offering (IPO) of the future group hit the markets on Jan.11, 2008 with an offering of upto 6.42 million equity shares and a price band of Rs 705 ± Rs 765 a share. The issue price was capped at Rs 765 a share and 30% of the offering that is upto 1.93 million equity shares were reserved for retail investors. The same was oversubscribed upto 55 times. This means 105.93 million shares were subscribed by retail investors itself!  

Since ASBA is applicable only to retail investors at a cut-off price, let¶s assume all 30% of the retail investors applied for the shares through ASBA at the cut-off price of Rs 765 a share. At a cut-off price of Rs 765 a share, the total amount collected from retail investors itself would be a whopping figure of Rs 81,036.45 million  



The allotment of shares happened on Feb. 1, 2008. Thus the money was held with the banks for approximately 15 days after the closing date of issue on Jan. 16, 2008. Now during this period, if the money was invested in some way by banks on behalf of the company at a meager interest rate of 5% p.a, the bank could easily make upto Rs 166.52# million out of the retailers pocket. # 81,036.45* 0.05*(15/365) At this time, if ASBA was available, the same amount (Rs 166.52 million) could be invested elsewhere or even in the mega ADAG-led (Anil Dhirubhai Ambani Group) IPO

The ASBA edge«    



(i) The investor need not pay the application money by cheque rather the investor submits ASBA which accompanies an authorization to block the bank account to the extent of the application money. (ii) The investor does not have to bother about refunds, as in ASBA only that much money to the extent required for allotment of securities, is taken from the bank account only when his application is selected for allotment after the basis of allotment is finalized. (iii) The investor continues to earn interest on the application money as the same remains in the bank account, which is not the case in other modes of payment. (iv) The application form is simpler. (v) The investor deals with the known intermediary i.e. its own bank.

Self Certified Syndicate Banks under the ASBA process 
        

Corporation bank Union bank of india Hdfc bank State bank of india Icici bank ltd Idbi bank Axis bank Kotak mahindra bank State bank of bikaner and jaipur Bank of baroda

PROMOTER¶S CONTRIBUTION 

Public issue by unlisted companies: atlest 20% of the post issue capital.

Public issue by listed companies: (a)To the extent of 20% of the proposed issue (b)To ensure shareholdings to the extent of 20%of the post issue capital. 


Offer for sale by unlisted companies: the promoters¶ shareholding, after offer for sale, should be at least 20% of the post issue capital.

Exemptions   

Public issue by a company listed on the stock exchange for atlest three years and having a track record of dividend payment for atlest three immediately preceding years. Where no identifiable promoter/promoter group exists. Rights issue

Lock in requirements of promoters¶ contribution  

Lock in of minimum required contribution: in case of any issue of capital to the public, the minimum promoters¶ contribution would be locked in for a period of three years starting from the date of allotment in the proposed issue. Lock in of excess promoters¶ contribution: in case of public issue by an unlisted/listed company, excess promoters¶ contribution would be locked in for a period of one year.