Issues in Primary Capital Market:

• Initial Public Offer (IPO) – First Offer;

• Follow up Public Offer (FPO) – Subsequent Offer.

The IPO Process:
• The Preparatory steps:

– Appointment of intermediaries:

• Investment Bankers;
• Syndicate Members;
• Underwriters;
• Registrars to an issue;
• Share Transfer Agents;
• Bankers to an issue;
• Credit Rating Agency;
• Depositories;
• Legal Counsel and Auditors.
IPO - The Preparatory steps:

Investment Bankers – key responsibilities:

– Adviser to the issue;
– Coordinate the entire offer process;
– Appointment of other intermediaries;
– Managing the syndicate;
– Conducting of due diligence on disclosures in offer document
and publicity materials.
– Obtaining legal clearance for the offering;
– Obtaining observations and clearances form SEBI and Stock
exchanges;
– Coordinating the allotment and listing process
IPO - The Preparatory steps:

Syndicate Members – key responsibilities:

– Obtaining of bids from institutional and retail investors.
IPO - The Preparatory steps:

Underwriters – key responsibilities:

– Undertake to subscribe the portion of securities that are not subscribed during the offer.
IPO - The Preparatory steps:

Registrar to an issue– key responsibilities:

– Processing of IPO application forms;
– Coordination with bankers to the issue and investment bankers
to complete reconciliation of applications and to complete post
issue work;
– Preparation of documents for allotment of shares and securing
of approval for listing;
– Processing of data for refund and for transfer of securities in
the Demat form to allottees.
IPO - The Preparatory steps:

Share Transfer Agents– key responsibilities:

– Maintenance of the records of holder of securities issued by a
company;
– Facilitate transfer of shares between existing holders and new buyers;
– Redemption of securities.
IPO - The Preparatory steps:

Bankers to an issue – key responsibilities:

– Collection of IPO application forms along with money;
– Delivery of application forms along with detailed schedules;
– Refund of money in case of partly or rejected applications;
– Post issue reconciliation.
IPO - The Preparatory steps:

Credit Rating Agency – key responsibilities:

– To grade the IPO offer.
– Rating Agencies registered with SEBI:
– Credit Rating Information Services of India Limited (CRISIL);
– Investment Information and Credit Rating Agency of India Limited (ICRA);
– Credit Analysis and Research Limited (CARE);
– Fitch Ratings India Private Limited;
– Brickwork Ratings India Private Limited.
IPO - The Preparatory steps:

Legal Counsel and Auditors – key responsibilities:

– Conducting of due diligence;
– Drafting of certain sections of the offer document;
– Providing of legal opinion to the issuer relating to various compliance
matters;
– Assisting in the closing of the issue.
A Quick view on the preparatory steps to IPO:

Intermediaries
Name Functions
Investment Banker Lead company thro IPO
Registrar to an issue Transfer of Securities
Banker Custodian of funds
Credit Rating Agency Grading of IPO
Depository/DP Demat/Custodian of
securities
Intermediate Stage – Filing of Draft Red Herring Prospectus:

Steps to be taken by a issuing company prior to filing of RHP:

– Finalisation of size and composition of the issue;
– Obtaining of authorisation to float a public issue from BOD’s and
subsequently from shareholders;
– Last five years accounts are recast and audited as per SEBI guidelines;
– Obtaining of FIPB and RBI approval for issuing and transfer of securities
to NRI/FIIs/FVCIs;
– Amendment in Memorandum and Articles of Association to allow a
company seek listing;
– Obtaining of in-principle approval from the stock exchange before SEBI
observations on DRHP are received;
– BRLM to conduct due diligence on all pertinent matters;
Disclosures in the Draft Red Herring Prospectus:

– Financials,
– Objects of the issue,
– Reasons for raising money, the way money is proposed to be
spent and the return expected on the money,
– Project details,
– Details of promoters and management,
– Outstanding Litigations against the company and Directors,
– Auditors reports,
– Management discussion and analysis of financial
performance,
– Related party transactions and risk factors;
– Details of the Compliance Officer appointed for the issue.
Post DRHP filing with SEBI:

– Filing of DRHP with SE’s;

– Signing of agreements with Investment Bankers,
Depositories and the Registrars;
– Obtaining of FIPB and RBI approvals;
– Obtaining of listing permission from the SE’s.
Filing of Red Herring Prospectus (RHP):

– SEBI examines the DRHP and communicates its

observations within 30 days;
– DRHP to be amended as per the observations of
SEBI and SE’s;
– BRLM should confirm compliance of the
observations and seek concurrence;
– Filing of RHP with ROC.
DRHP v/s RHP
DRHP: RHP:

– Final prospectus containing

– A prospectus containing all
price band and issue dates;
mandatory disclosures except
price of the proposed issue.

– Filed with SEBI and SE’s. – Filed with Registrar of

Companies before bid
opening date.
Pricing of an IPO:

• Fixed Price Public Issue:

• Public Issue through Book Building Route.

Revision of bid/Offer Price:

• Both the investor as well as issuer can revise bid/offer Price

during the time issue is open.

• For investors: initially three bids a different prices.

