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8/8/2019 Price Band
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Fixing Price Band and Marketing Issue
of IPO
Group MembersPreetha
Divya
Aparna
NancyGenga
Natasha
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Fixing the Price Band
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Introduction
Initial Public Offer (IPO) is the selling of securities to
the public in the primary market.
It is when an unlisted company makes either a freshissue of securities or an offer for sale of its existing
securities or both for the first time to the public.
This paves way for listing and trading of the issuers
securities. The sale of securities can be either through
book building or through normal public issue.
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Who decides the price of an issue?
Indian primary market ushered in an era of free pricing in
1992.
Issuer in consultation with Merchant Banker shall decide the
price.
There is no price formula stipulated by SEBI. It does not
play any role in price fixation.
The company and merchant banker are however required to give full disclosures of the parameters which they had
considered while deciding the issue price
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What does price discovery through Book Building
Process mean?
Book Building is basically a process used in IPOs for
efficient price discovery. It is a mechanism where,during the period for which the IPO is open, bids are
collected from investors at various prices, which are
above or equal to the floor price. The offer price is
determined after the bid closing date.
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What is the main difference between offer of shares
through book building and normal public issue?Price at which securities will be allotted is not known in case
of offer of shares through Book Building while in case of
offer of shares through normal public issue, price is known in
advance to investor.Under Book Building, investors bid for shares at the floor
price or above and after the closure of the book building
process the price is determined for allotment of shares.
In case of Book Building, the demand can be known everyday
as the book is being built. But in case of the public issue the
demand is known at the close of the issue.
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What isCut-Off Price and floor price?
In a Book building issue, the issuer is required to indicate
either the price band or a floor price in the prospectus.
The actual discovered issue price can be any price in the price
band or any price above the floor price. This issue price iscalled Cut-Off Price.
The issuer and lead manager decides this after considering the
book and the investors appetite for the stock.
Floor price is the minimum price at which bids can be made.
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Price Band in a book built IPO
The prospectus may contain either the floor price for the
securities or a price band within which the investors can
bid.
The spread between the floor and the cap of the price
band shall not be more than 20%.
In other words, it means that the cap should not be more
than 120% of the floor price.
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Contd.
The price band can have a revision and such a revision in
the price band shall be widely disseminated by informing
the stock exchanges, by issuing a press release and also
indicating the change on the relevant website and theterminals of the trading members participating in the
book building process.
In case the price band is revised, the bidding period shallbe extended for a further period of three days, subject to
the total bidding period not exceeding ten days.
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Contd.
The minimum number of days for which a bid should
remain open during book building is 3 days.
Open outcry system cannot be used for book building. As
per SEBI, only electronically linked transparent facility
is allowed to be used in case of book building.
An individual investor can use the book building facility
to make an application.
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SKS MICROFINANCE
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Introduction
SKS Microfinance, an NBFCby legal constitution, is the
Indias largest micro finance institution, in terms of
value of loans outstanding, borrowers and number of
branches.
SKS Microfinance is entering the capital market through
a public issue of 1.68 crore equity shares ofRs.10 each,
comprising of an offer for sale of 93.46 lakh shares by 4promoter entities and balance 74.45 lakh shares, through
a fresh issue.
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Contd.
The issue, priced betweenRs. 850 toRs. 985 per share, offersRs. 50 discount to investors applying under the retail category
The issue represents 21.6% of the fully diluted post issue paid-
up capital of the company, opens on 28th July 2010 and closeson 30th July for QIBs and on 2nd August for the retail andHNI category.
Recent trend in IPO pricing has been to keep a very close price
band, generally in the range of 6-8%, representing confidence onthe part of promoters.
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Contd
But in this case, the 16% range between the lower and upper
end of the price band is quite large, considering the high issue
price, in absolute terms.
On pure economics of business and fundamentals, issue is
looking expensive, but still may evoke good response, which
may result in listing gains.
It would have been better to see book getting discovered atRs. 850 per share thus having an effective cost to retail
investors atRs. 800 per share.
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Contd..
But element of premium looks to have built in its
pricing due to first mover advantage and good hype.
Generally, those who are looking to go for it areadvised to do so at the upper band, as otherwise they
may get left out.
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Marketing Issue IPO
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Introduction SEBI approved a proposal of marketing IPOs through
the secondary market
It proposes to use the existing infrastructure of stock
exchanges (terminals, brokers and systems), presentlybeing used for secondary market transactions,
Overcomes disadvantages like load on banking and postal
system and huge costs in terms of money and time
associated with the issue process.
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Effect of marketing
An investment bankers marketing campaign
critical success or failure of IPO
The key is to stimulate investor demand for the stockso that, the demand will exceed the supply.
The underwriter attempts to create an imbalance in
the supply/demand equation for the issue, so that
there are more buyers than sellers when the stock is
finally released for sale to the public.
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PROCEDURE PRESSCONFERENCE
Promoters and Lead Managers call for press conferencein each major investment center. Reporters are briefed about the issue. They carry it as news-item in theirpapers.
INVESTORSCONFERENCE
The prospective investors are called by invitation. ThePromoters and Lead Managers give presentations. Theyreply to the questions of the investors to boost theirconfidence.
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ROAD-SHOW
This is like the investors conference but normally is
done abroad for marketing ADR/GDRissues. It is an
expensive process and requires a lot of legal
compliances. The company has to observe the rules of
the concerned country. However, road shows are
becoming more and more popular in India.
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NEWSPAPERADVERTISEMENT
The company releases statutory advertisements in leading
newspapers. The company has to publish abridges prospectus
in leading newspapers. It is the responsibility of the
promoters to ensure that the issuing company and their group
companies should not release any commercial advertisement,
which may influence the investors decision for investment.
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PRINTING STATIONERY-PROSPECTUS
The company has to print approved prospectus and
provide enough copies to all intermediaries. If anyinvestor asks for a copy of prospectus it must be
provided to him without any fees. Sufficient quantities
should be maintained at the registered office of the
company and with the Lead Managers.
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PRINTING APPLICATION FORMS
Sufficient number of application forms must be printed
much before the opening of the issue. Each form must
contain abridged prospectus in SEBI approved format.
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Thank you