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7/31/2019 IPO Krishana
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PROJECT REPORT
ON
A STUDY ON IPO ISSUE DOCUMENTS AND THEIR
PAST LISTING PERFORMANCE.
submitted submitted
by to
Krishna Rawal shailaja parmar
DECLARATION
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I hereby declare that the project entitled A STUDY ON IPO ISSUE
DOCUMENTS AND THEIR PAST LISTING PERFORMANCE.
submitted for the Degree of Master of Business Administration in Applied
Management is my original work and the project has not formed the basis for
the award of any degree, diploma, associate ship, fellowship or similar other
titles. It has not been submitted to any other university or Institution for the
award of any degree or diploma.
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ACKNOWLEDGEMENT
It is with real pleasure that, I record my indebtedness to my academic
Guide, Ms. Shailaja parmar for his counsel and guidance during the
preparation of this project.
I am grateful to Centre Head Mr. Praveen Mehta
I wish to record my sincere and special thanks to Mr. Amit Sharma,
My thanks are due to Mr. Manish Goyal and Mr. Bharat Kuldeep to
give me great and valuable support.
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CERTIFICATE
Certified that the project is a work done by Mr. Krishna Rawal during the
period of his study under my guidance, and that the project has not previously
formed the basis for the award of any degree, diploma, associates hip,
fellowship or similar other titles and that it is an independent work done by his .
Place: Name: Mr. Praveen Mehta
Date:
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TABLE OF CONTENT
Chapter Content Page No.
Acknowledgement III
List of Tables VII
List of Diagrams VIII
(1) Introduction 09-42
1.1 Initial public offering (IPO)
10-23
What is IPO? 10-12
Reasons for Listing 13-15
IPO Market in india 16-17
IPO Allotment Status 18-19
IPO Procedure 20-23
1.2 Objectives and Role of IPO in india
24-25
1.3 Review of Literature 26-30
Advantages & Drawbacks of IPO 26-29
Example of Some Published Issues
30
1.4 Hypothesis 31-38
Past/ Present/ Future of IPO
31-34
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What are the Critical Areas to Focus
35-38
1.5 Limitations of the Study
39-40
1.6 Methodology 41-42
Source of Data 41
Other Source 42
(2) Significance of the study 43-54
2.1 Global IPO Market 44-51
2.2 Upcoming IPO in The Market 52-54
(3) Research and Analysis 55-71
3.1 Latest News in IPO Sector 56-58
3.2 Major Player of IPO in India 59-71
(4) Finding & Conclusion 72-74
(5) Bibliography 75-76
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Table No. Title of the Table
Page No.
1.1. Middle East Activity Table48
1.2. Industrial Distribution50
1.3. No.IPO of NSE in India 58
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Table No. Title of the Diagram Page No.
1.1. Different Kind of Issue 11
1.2. How To Listing An IPO 13
1.3. IPO Process 15
1.4 . Book Building Process23
1.5 . IPO Returns40
1.6. Global IPO Activity 44
1.7. Global IPO Activity by Indust. 46
1.8. Top Ten IPO in US 51
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Chapter (1)
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Part-1.1
INITIAL PUBLIC OFFERING (IPO)
Initial public offering (IPO), also referred
to simply as a "public offering", is when
a company issues common stock or
shares to the public for the first time.
They are often issued by smaller,
younger companies seeking capital to expand, but can also be done by large
privately-owned companies looking to become publicly traded. In an IPO, the
issuer may obtain the assistance of an underwriting firm, which helps it
determine what type of security to issue (common or preferred), best offering
price and time to bring it to market.Initial Public Offering (IPO) in India means
the selling of the shares of a company, for the first time, to the public in the
country's capital markets. This is done by giving to the public, shares that are
either owned by the promoters of the company or by issuing new shares. During
an Initial Public Offer (IPO) the shares are given to the public at a discount on
the intrinsic value of the shares and this is the reason that the investors buy
shares during the Initial Public Offering (IPO) in order to make profits for them
selves. IPO in India is done through various methods like book building
method, fixed price method, or a mixture of both. The method of book building
has been introduced in the country in 1999 and it helps the company to find out
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the demand and price of its shares. A merchant banker is nominated as a book
runner by the Issuer of the IPO. The company that is issuing the Initial Public
Offering (IPO) decides the number of shares that it will issue and also fixes the
price band of the shares. All these information are mentioned in the company's
red herring prospectus. During the company's Initial Public Offering (IPO) in
India, an electronic book is opened for at least five days. During this period of
time, bidding takes place which means that people who are interested in buying
the shares of the
Company makes an offer within the fixed price band. Once the book building is
closed then the issuer as well as the book runner of the Initial Public Offering
(IPO) evaluate the offers and then determine a fixed price. The offers for shares
that fall below the fixed price are rejected. The successful bidders are then
allotted the shares
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IPOs can be a risky investment. For the individual investor, it is tough to
predict what the stock or shares will do on its initial day of trading and in the
near future since there is often little historical data with which to analyze the
company. Also, most IPOs are of companies going through a transitory growth
period, and they are therefore subject to additional uncertainty regarding their
future value
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REASONS FOR LISTING
When a company lists its shares on a public exchange, it will almost
invariably look to issue additional new shares in order to raise extra capital at
the same time. The money paid by investors for the newly-issued shares goes
directly to the company (in contrast to a later trade of shares on the exchange,
where the money passes between investors). An IPO, therefore, allows a
company to tap a wide pool of stock market investors to provide it with large
volumes of capital for future growth. The company is never required to repay
the capital, but instead the new shareholders have a right to future profits
distributed by the company and the right to a capital distribution in case of a
dissolution.