• For issuers: moving of Price Band 50% either of the sides

subject a 20% margin.
Issue open duration:

• For Fixed price public issues: 3‐10 working

days.

• For Book built public issues: 3‐7 working days

extendable by 3 days in case of a revision in the
price band.

• For Rights issues: 15‐30 days.

IPO Launch Stage: Opening of offer for bidding:

Book Building Process:

– A process by which demand for securities proposed to be issued by a corporate is

elicited and built up;

– Investors are allowed to bid a specific quantity (depending on category of investor)

within a given price band;

– The cap price should not be more than 1.2 time floor price.

– An Order Book reflecting indicative bids/prices is built to help investors revise

their bidding decisions.

– The closure of bid leads to discovery of the Price of IPO.

Syndicate:

• BRLM prepares a list of brokers for

submitting to SE so access to IPO bidding
platform is granted.
Types of Auction:
• Dutch Auction:

It is a competitive bidding technique where all shares are sold at

the lowest price. All the allotments are made at a single price.

• French Auction:

This is a bidding technique where allotments are made at bid

price.
Bidding through syndicate member in offline mode:

• Submitting of bids at a price within the set

price band with a minimum size.
Opening of offer for bidding through online mode:

NSE’s NEAT – IPO:

– A fully automated screen based bidding system called NEAT IPO that
enables trading members to enter bids directly from their offices
through a sophisticated telecommunication network.

Advantages:
– offers a nation wide bidding facility in securities;

– provides a fair, efficient & transparent method for collecting bids

using latest electronic trading systems;

– Costs involved in the issue are far less than those in a normal IPO.
Pre-final Stage: Closure of IPO
• After completion of bidding, IPO is finally closed;

• Finalisation of issue price and allotment process;

• Updating of prospectus with market data, audited results;

• Acceptance of letters of underwriting by BOD’s;

• Approval, signing and authorisation of prospectus with ROC;

• Filing of listing application with SE’s;

• Authorisation of opening of bank accounts with bankers;

• Filing of prospectus with ROC after pricing and inclusion of material contracts and documents;

• Finally, allotment and transfer of shares to respective depository accounts of shareholders;

• Listing and subsequent opening of shares for trading.

Listing of an IPO offer:

• In book built public issue the listing of shares

will be done within 3 weeks after the closure
of the issue.

• In case of fixed price public issue, it will be

done within 37 days after closure of the issue.
A Quick view on the overall IPO Process:

IPO Process
Name Functions

Decision to issue shares Issuer in consultation with BOD

Appointment of intermediaries
Draft Red Herring Prospectus
Agreements to finalise
and shareholders
Issuer subject to approval of
BOD’s
Investment bankers in consultation
with issuer and legal advisor
Issuer with Intermediaries

Opening of Bid Issuer, Investment banker and

banker
Offer Closure Issuer, Investment banker and
banker
Allotment of securities Issuer, Investment banker,
Registrar and DP
Refund of money Issuer, Investment Banker and
Banker
Application in an IPO:
IPO Application Forms are available with:
– Stalls outside the stock exchange;
– Brokers and sub-brokers;
– Lead Managers;
– Bank Branches of Banker to the Issue;
– Investment consultants;
– Equity issuing Company’s website;
– Website of the ROC or SE’s.
Submitting of IPO application form:

• Filling of requisite particulars.

• Remitting of IPO application amount to collecting bank or authorisation of ASBA

instructions.

• A bid within a notified price range with the number of shares to be made, alternatively a
retail investor can bid at cut off price.

• A investor can bid with three options at the time of bidding, i.e. he can mention three
combinations of price and quantity preferences in the same bidding form.

• After a bid is submitted, it is uploaded to the electronic platform of the stock exchange.

• Order book of the SE is made available on the trading terminals.

• A Retail investor can revise his bid any time before closure of the issue.
ASBA:
Application Supported by Blocked Amount:
– Facility for RI’s who bid at cut-off price.
– Investor not required to pay any amount at the time of
application.
– Investor authorises his banker to block an equivalent amount
in his account.
– Amount is debited only when allotment is made in favour of
the investor.
– It doesn’t involve any refund.
– Till the allotment is made, investor earns interest on the money
lying in the account.
Allotment Process:
• Allotments of shares are made within 15 days from the date of
the closure of issue.

• An applicant investor will receive credits in his Demat account

within a period of 15 days from the date of closure of issue.

• Similarly, balance amount is refunded to the applicant both in

case full, partial, or no allotment within 15 days from the date of
the closure of issue.

• Incase of delay, an applicant can seek resolution from the

Registrar mentioned on the bid application form.
Basis of Allocation:
Retail individual investors, Non-institutional
investors, Qualified institutional buyers:

35:15:50

In certain cases the allocation for QIB’s is 60%,

RII’s 30% and NII’s 10%.
Recap:

• IPO Preparatory Stage: Appointment of Intermediaries;

• IPO intermediate Stage: Preparation, Filing and Approval of Prospectus;

• IPO Launch Stage: Book Building Phase;

• IPO Final Stage: Allotments, Refunds and Listing of securities.