Ipo Book Bldg

7/31/2019 Ipo Book Bldg.

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INITIAL PUBLIC OFFER


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EQUITY MARKET- TWO SEGMENTS

Primary Market- Market for new issuesof securities

Secondary Market- the market whereSecurities are traded after they are

initially offered in the Primary Market.

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PRIMARY MARKET - INTRODUCTION

Companies issue both equity and debtin the primary market.

Through the primary market issues,Governments and companies raise

funds for fresh investments andrepayment of previous loans taken fromthe public.

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Key Concepts

Public Issue

Initial/ Future Public offer

Fresh Issue or Offer for Sale

Right Issue

Preferential Allotment

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Book Building

Designed to ascertain demand

For the securities at various pricelevels

With in a price band

To facilitate discovery of the issue price

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PRE REQUISITES

No Prohibitory Order against the company.

Listing application to Stock Exchange.

Agreement with Depository.

No outstanding warrants/ partly paid shares.


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ELIGIBILITY NORMS

As per SEBI eligibility norms for unlisted companies forbringing public issues following is the eligibility criteria:

a) Net tangible assets of at least Rs 3 crore in each of thepreceding three full years of which not more than 50% isheld in monetary assets.

b) Distributable profits in at least three years out ofpreceding 5 years.( extra ordinary income shall not beincluded in distributable profit)

c) Net worth of at least Rs 1 crore in three years

d) If change in name, at least 50 per cent of revenue forpreceding one year should be from the new activity

e) The issue size should not exceed five times the pre-issuenet worth.


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ELIGIBILITY NORMS CONTD.

An unlisted company not complying with any of the

condition specified above may make IPO, only if it meetsboth the conditions (a) and (b) given below:

A) The issue is made through the book-building process,with at least 50% of the issue size being allotted to the

Qualified Institutional Buyers (QIBs), failing which the

full subscription monies shall be refunded.

OR

The project has at least 15% participation by financialinstitutions /scheduled Commercial banks. In addition tothis, at least 10% of the issue size shall be allotted to

QIBs, failing which the full Subscription monies shall be

refunded.


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ELIGIBILITY NORMS CONTD.

ANDB) The minimum post-issue face value capital of the company

shall be Rs. 10 crore.OR

There shall be compulsory market-making for at least 2years from the date Of listing of shares subject to the

following:.a) market makers undertake to offer buy and sell quotes for

minimum depth of 300 shares;b) market makers undertake to ensure that the bid ask spread

(difference between Quotations for the sale and purchase)for their quotes shall not at any time exceed 10%;

C) Allotment shall be to at least 1000 persons.


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SCRA REQUIREMENTS

Offer of atleast 10% of securities to public, subject to

minimum of 20 lakh securities, minimum size Rs. 100

crores, 60% allocation to QIB and issue through book

building method.

Or

Offer of atleast 25% securities to public.


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Sec 19 2 b

Minimum threshold level of Publicholding will be 25% for all listed

companies.Existing listed companies having lessthan 25% public holding have to reach

the minimum 25% level by an annualaddition of not less than 5% to publicholding.

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For new listing, if the post issue capitalof the company calculated at offer price

is more than Rs.4000 crore thecompany may be allowed to go publicwith 10% public shareholding and

comply with the 25% publicshareholding requirement by increasingits public shareholding by at least 5%

per annum.

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Public other than promoter/ promotergroup/ subsidiaries and associates of

the company

Public shareholding

means equityshares of the company held by publicand shall exclude shares which are held

by custodian against depository receiptsissued overseas.

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BOOK BUILDING

SEBI guidelines define book building as "a processundertaken by which a demand for the securitiesproposed to be issued by a body corporate is elicited andbuilt up and the price for the securities is assessed on thebasis of the bids obtained for the quantum of securities

offered for subscription by the issuer".

This process provides an opportunity to the market todiscover price for the securities on offer. In commonwords, book building is a method for public offer of equity

shares of a company. The process is named so because itrefers to collection of bids from investors, which is basedon a price range. The issue price is fixed after the closingdate of the bid.


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IPO PROCESS

Appointment of Merchant banker as a book runner.

Issuance of prospectus that does not mention the price,

but provides other details related to the issue size, the

company's operating area and business, the promoters

and future plans among other disclosures.

A particular time frame is also fixed as the bidding period.

The book runner builds an order book that collects bids

from various investors.

Potential investors are allowed to revise their bids at anytime during the bidding period.


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IPO PROCESS Contd.

At the end of bidding period the order book is

closed and the quantum of shares ordered and

the respective prices offered are known.

The calculation of final price is based on

demand at various prices and also involves

negotiations between those involved in the

issue.

The book runner and the company finalize the

pricing and allocation to each syndicate member

in consultation with the stock exchange.


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Book Building Mechanism

Appointment of Lead Merchant Banker as Book Runner

Deciding no. of securities to be issued and the price band for the orders

Appointment of Syndicate members with whom orders can be placed by investors

Placing of orders by investors with syndicate member.

Syndicate member inputs order into the electronic book called bidding (similar to open auction)

Book to remain open for minimum of three days.

Book Runner and the company conclude the final price and allocation of securities.