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The existing shareholders will see their shareholdings diluted as a proportion of
the company's shares. However, they hope that the capital investment will make
their shareholdings more valuable in absolute terms.
In addition, once a company is listed, it will be able to issue further shares via a
rights issue, thereby again providing itself with capital for expansion without
incurring any debt. This regular ability to raise large amounts of capital from
the general market, rather than having to seek and negotiate with individual
investors, is a key incentive for many companies seeking to list.
Major Reason for Listing IPO
The increase in the capital: An IPO allows a company to raise funds for
utilizing in various corporate operational purposes like acquisitions,
mergers, working capital, research and development, expanding plant and
equipment and marketing.
Liquidity: The shares once traded have an assigned market value and
can be resold. This is extremely helpful as the company provides the
employees with stock incentive packages and the investors are provided with
the option of trading their shares for a price.
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Valuation: The public trading of the shares determines a value for the
company and sets a standard. This works in favor of the company as it is
helpful in case the company is looking for acquisition or merger. It also
provides the share holders of the company with the present value of the
shares.
Increased wealth: The founders of the companies have an affinity
towards IPO as it can increase the wealth of the company, without dividing
the authority as in case of partnership.
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IPO MARKET IN INDIA
The IPO Market in India has been developing since the liberalization of the
Indian economy. It has become one of the foremost methods of raising funds
for various developmental projects of different companies.
The IPO Market in India is on the boom as more and more companies are
issuing equity shares in the capital market. With the introduction of the open
market economy, in the 1990s, the IPO Market went through its share of policy
changes, reforms and restructurings. One of the most important developments
was the disassembling of the Controller of Capital Issues (CCI) and the
introduction of the free pricing mechanism.
This step helped in developing the IPO Market in India, as the companies were
permitted to price the issues. The Free pricing mechanism permitted the
companies to raise funds from the primary market at competitive price.
The Central Government felt the need for a governed environment pertaining to
the Capital market, as few corporate houses were using the abolition of the
Controller of Capital Issues (CCI) in a negative manner. The Securities
Exchange Board of India (SEBI) was established in the year 1992 to regulate
the capital market. SEBI was given the authority of monitoring and regulating
the activities of the bankers to an issue, portfolio managers, stockbrokers, and
other intermediaries related to the stock markets. The effects of the changes are
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evident from the trend of the resources of the primary capital market which
includes rights issues, public issues, private placements and overseas issues.
The IPO Market in India experienced a boom in its activities in the year 1994.
In the year 1995 the growth of the Indian IPO market was 32 %.
The growth was halted with the South East Asian crisis.
The markets picked up speed again with the introduction of the software stocks.
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IPO ALLOTMENT STATUS
Initial public offering is also popularly known as IPO, is the first time sale
of stocks, of a private company. A new company can launch IPO to raise capital
to initiate its business. Moreover, Initial Public Offering can also be launched to
raise money for expansion or other important operations of an existing
company. The sale of stock through such Initial Public Offering (IPO) is meant
for the individual and corporate investors. The aim of such issuance of Initial
Public Offering is to invest the accumulated corpus for, either opening -up of a
company or expansion of an existing company.
Thus, effectively, an Initial Public Offering pools investments and utilizes it in
building or expansion of the said company. The shares held by such investors
give them the rights of the company and to its future profits. The process which
involves determination of the issue size and type, offer price and best time of
introduction into the market is called "underwriting". The underwriting is
generally done by the investment bankers. These underwriting firms or
investment bankers are allotted some specified numbers of shares to sell, which
is called as IPO Allotment Status.
