How to Manage Ipo

HOW TO MANAGE IPO ??? by : DR. T.K. JAIN AFTERSCHO☺OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR : PGPSE programme participants [email protected] mobile : 91+9414430763 5 DECEMBER 09

AFTERSCHOOOL centre for social

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What is book building? Book running lead manager (BRLM) tries to use a process where demand of shares is identified and price is determined on the basis of demand. We have two types of book building processes in India : 75% and 100% book building process. The comany will mention price band in their draft prospectus. 25% of offer will be offered to the public. 5 DECEMBER 09


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WHO CAN GO FOR IPO? Unlisted comapny with net tangible networth of at least Rs. 3 crores in the last 3 years, with no more than 50% in cash. Distributable profit in 3 out of last 5 years as per section 205 of companies act. Issue through book building process, and 50% must go to QIBs, or at least 15% to Financial instituitons, with 10% by appraisers. 5 DECEMBER 09


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WHAT IS A COMPANY The word ‘company’ is derived from the Latin word (Com=with or together; panis =bread), and it originally referred to an association of persons who took their meals together 5 DECEMBER 09


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Post issue requirements Minimum post issue face value of the capital of the company must be 10 crores market makers must be there for at least 2 years of listing - and they must deal in at least 300 shares and ensure that bid-ask difference is not more than 10%. Their inventory will be at least 5% of issue. There must be at least 1000 allottees 5 DECEMBER 09


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What is green shoe facility? Green shoe option facility means that the company making public issue appoints a STABILIZING AGENT to stabilise share prices after issue. The agent may be merchant banker also. The agent makes an agreement with the promotors and he may be granted upto 15% securities of the issued capital as loan to to enable him to stabilise the shares prices 5 DECEMBER 09


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What is IPO grading? Credit rating agencies registered with SEBI give grading to IPO from 5 (very good) to 1 (very poor) for this company will have to approach a credit rating agency, which will collect information from the company and analyse and present its report with IPO grading to the company. 5 DECEMBER 09


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Issue procedure ... Hold a general meeting of shareholders and take approval of shareholders. Follow SEBI guidelines have MOU (agreement) with stock exchanges, merchant bankers, registrar to the isue, underwriters, and bankers to the issue draft the prospectus as per schedule II, sec. 56(3) and SEBI guidelines and chapter VI. Get draft prospectus approved by SEBI 5 DECEMBER 09


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Change in name Now a days companies change their name and come for public issue. It is just to grab public attention. During 90s every company was converted into infotech company, then it was biotech and then real estate and now it is energy company. In that case at least 50% of last year's revenue must come from new name. 5 DECEMBER 09


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Other requirements... Company must file draft prospectus 30 days with SEBI before filing prospectus with registrar of company through a merchant banker the company must fulfill other requirements like credit rating etc. (must publish all credit ratings, if there are more than 1 credit ratings) 5 DECEMBER 09


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Fast track issues... For those which are well established companies and are already listed – they can go for follow on pulic issue (FPO). These companies dont have to file draft prospectus with SEBI and their issue procedure is also simple and fast so that they can easily go for public issue. 5 DECEMBER 09


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Fast tract issues.... The shares of the company have been listed on any national stock exchange at least three years immediately before issue. The “average market capitalisation of public shareholding” of the company is at least Rs. 10,000 crores for a period of one year up to the end of the quarter preceding issue. “public shareholding” shall have the same meaning as assigned to it in clause 40A of the Listing Agreement. The annualized trading turnover of the shares of the company during six calendar months immediately preceding the month of the reference date has been at least two per cent of the weighted average number of shares listed during the said six months period; The company has redressed at least 95% of the total shareholder/investor grievances The company has complied with the listing agreement for a period of at least three years The impact of auditors’ qualifications, if any, on the audited accounts of the company in respect of the financial years for which such accounts are disclosed in the offer document does not exceed 5% of the net profit/loss after tax of the company for the respective years.

