NEW ISSUE MANAGEMENT

FOR HEALONE HOLISTIC HEALTHCARE

CONTENTS
Classification of Issues Primary Market / New issue market Placement of issue Offer through prospectus Offer for sale Private placement Rights issue Book building Red herring prospectus Intermediaries to issue Lead Manager Registrar Bankers to issue Underwriters Pricing of issue Key Terms Norms

CLASSIFICATION OF ISSUES
Issues Public Rights Preferential

Initial Public Offering (IPO) Fresh Issue

Follow on Public Offering (FPO)

Offer for Sale

Fresh Issue

Offer for Sale

PRIMARY MARKETS OR NEW ISSUE MARKET

Primary markets - include all types of securities - being sold for the first time After being offered in the primary market, it becomes part of the secondary market

Primary market offered consist of (1) FPOs, new offerings of listed companies that have sold securities to the public before, and (2) IPOs, where an unlisted company is selling securities to the public for the first time

PLACEMENT OF THE ISSUE

Initial issues are floated 1. Through prospectus 2. Bought out deals/offer for sale 3. Private placement 4. Right issue 5. Book building

OFFER THROUGH PROSPECTUS

Invites offers for subscription or purchase of any shares or debentures from the public The salient features of the prospectus are 1. General Information about company 2. Capital structure of the company 3. Terms of the present issue 4. Particulars of the Issue - issue-opening, closing and earliest closing date of the issue 5. Company Management and Project 6. Details of the outstanding litigations 7. Management perception of risk factors 8. Justification of the issue premium 9. Financial Information - cost of the project, projected earnings

OFFER FOR SALE

Promoter places his shares with an investment banker (bought out dealer or sponsor) who offer it to the public at a later date
Promoter Investment Banker Public

Bought out dealer decides the price after analyzing the viability, the gestation period, promoters background and future projections Bought out dealer sheds the shares at a premium to the public

Contd.
Advantages for the issuing company helps the promoters to realize the funds without any loss of time the cost of raising funds is reduced - For issuing share cost as high as 10 percent of the cost of the project helps the new entrepreneurs, not familiar with the capital market, to raise adequate capital from the market. a company with no track record of projects, public issues at a premium may pose problems possess low risk to investors since the sponsors have already held the shares for a certain period

Disadvantage sell at a hefty premium, manipulation of the results, insider trading and price rigging

PRIVATE PLACEMENT
Small number of financial intermediaries (like Unit Trust of India, mutual funds, insurance companies, merchant banking subsidiaries of commercial banks) purchase the shares and sell them to investors at a later date at a suitable price Advantages: Cost Effective - statutory and non-statutory expenses are avoided. Time Effective Structure Effectiveness - flexible to suit the financial intermediaries Access Effective - issue of all sizes can be accommodated

RIGHTS ISSUE
Offers shares at first to the existing share holders In proportion to the shares held by them at the time of offer Offered at a advantageous rate compared with the market rate Certain conditions: A notice should be issued to specify the number of shares issued The time given to accept should not be less than 15 days Right of the share holders to renounce the offer in favor of others

BOOK BUILDING
Process of price discovery Not a fixed price for its shares Indicates a price band that mentions the lowest (referred to as the floor) and the highest (the cap) prices The spread between the floor and the cap of the price band shall not be more than 20%. The cap should not be more than 120% of the floor price. Price is finalized by the book runner and the issuer company Malegam Committee - introduction of the book building process Oct 1995 Originally, companies issuing more than Rs 100 cr allowed; Later SEBI allowed for issue of any size

Contd.
Nirma offering a maximum of 100 lakh equity shares through this process; first company to adopt the mechanism An example of pricing securities - Googles IPO offer: Googles IPO offer on the Dutch-auction basis, similar to the book-building process. Target range between U.S. $105 and U.S. $135 per share Market response to offer not too good; final issue price U.S. $85 Enabled Google to find price that market was willing to pay for its issue