In other words, IPO Allotment Status can also be defined as the number of
stocks which an investment banker is permitted to sell to the general investor
before the share is being traded on an exchange. The excess shares are then
allotted to other investment bankers which are eligible to sell such shares. In
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India, the main governing body that determines such eligibility criteria and the
IPO Allotment Status is the Securities and Exchange Board of India (SEBI).
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IPO - PROCEDURE
IPOs generally involve one or more investment banks as "underwriters."
The company offering its shares, called the "issuer," enters a contract with a
lead underwriter to sell its shares to the public. The underwriter then approaches
investors with offers to sell these shares.
The sale (that is, the allocation and pricing) of shares in an IPO may take
several forms. Common methods include:
Best efforts contract
Firm commitment contract
All-or-none contract
Bought deal
Dutch auction
Self distribution of stock
A large IPO is usually underwritten by a "syndicate" of investment banks led by
one or more major investment banks (lead underwriter). Upon selling the
shares, the underwriters keep a commission based on a percentage of the value
of the shares sold. Usually, the lead underwriters, i.e. the underwriters selling
the largest proportions of the IPO, take the highest commissionsup to 8% in
some cases.
Multinational IPOs may have as many as three syndicates to deal with differing
legal requirements in both the issuer's domestic market and other regions. For
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example, an issuer based in the E.U. may be represented by the main selling
syndicate in its domestic market, Europe, in addition to separate syndicates or
selling groups for US/Canada and for Asia. Usually, the lead underwriter in the
main selling group is also the lead bank in the other selling groups.
Because of the wide array of legal requirements, IPOs typically involve one or
more law firms with major practices in securities law, such as the Magic Circle
firms ofLondon and the white shoe firms ofNew York City.
Usually, the offering will include the issuance of new shares, intended to raise
new capital, as well the secondary sale of existing shares. However, certain
regulatory restrictions and restrictions imposed by the lead underwriter are
often placed on the sale of existing shares.
Public offerings are primarily sold to institutional investors, but some shares are
also allocated to the underwriters' retail investors. A broker selling shares of a
public offering to his clients is paid through a sales credit instead of a
commission. The client pays no commission to purchase the shares of a public
offering; the purchase price simply includes the built-in sales credit.
The issuer usually allows the underwriters an option to increase the size of the
offering by up to 15% under certain circumstance known as the green shoe or
over allotment option.
The first sale of stock by a private company to the public. IPOs are often issued
by smaller, younger companies seeking the capital to expand, but can also be
done by large privately owned companies looking to become publicly traded. In
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http://c/wiki/Law_firmhttp://c/wiki/Magic_Circle_(law)http://c/wiki/Londonhttp://c/wiki/White_shoe_firmhttp://c/wiki/New_York_Cityhttp://c/wiki/Greenshoehttp://c/wiki/Magic_Circle_(law)http://c/wiki/Londonhttp://c/wiki/White_shoe_firmhttp://c/wiki/New_York_Cityhttp://c/wiki/Greenshoehttp://c/wiki/Law_firm7/31/2019 IPO Krishana
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an IPO, the issuer obtains the assistance of an underwriting firm, which helps it
determine what type of security to issue (common or preferred), the best
offering
MAJOR PROCESS OF AN IPO
Eligibility Criteria:
Net Tangible assets of Rs. 3.00 Crore in each of the preceding 3
years.
Track record of Distributable profits at least 3 out of 5 preceding
years.
The Company has a Networth of Rs. 1.00 Crore in preceding 3
years.
The proposed issue should not exceed 5 times of its Pre-issue
The process of an IPO - Eligibility criteria: (Alternate route)
Book building process and 50% of the offer to QIBs or
15% participation in project by F/Is or Schedule Banks;
10% of the Project cost from appraiser;
10% of the Issue to QIBs.
Minimum post issue face capital of Rs.10 Crores or
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Market making for 2 years and Minimum number of allottees atleast
1000
Official Process of IPO
Appointment of Brokers, Advertisers and Bankers
Conducting Road shows and Press Conference
Opening and closing of Subscription list
Preparation of Basis of Allotment
Allotment of shares
Listing of shares
price and the time to bring it to market
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Part 1.2
OBJECTIVES AND ROLE OF
IPO
To get the knowledge of IPO.
To analyze the returns of IPOs which were issued in the 1st
quarter of 2007.
To know the return of those IPOs for 1 month, 3 months, 6
months, and 1 year.
