IPO PROCESS and Role of MERCHANT BANKER

SEBI(Merchant Bankers)Regulations,1992 defines ‘merchant Banker ‘ –

person engaged in the business of Issue
management-selling/buying/subscribing to securities or acting as
manager/consultant/advisor with respect to such issue management.

UNDERWRITING
• Issuer to enter into underwriting agreement with lead manager and
syndicate members indicating number of specified securities which
they shall subscribe in the event of under subscription
DUE DILIGENCE(DD)
• Exercise DD and satisfy about all aspects of the issue including adequacy
of disclosure in the draft/ offer document-to make sure framework by
SEBI is complied and implemented SUCH AS
-checking whether issuer is eligible /not to make an IPO(minimum
tangible assets, net worth limit)
-Issuer made all material disclosure in draft offer docs
-min promoter contribution requirement fulfilled
-Mandatory to submit DD certificate to SEBI
APPOINTMENT OF INTERMEDIARIES
• SEBI Issue of Capital and Disclosure Requirements(ICDR) Regulations-
imposes duty on issuer to appoint merchant banker and other
intermediaries with MB consultation (compliance officers, underwriters
etc.)
FILING DRAFT OFFER DOCUMENT ALONGWITH REQUISITE DOCUMENT
• Due diligence certificate(COMPLIANCE with Companies Act, Securities
Contract Regulation Act, SEBI Act, Stock exchange guidelines)
• MoU between issuer and merchant banker
• If more than one merchant banker-then
rights/obligations/responsibilities of each to be demarcated and filed

MAKING PUBLIC THE OFFER DOCUMENT AND ADVERTISEMENT OF

THE ISSUE
• Draft offer to be filed with SEBI and Stock exchange and made public
for comments by hosting on their websites for a period at least 21
days from the date of filing.
MAKING PUBLIC THE OFFER DOCUMENT AND ADVERTISEMENT OF
THE ISSUE
• Draft offer to be filed with SEBI and Stock exchange and made public
for comments by hosting on their websites for a period at least 21
days from the date of filing
• Within 2 days of filing draft offer document , public announcement in
one English newspaper, one hindi , one regional(R.O of co.) disclosing
draft offer document filing and inviting comments
• After expiry of period stipulated ,file details of comments with Board
received by issuer or MB and changes if any
PRICING and PRICE BAND
Valuation of the company and how much is to be diluted
Type of Issue-fixed price or book built issue
In case of fixed price issue-mention the price in offer document
In case of book built issue- floor price or price band
Cap on price band-120% of floor price

OPENING OF THE ISSUE

Issue shall be opened after at least 3 working days from the date of
registering RH prospectus in book built issue and prospectus in case
of fixed price issue with ROC
MINIMUM SUBSCRIPTION
Min subscription shall be atleast 90% of the offer
In the event of non receipt of minimum subscription ,application
money to be refunded within 15 days from the closure of the issue

PERIOD OF SUSCRIPTION
IPO to be kept open for atleast 3 working days and not more that 10
working days
In case of revision in price band – issuer shall extend bidding period
for minimum 3 working days, subject to 10 working days max.
APPLICATION AND MINIMUM APPLICATION VALUE
Issuer to stipulate in offer document minimum application size i.e
number of specified securities falling within the range of Rs 10000/--Rs
15000/-

ALLOTMENT quota –
Allotment to Retail individual investor shall not be let than min. bid
lot; remaining available shares be allotted on proportionate basis
Issuer not to make allotment in excess of specified securities offered
through offer document except in case of oversubscription for the
purpose of rounding off.
Quota-(in case of fixed price issue)-Retail Investors-min 50%;balance to
QIB/HNI
Quota-(in case of book built) Retail investors-min 35%;Non institutional
investors-min 15% ,QIB-max.-50%

ALLOTMENT, REFUND AND PAYMENT OF INTEREST

• Issuer and lead manager to ensure specified securities are allotted
and/or application money refunded within period specified by the
Board
• If securities not allotted and application money not refunded/unblocked
,issuer shall pay interest at the rate of 15%pa to investors
 BOOK BUILDING
 SEBI Regulations define BB as -process by which demand for the
securities proposed to be issued by a body corporate is elicited and
built-up and
 the price for such securities is assessed for the determination of the
quantum of such securities to be issued
 in case of a public issue through the process of book-building, though
the total size of the issue is known, the number of shares is not
known.
 Why? Price at which shares will be allotted is not known, it’s
determined through the process of book-building only
The prospectus only mentions the price band [i.e., the lowest (floor
price) and the highest (maximum price)].
 As per SEBI Regulations, 2009 the maximum price cannot be more
than 20% of the floor price
bids are invited from the prospective investors and final price
determined (that is, the price at which the issue is likely to be fully
subscribed)
By dividing the total issue size by the price so determined, the
number of shares to be issued is arrived at.
Advantages of BOOK BUILDING
PROCESS
demand for security may be created and built-up
quantum of security to be issued may be determined with certain
degree of accuracy.
The price at which the issue is likely to be fully subscribed may be
ascertained
Regulations to be followed if securities issued
through book building process
• Compliance with Schedule XIII of SEBI Regulations,2018
LEAD MANAGERS
• issuer shall appoint one or more merchant banker(s) as lead
manager(s)
• their name(s) shall be disclosed in the draft offer document and the
offer document(s)
Issuer may appoint Syndicate member(s)
UNDERWRITING
 lead manager(s) shall compulsorily underwrite the issue and the
syndicate member(s) shall sub-underwrite with the lead manager(s).
 lead manager(s)/syndicate member(s) shall enter into
underwriting/sub-underwriting agreement on a date prior to filing of
the prospectus.
 details of the final underwriting arrangement indicating actual
numbers of shares underwritten shall be disclosed and printed in the
prospectus before it is registered with the ROC
 UNDERSUBSCRIPTION ---Shortfall to be made good by lead manager
Agreement with Stock exchanges
 Issuer shall enter-agreement with SE with facility of book building
through electronic bidding system.
 Agreement to specify rights, duties ,obligations of issuer ,SE and also
provide Dispute resolution mechanism
Appointment of stockbrokers as bidding/collection centres
 Lead manager/syndicate member to appoint stockbrokers-who are
registered with the Board
 For accepting bids and placing orders
 Paid commission by Issuer, shall not levy service fee on investors
Price not to be disclosed in the draft red herring prospectus
• Shall contain total issue size – expressed in terms of total amount to be
raised OR no. of specific securities to be issued
• Not contain the price of specified securities

Floor Price and price band

• Issuer may mention floor price and price band in RH prospectus
• If issuer opts not to disclose it, shall be disclosed at least 2 working days
before opening of the issue
• Names, editions of newspaper where announcement of FP-PB be made
• website address where announcement available
 In case of a price band-cap of price band should not be higher by
more than 20%
 Price band can be revised during bidding period i.e floor price can
move up/down by 20% of price disclosed in RH prospectus and cap
will be fixed accordingly
 If band revised ,bidding period disclosed in RH prospectus extended –
minimum 3 working days, s.t total bidding period not to exceed 10
working days.