After the closure, the Book Runner, evaluate the bids on the basis of evaluationcriteriaprice aggression, Investor quality, earliness of bids.

Allocation of securities to successful bidders.

Refund of money to unsuccessful bidders and excess money to successful bidders.


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TYPES OF BOOK BUILDING

100% BOOK BUILDING

Atleast 15% shares to NII

Not more than 50%

shares to QIB

Atleast 35% shares to RII

75% BOOK BUILDING

Atleast 25% shares to

NQII in book built portion

Not more than 50%

shares to QIB in book

built portion

Atleast 25% shares to RII.


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S. No. Fixed Price Mechanism Book Building process

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Price of securities at which these areoffered/allotted is known in advanceto the investors.

Demand for the securities is knownonly after the closing of the issue.

Price is not known inadvance. Only the indicativerange is known.

Demand for the securities canbe known every day as the

book is built.


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FEATURES

Book building is resorted to by public companies for mega issues. The price of the security is not decided in advance. It is fixed on

the basis of offers by the potential investors. The issue in the book building is divided into i) Placement and (ii)

public issue portion. The facility of book building may be utilized for the placement

portion of the issue which can be reserved, as per SEBIguidelines, for firm allotment. Therefore, maximum 75% or 100 %of the issue may be offered for Book-building.

The public issue portion minimum 25% is separately identified asnet offer to the public.

The entire management of the book building process is done by

one of the lead merchant bankers, called a book runner. Thebook runner is nominated by the issuer company.

The underwriting of public issues through book building processis mandatory.

The securities are offered for the placement and to the public atthe same prices.


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BOOK BUILDING PROCESS

Syndicate members circulate copies of the draft offerdocument to their clients.

Investors who are desirous can obtain the copies fromthe registered office of the company, BRLM or syndicate

member.

The company and BRLM declare the bid opening andclosing date and publish the same in the leading dailies.

Investors who are interested in bidding to register their

bids through syndicate members.

The bids are submitted on the prescribed bid form only.

Bidding is made through electronically linked facility.


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BOOK BUILDING PROCESS Contd.

The applicants are required to deposit 100% amount ofthe shares to be acquired in an Escrow account on thebasis of bid price.

The offer placed shall be subject to audit trail.

At the end BRLM announces the final price andacceptance of the price by the acquirer.

The Book building is done in Demat mode.

Final book of demand showing results of allotment is tobe prepared by the book runner and kept open for SEBIinspection.


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PRICE DISCOVERY PROCESS

XYZ Ltd.Issue Size : 3000 shares

Price Band: Rs. 20 to 24 per share.

Bid Qty. Bid Price Cumulative

Qty.

Subscription

500 24 500 16.67%

1000 23 1500 50.00%

1500 22 3000 100.00%2000 21 5000 166.67%

2500 20 7500 250.00%


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ALLOTMENT

After the closure of the subscription period,

which is minimum 3 days, the shares are

allotted in accordance with basis of allotment

finalized by the issuer company in consultation

with Stock Exchanges, where the shares areproposed to be listed.

The basis of allotment for retail bidders, non-

institutional bidders and QIB bidders is decidedin accordance with their respective reservation,

which is 35%, 15% and 50% (in case of book

built issues) respectively.


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BENEFITS

Book building gives opportunity to investors

to bid the price as per their perception.

Demand and price is transparent and isknown to the investors at every step.

Time lag between bid and allotment is

considerably reduced.

Helps in bidding realistic price.


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COMMON FACTS

PRICING OF ISSUE: Free pricing.

PRICE BAND: Price band of 20% of floorprice with suitable explanatory notesindicating financial implications if prices wereto be fixed at different ranges within priceband.

PROMOTER CONTRIBUTION: atleast 20% ofpost issue capital for unlisted company and

atleast 20% of proposed issue or post issuecapital for listed company with a lock inperiod of 3 years.


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COMMON FACTS

MINIMUM APPLICATION VALUE:In the range

of Rs. 5000 to 7000.

SECURITIES to be made fully paid up within12 months from the date of allotment unless

issue size is above Rs. 500 crores and subject

to monitoring requirements.

DENOMINATION OF SHARES: if issue price

is less than Rs. 500, face value shall be Rs.

10. In other cases it may be below Rs. 10

subject to minimum Re. 1 per share.


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COMMON FACTS

UPDATION OF OFFER DOCUMENT:information as per audited statements not tobe more than 6 months old from the issue

opening date.ANNOUNCEMENT: prospectus or its

announcement to be advertised in newspaperatleast 10 days before the opening of

subscription list. PAN : Copy of PAN card is compulsory for bids

of Rs. 50000/- or more.


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COMMON FACTS

SUBSCRIPTION list to remain open for atleast3 working days and a maximum of 7 workingdays which may be extended to 10 working

days in case the price band is revised.ALLOTMENT: within 15 days of closure of

issue in case of book built issues & 30 days inother cases.

INVESTOR GRIEVANCES: Lead MerchantBanker to set up proper grievances monitoringand redressal system in coordination with theissuer and Registrar to issue.


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THANK YOU

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Ipo Book Bldg