To know the market rate of return for the same period.
To know the procedure for calculating the Standard Deviation,
calculating Sharpes Ratio & the abnormal return.
Spread awareness about this process.
Find out the companies which like to adopt this technique.
Find out the factors which influence the IPO Listing
Process.
What the companies are looking from Open New IPOs in
India?
Analysis between Share Holder and IPO Companies
Analysis of IPOs post/present/future Prospects
Analysis of Auction, Pricing, Issued Price and Reverse
IPOs.
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OBJECTS OF THE OFFERING NEW IPO
Funds Requirement
Funding Plan (Means of Finance)
Appraisal
Schedule of Implementation
Funds Deployed
Sources of Financing of Funds already deployed
Details of Balance Fund Requirement
Interim Use of Funds
Basic Terms of Issue
Basis for issue price
Tax Benefits
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Part 1.3
ADVANTAGES & DRAWBACKS
OF IPO
The Advantages of IPO are numerous. The companies are launching more
and more IPOs to raise funds which are utilized for undertakings various
projects including expansion plans. The Advantages of IPO is the primary
factor for the immense growth of the same in the last few years. The IPO or the
initial public offering is a term used to describe the first sale of the shares to the
public by any company. All types of companies with the idea of enhancing
growth launch IPOs to generate funds to cater the requirements of capital for
expansion, acquiring of capital instruments, undertaking new projects.
Major Advantages of IPO
IPO has a number of advantages. IPO helps the company to create a publi
c awareness about the company as these public offerings generate publicity by
inducing their products to various investors.
The increase in the capital: An IPO allows a company to raise funds for
utilizing in various corporate operational purposes like acquisitions, mergers,
working capital, research and development, expanding plant and equipment and
marketing.
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Liquidity: The shares once traded have an assigned market value and
can be resold. This is extremely helpful as the company provides the employees
with stock incentive packages and the investors are provided with the option of
trading their shares for a price.
Valuation: The public trading of the shares determines a value for the
company and sets a standard. This works in favor of the company as it is
helpful in case the company is looking for acquisition or merger. It also
provides the share holders of the company with the present value of the shares.
Increased wealth: The founders of the companies have an affinity
towards IPO as it can increase the wealth of the company, without dividing the
authority as in case of partnership.
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Drawbacks of IPOs
It is true that IPO raises huge capital for the issuing company. But, in
order to launch an Initial Public Offering (IPO), it is also necessary to make
certain investments. Setting up an IPO does not always lead to an improvement
in the economic performance of the company. A continuing expenditure has to
be incurred after the setting up of an IPO by the parent company. A lot of
expenses have to be incurred in the form of legal fees, printing costs and
accounting fees, which are connected to the registering of an IPO. Such
expenses might cost hundreds of US dollars. Apart from such enormous costs,
there are other factors as well that should be taken into consideration by the
company while introducing an IPO.
Such factors include the rules and regulations involved to set up public
offerings and this entire process on the other hand involve a number of
complexities which sometime require the services of experts in relevant fields.
Some companies hire experts to do the needful to ensure a hassle-free execution
of the task. After the IPO is introduced, the expenses become a routine in every
activity involved. Besides, the CEO of the company would have to spend a lot
of time in handling the SEC regulations or sometimes he hires experts to do the
same. All these aspects, if not handled with efficiency, prove to be some major
drawbacks related to the launch of IPOs.
The launch of IPO also brings about shareholders of the company. Shareholders
have ownership in the company. The primary owners of the company or the
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people holding maximum authority in the company cannot take decisions all by
themselves once an IPO has been launched and shareholders have been formed.
The shareholders have an active participation in every decision that is being
taken even if they do not hold 50 percent share of the company. They have their
individual demands to be met as they own a certain percentage of stakes in the
company. The SEC regulations require notifications from the shareholders of
the company, meetings, and also approvals from them while making important
business decisions.
A major risk with shareholders is that, they can sell off their stocks any time
they want, in case they see the price band of the stakes of that company is going
down. This will lead to a further drop of the value of shares in the market which
in turn will decrease the overall value of the company.
