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
afterschoool@in.com
mobile : 91+9414430763
5 DECEMBER 09 AFTERSCHOOOL centre for social 1
entrepreneurship
 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 AFTERSCHOOOL centre for social 2
entrepreneurship
 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 AFTERSCHOOOL centre for social 3
entrepreneurship
 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 AFTERSCHOOOL centre for social 4
entrepreneurship
 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 AFTERSCHOOOL centre for social 5
entrepreneurship
 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
enable him to stabilise the shares prices
5 DECEMBER 09 AFTERSCHOOOL centre for social 6
entrepreneurship
 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 AFTERSCHOOOL centre for social 7
entrepreneurship
 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 AFTERSCHOOOL centre for social 8
entrepreneurship
 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 AFTERSCHOOOL centre for social 9
entrepreneurship
 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 AFTERSCHOOOL centre for social 10
entrepreneurship
 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 AFTERSCHOOOL centre for social 11
entrepreneurship
 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.

5 DECEMBER 09 AFTERSCHOOOL centre for social 12

entrepreneurship
 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 AFTERSCHOOOL centre for social 13
entrepreneurship
 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 AFTERSCHOOOL centre for social 14
entrepreneurship
 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 AFTERSCHOOOL centre for social 15

entrepreneurship
 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

5 DECEMBER 09 AFTERSCHOOOL centre for social 16

entrepreneurship
 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.

5 DECEMBER 09 AFTERSCHOOOL centre for social 17

entrepreneurship
 Time limit

Issue must open in 3 month of issuance letter

of SEBI

5 DECEMBER 09 AFTERSCHOOOL centre for social 18

entrepreneurship
 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).

5 DECEMBER 09 AFTERSCHOOOL centre for social 19

entrepreneurship
 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.

5 DECEMBER 09 AFTERSCHOOOL centre for social 20

entrepreneurship
 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)

5 DECEMBER 09 AFTERSCHOOOL centre for social 21

entrepreneurship
 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 AFTERSCHOOOL centre for social 22

entrepreneurship
 Preissue advertisement

Must be in 1 English, 1 Hindi and 1 Regional

newspaper as per format in companies act
section 66 and other provisions.

5 DECEMBER 09 AFTERSCHOOOL centre for social 23

entrepreneurship
 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 AFTERSCHOOOL centre for social 24

entrepreneurship
 Minimum collection centres

There must be at least 4 collection centres

( delhi, kolkata, chennai, mumbai) with
bankers to issue in each of these centres.

5 DECEMBER 09 AFTERSCHOOOL centre for social 25

entrepreneurship
 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.

5 DECEMBER 09 AFTERSCHOOOL centre for social 26

entrepreneurship
 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 AFTERSCHOOOL centre for social 27
entrepreneurship
 How to allot – when there is
oversubscription ....

Proportionate allotment must be there

50% must be issued to retain investors

5 DECEMBER 09 AFTERSCHOOOL centre for social 28

entrepreneurship
 Who is a retail investor?

Who applies or is holding shares less than Rs

100000

5 DECEMBER 09 AFTERSCHOOOL centre for social 29

entrepreneurship
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 AFTERSCHOOOL centre for social 30
entrepreneurship
 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 AFTERSCHOOOL centre for social 31
entrepreneurship
 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 AFTERSCHOOOL centre for social 32
entrepreneurship
 THANKS....

GIVE YOUR SUGGESTIONS AND JOIN

AFTERSCHOOOL NETWORK / START
AFTERSCHOOOL NETWORK IN YOUR
CITY
AFTERSCHOOOL@IN.COM
PGPSE – WORLD'S MOST
COMPREHENSIVE PROGRAMME IN
SOCIAL ENTREPRENEURSHIP
5 DECEMBER 09 AFTERSCHOOOL centre for social 33
entrepreneurship