RED HERRING PROSPECTUS

Prospectus without details of either price or number of shares being offered or the amount of issue A preliminary registration statement that must be filed with the SEBI describing a new issue of stock (IPO) and the prospects of the issuing company It is known as a red herring because it contains a passage in red that states the company is not attempting to sell their shares before the registration is approved by the SEBI

PRICING OF ISSUE
Prior to 1992, governed by Controller of Capital Issues Act 1947 Fixation of a fair price on the basis of the net asset value per share Era of free pricing in 1992; SEBI does not play any role in price fixation Issuer in consultation with Merchant Banker shall decide the price FIXED PRICE - company and LM fix a price PRICE DISCOVERY THROUGH BOOK BUILDING - company and LM stipulate a floor price or a price band and leave it to market forces to determine the final price At premium Companies are permitted to price their issues at premium At par value In certain cases companies are not permitted to fix their issue prices at premium

INTERMEDIATRIES TO ISSUE
Intermediaries to an issue are: Merchant Bankers to the issue or Book Running Lead Managers (BRLM) Registrars to the issue Bankers to the issue Auditors of the company Underwriters to the issue Solicitors Advertising agencies Financial institutions Government/ statutory agencies

LEAD MANAGER
Appointed by company to manage the public issue programmes. BRLM - A Merchant banker possessing a valid SEBI registration Main duties (a) drafting of prospectus (b) preparing the budget of expenses related to the issue (c) suggesting the appropriate timings of the public issue (d) assisting in marketing the public issue successfully (e) advising the company in the appointment of registrars to the issue, underwriters, brokers, bankers to the issue, advertising agents etc. (f) directing the various agencies involved in the public issue.

 The merchant banking division of the financial institutions, subsidiary of commercial banks, foreign banks, private sector banks and private agencies are available to act as lead managers

Some of them are SBI Capital Markets Ltd., Bank of Baroda, Canara Bank, DSP Financial Consultant Ltd. ICICI Securities & Finance Company Ltd., etc.

Role of Lead Manager in the Pre & Post Issue Post issue:
Pre issue:
Due diligence Design of offer doc, prospectus, memo Ensure the formalities with SE, ROC & SEBI Appointment wd intermediaries Marketing strategy

Mgt of escrow a/ct

Co-ordinate non institutional allocation Intimation of allocation Dispatch of refunds to bidders Follow up stepsfinalization of trading, Dealing of instruments, dispatch of certificates & demat of delivery of shares Look at the functioning of agencies

REGISTRAR
Finalizes the list of eligible allotees after deleting the invalid applications Corporate action for crediting of shares to the demat accounts of the applicants Dispatch of refund orders to those applicable Receive the share application from various collection centres Recommend the basis of allotment in consultation with the Regional Stock Exchange for approval Arrange for the dispatching of the share certificates Ensure that the funds are collected and transferred to the Escrow accounts. Estimates of collection and advising the issuer about closure of the issue

BANKERS TO THE ISSUE

UNDERWRITERS
Underwriting means they will subscribe to the balance shares if all the shares offered at the IPO are not picked up Could be a banker, broker, merchant banker or financial institution Insurance against the possibility of inadequate subscription Done for a commission The aspects considered before appointing are (a) experience in the primary market (b) past underwriting performance and default (c) outstanding underwriting commitment (d) the network of investor clientele of the underwriter and (e) his overall reputation

KEY TERMS
Green-shoe Option An option of allocating shares in excess of the shares included in the public issue Post-listing price stabilizing mechanism for a period not exceeding 30 days through a Stabilizing Agent Issue would be over allotted to the extent of a maximum of 15% of the issue size Provides an investor more probability of getting shares Post listing price may show relatively more stability as compared to market. Qualified Institutional Buyer (QIBs) Institutional investors who are perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets