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EXAMPLE OF SOME PUBLISHED
ISSUES
Indian Bank IPO on the anvil-India Business-Business-The Times of
India
India is world's 8th largest IPO market- The Times of India
India Inc's fund raising via IPO in 2008 dips to 3-yr low- The Economic
Time
IPO market to boom in second half- The Economic Time
India Inc raises over Rs 45,000 cr in IPOs, follow-ons in 2007- The
Hindu
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Part 1.4
PAST/ PRESENT/ FUTURE OF
IPO
Indias rapid economic growth, robust corporate profit stability, and a four-
year bull run on Bombays Stock Exchange (BSE), continue to fuel Indias
strong IPO markets. Keen investor interest in Indias strong growth story has
been real acted in the attractive valuations and key price/earnings multiples
garnered by Indian companies, says R. Balanchine, IPO Leader, Strategic
Growth Markets, Ernst & Young India. In 2006, Indias markets launched 78
IPOs and raised US$7.23 billion. Currently, Indias exchanges rank eighth in
the world for numbers of IPOs and value in 2006. Despite a May 2006 market
tumble that erased more than US$100 billion in value in the BSE and sparked
concerns that the four-year Indian stock rally was over, Indian IPO activity
quickly resumed its upward momentum. In 2006, Indias IPO market has been
fairly broad-based, although energy companies dominated with more than 50%
share of funds raised. In 2006, Indias largest IPO was petroleum rife nine
company, Reliance Petroleum, which raised US$1.8 billion, followed by the oil
production and exploration company, Cairn Energy, which raised US$1.3
billion. Real estate IPOs also generated stellar returns for investors.
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In the United States, during the dot-com bubble of the late 1990s, many venture
capital driven companies were started, and seeking to cash in on the bull
market, quickly offered IPOs. Usually, stock price spiraled upwards as soon as
a company went public. Investors sought to get in at the ground-level of the
next potential Microsoft and Netscape.
Initial founders could often become overnight millionaires, and due to generous
stock options, employees could make a great deal of money as well. The
majority of IPOs could be found on the NASDAQ stock exchange, which lists
companies related to computer and information technology. However, in spite
of the large amounts of financial resources made available to relatively young
and untested firms (often in multiple rounds of financing), the vast majority of
them rapidly entered cash crisis. Crisis was particularly likely in the case of
firms where the founding team liquidated a substantial portion of their stake in
the firm at or soon after the IPO (Mudambi and Treichel, 2005).
This phenomenon was not limited to the United States. In Japan, for example, a
similar situation occurred. Some companies were operated in a similar way in
that their only goal was to have an IPO. Some stock exchanges were set up for
those companies, such as Osaka Securities Exchange.
Perhaps the clearest bubbles in the history of hot IPO markets were in 1929,
when closed-end fund IPOs sold at enormous premiums to net asset value, and
in 1989, when closed-end country fund IPOs sold at enormous premiums to net
asset value. What makes these bubbles so clear is the ability to compare market
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prices for shares in the closed-end funds to the value of the shares in the funds'
portfolios. When market prices are multiples of the underlying value, bubbles
are likely to be occurring.
A Brief Note on Future of IPOs in India
The IPO industry in India has received a major boost in the current year
especially with the emergence of Reliance Power IPO on 15th January 2008.
Apart from Reliance Power, another IPO which brought in major capital is
Kishore Biyani-led Future Group's financial services arm. This IPO has been a
recipient of 17.36 crores equity shares as bidding as compared to 6,422,000
equity shares on offer. The public offerings of the IPO of Kishore Biyani-led
Future Group's financial services arm are estimated to rise around Rs. 490
crores future capital. The price range fixed for the Equity shares of this IPO
varies between Rs. 700 to Rs. 765. The subscription for the issue of this IPO
was opened from 11th January 2008 to 16th January 2008.Future of IPOs in
India is quite bright as the Future Capital Holdings in India are expected to rise
up to USD 124 million by the end of 2008. Future Capital, the financial services
arm of the diversified Future Group is expected to divest around 10.16 percent
of its capital which accounts for around 6.4 million shares in the IPO market. In
the year 2007, the IPO market in India has been estimated to raise USD 8.2
billion from 88 IPOs as compared to USD 4.7 billion in the previous year. It
contributed largely in the growth of stock market which rose by 47 percent.
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Assuming a major hike in the Indian IPOs, the government has confirmed the
opening of the Oil India IPO by March 2008. The IPO of Oil India Limited has
been reported to raise Rs.1500 crores and will hit the capital market in March
2008.
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WHAT ARE THE CRITICAL
AREAS TO FOCUS
Compliance with SEBI Guidelines
90% subscription of the issue
Underwriting Agreements
Firm Allotments
Listing approvals from the Stock Exchanges
ROC approval for the prospectus
Advertising and Road Shows
Statutory advertisements
In-time allotments and refunds
Listing of the shares with the Exchanges
SEBI GUIDELINES
Filing of prospectus:
Prospectus to be filed with SEBI through Merchant Banker At least 30 days