how to manage ipo

8/8/2019 How to Manage Ipo

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5 DECEMBER 09 AFTERSCHOOOL centre for socialentrepreneurship

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HOW TO MANAGE IPO ???

by :

DR. T.K. JAIN

AFTERSCHOOL

centre for social entrepreneurship

sivakamu veterinary hospital road

bikaner 334001 rajasthan, india

FOR : PGPSE programme participants

[email protected]

mobile : 91+9414430763


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What is book building?

Book running lead manager (BRLM) tries to

use a process where demand of shares isidentified 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.


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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.


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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 associationof persons who took their meals

together


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Post issue requirementsMinimum 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 atleast 5% of issue.

There must be at least 1000 allottees


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What is green shoe facility?

Green shoe option facility means that the

company making public issue appoints aSTABILIZING 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


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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 informationfrom the company and analyse and present its

report with IPO grading to the company.


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Issue procedure ...Hold a general meeting of shareholders and take

approval of shareholders.

Follow SEBI guidelineshave 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


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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 isenergy company. In that case at least 50% of

last year's revenue must come from new name.


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5 DECEMBER 09 AFTERSCHOOOL centre for socialentrepreneurship 11

Fast track issues...

For those which are well established companiesand 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.


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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 oneyear 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 companyduring six calendar months immediately preceding the month

of the reference date has been at least two per cent of the


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Conti....weighted average number of shares listed during the said six

months period;

The company has redressed at least 95% of the total

shareholder/investor grievancesThe 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 forwhich 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 arepledged

if promotors have to contribute more than 100

crore rupees, then they have to bring 100 crorebefore public issue and rest of the money on

pro rata basis along with calls.


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Pricing of issue

Pricing of issue is free and it is to be

determined by the company on its own. Therecan 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.


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Lock in period

Promotors have to keep their investment atleast 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.


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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 least10% 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 documentsdetails, etc.) relating to issue must be

despatched at least 1 week in advance to all

the stock exchanges / brokers etc regardingissue / right issue etc.


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5 DECEMBER 09 AFTERSCHOOOL centre for social

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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.


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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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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 topay 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 makefurther 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


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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.


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Role of merchant bankerIt is a registered institution with SEBI to undertake

merchant banking (issue management)

Merchant banker shall closely coordinate with all theintermediaries 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.


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Finance companyIt is a company which is engaged in accepting

deposits, giving loans, and other related

activities, According to Rule 2(cc) of theCompanies (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).


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