NORMS ENTRY NORMS I

(i) An unlisted issuer making a public issue i.e (making an IPO) is required to satisfy the following provisions: Entry Norm I (commonly known as Profitability Route) The Issuer Company shall meet the following requirements: Net Tangible Assets of at least Rs. 3 crores in each of the preceding three full Years. (b) Distributable profits in at least Three of the immediately preceding five years. (c)Net worth of at least Rs. 1 crore in each of the preceding three full years. (d) If the company has changed its name within the last one year, at least 50% revenue for the preceding 1 year should be from the activity suggested by the new name. (e) The issue size does not exceed 5 times the pre issue net worth as per the audited balance sheet of the last financial year To provide sufficient flexibility and also to ensure that genuine companies do not suffer on account of rigidity of the parameters, SEBI has provided two other alternative routes to the companies not satisfying any of the above conditions, for accessing the primary Market, as under:

ENTRY NORMS II
Entry Norm II(Commonly known as QIB Route) (a) Issue shall be through book building route, with at least 50% to be mandatory allotted to the Qualified Institutional Buyers(QIBs). (b) The minimum postissue face value capital shall be Rs. 10 crores or there shall be a compulsory marketmaking for at least 2 years

ENTRY NORMS III

Entry Norm III(commonly known as Appraisal Route) (a) The project is appraised and participated to the extent of 15% by Financial Institutions / Scheduled Commercial Banks of which at least 10% comes from the appraiser(s). (b) The minimum postissue face value capital shall be Rs. 10 crores or there shall be a compulsory marketmaking for at least 2 years. In addition to satisfying the aforesaid entry norms, the Issuer Company shall also satisfy the criteria of having at least 1000 prospective allotees in its issue. (ii) A listed issuer making a public issue (FPO) is required to satisfy the following requirements: (a) If the company has changed its name within the last one year, at least 50% revenue for the preceding 1 year should be from the activity suggested by the new name. (b) The issue size does not exceed 5 times the pre issue net worth as per the audited balance sheet of the last financial year Any listed company not fulfilling these conditions shall be eligible to make a public issue by complying with QIB Route or Appraisal Route as specified for IPOs (iii) Certain category of entities which are exempted from the aforesaid entry norms, are as under: (a) Private Sector Banks (b) Public sector banks (c) An infrastructure company whose project has been appraised by a Public Financial Institution or IDFC or IL&FS or a bank which was earlier a PFI and not less than 5% of the project cost is financed by any of these institutions.

No, there is no entry norm for a listed company making a rights issue An issuer making a public issue is required to interalia comply with the following provisions mentioned in the guidelines: Minimum Promoters contribution and lockin: In a public issue by an unlisted issuer, the promoters shall contribute not less than 20% of the post issue capital which should be locked in for a period of 3 years. Lockin indicates a freeze on the shares. The remaining pre issue capital should also be locked in for a period of 1 year from the date of listing. In case of public issue by a listed issuer [i.e. FPO], the promoters shall contribute not less than 20% of the post issue capital or 20% of the issue size. This provision ensures that promoters of the company have some minimum stake in the company for a minimum period after the issue or after the project for which funds have been raised from the public is commenced. 2. IPO Grading: IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of equity shares or other convertible securities. The grade represents a relative assessment of the fundamentals of the IPO in relation to the other listed equity securities. Disclosure of IPO Grades, so obtained is mandatory for companies coming out with an IPO. For more details on IPO Grading please refer to the subsection on IPO Grading.

Advantage of Going Public

Access to Capital Improved Liquidity Enhanced Corporate Image Increase in Market Share

Disadvantages Of Going Public

Increased Scrutiny More Regulation Potential Takeover Target Added Pressure From Markets High Initial Costs

Conclusion
Before deciding whether or not to go public, companies must evaluate all of the potential advantages and disadvantages that will arise. This usually will happen during the underwriting process as the company works with an investment banker to weigh the pros and cons of a public offering and determine if it is in the best interest of the company.