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Promotors contribution At least 20% of post issue capital, before issue and it will not include securities which are pledged if promotors have to contribute more than 100 crore rupees, then they have to bring 100 crore before public issue and rest of the money on pro rata basis along with calls. 5 DECEMBER 09


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Pricing of issue Pricing of issue is free and it is to be determined by the company on its own. There can be different prices for retail inventors and others – but this difference should not be more than 10%. face value of the shares should be 10, but it can be 1 if the price of share is more than 500. 5 DECEMBER 09


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Lock in period

Promotors have to keep their investment at least 20% for a lock in period of at least 1 year. (not required by those companies which have a divident paying record of at least 3 years and listed for at least 3 years. ) Lock in period is not applicable on venture capitalists. 5 DECEMBER 09


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Underwriting

Now underwriting is mandatory, the lead merchant banker will have to underwrite at least 5%, and his total outstanding commitment must not be more than 20 times his networth

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Minimum offer to public

The minimum offer to public must be at least 10% or 25% of issue, however, this condition is not applicable on infrastructure / govt / statutory company.

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Time limit

Issue must open in 3 month of issuance letter of SEBI

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Paid up in 12 months

The entire issue must be fully paid up in 12 months of allotment (this condition is not applicable if issue is for more than 500 crore rupees).

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Despatch of material

All material (like forms, offer documents details, etc.) relating to issue must be despatched at least 1 week in advance to all the stock exchanges / brokers etc regarding issue / right issue etc.

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Subscription list

The subscription list must be kept open for at least 3 days to maximum 10 working days (for infrastructure companies – maximum limit is 21 days)

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Share application

Take details about the account number, PAN / GIR number etc of the applicant. Minimum application money must be Rs. 5000 (issue price) and it must be at least 25% of issue price application form must be attached to abridged prospectus. 5 DECEMBER 09


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Preissue advertisement

Must be in 1 English, 1 Hindi and 1 Regional newspaper as per format in companies act section 66 and other provisions.

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Post issue advertisement

No advertisement can be issued regarding response to issue during the period when issue is open. When issue is closed, details regarding subscription can be published in the form of an advertisement in 10 days of the closure of the issue. 5 DECEMBER 09


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Minimum collection centres

There must be at least 4 collection centres ( delhi, kolkata, chennai, mumbai) with bankers to issue in each of these centres.

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Minimum subscription

If company doesnt receive 90% of subscription (or it falls less than 90% of issue) then company will have to return back entire amount in 8 days – otherwise it will have to pay interest as per sec. 73 of companies act.

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Restriction on further issue From the date of application to SEBI to the date of listing of issue, a company cannot make further issue of any type – like bonus / right etc. Similarly, a company which is to convert FCD / PCD into shares, cannot issue new shares before these proceeedings are over 5 DECEMBER 09


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How to allot – when there is oversubscription ....

Proportionate allotment must be there 50% must be issued to retain investors

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Who is a retail investor?

Who applies or is holding shares less than Rs 100000

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How to reserve for retail investor? In case of oversubscription, there is reservation for retain investors if you are allocating 70% to retailers, you have to proportionately issue 70% to the reailers, if you are issueing 40% to the retail investors, then you have to allot at least 50% to the retail investors. 5 DECEMBER 09


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Role of merchant banker It is a registered institution with SEBI to undertake merchant banking (issue management) Merchant banker shall closely coordinate with all the intermediaries regarding public issue and shall fulfilll all the requirements of SEBI. Merchant banker shall also try to comply with all the government requirements. It will have to submit due diligence certificate and post issue monitoring certificates to SEBI in 3 days and 50 days of issue. 5 DECEMBER 09


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Finance company It is a company which is engaged in accepting deposits, giving loans, and other related activities, According to Rule 2(cc) of the Companies (Acceptance of Deposits) Rules, 1975, a ‘Financial Company’ means a non banking company which is a financial institution within the meaning of clause (c) of Section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934). 5 DECEMBER 09


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How to Manage Ipo

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