ipo & its requirments
TRANSCRIPT
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INITIAL PUBLIC OFFER.
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SeaWorld - Dolphindance
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Sea world Dolphin dance
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Initial Public Offer.- Types of public issues.
Initial Public
Offers. Public Issue. Offer for Sale.
Follow on Public
Offers. Public Issue.
Offer for Sale.
CompositeIssue.
Right Issue.
DepositoryReceipt Issue.
*Public Issue.
*SponsoredIssue.
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Going Public
WHETHER IPO DECISION IS PURELY MARKET DRIVEN?
company when its unlisted offers ownership opportunity tothe outside investor. Termed it as PRIVATE WINDOW.
What is difference between Promoters, Strategic Investorsand Financial Investors?
What is the difference between Private Window & MarketWindow?
Market worth of a company is dynamic and may not haverelevance with fundamentals.
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Going Public
Promoters prime concern is controlling interest in the company.
Strategic Investor has business interest in the company & isready to pay an entry premium on long term consideration.
Financial Investorlooks at the return on investment. Private Investor look for exit route different from Retail Investor.
Market Window unlike Private Window provides entry and exitroutes to investors (known as secondary offers in USA).
Pvt. Window is not market driven though has some influence inconsideration.
Market window which is market driven also performs validation ofcompanys worth on a continuous basis through stock exchange
route.
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Exit route for Pvt. Investor.
Private Investor look for exit route different fromRetail Investor.
Strategic Sale to another private investor/s.
Buy back by promoters.
Merger with or Take Over by another company.
Sometime Private Investors look forward for exit
route through market window by Offer for Sale oftheir shares to retail investors.
Financial Investor also has choice either throughPvt. Window or Market Window channel.
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Going Public-Strategic Dimension
When is it ripe to open Market Window for the company?
TheIPO is strategic, financial and Investment Banking decision.
The Strategic Dimension:
The Co. may remain private if its business model allows and thereare no compelling reason to go public. E.g. Maruti Udyog was oneof largest privately held co with sale of Rs.92.71billion.went forpublic I 2003. Others like Tata Sons; TCS; Nirma Consumer Care(Sale Rs.1840cr) ; Hero Cycles(Sale Rs.934cr); Cadila Pharma(SaleRs.420Cr) etc. Also several M N Cs like LG; Samsung; Ford India;Honda Siel etc.
Whether the company is matured for listing?
Timing an IPO is strategic decision mutually determined bypromoters and the investment banker.
Therefore whether to go public or not is primarily a corporatephilosophy. 8
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Going Public-Strategic Dimension
A source of finance for specific objectives.
Creates new ownership opportunity for retail investors.
Its liquidity event since creates an exit route for existing &future investors.
Creates market capitalization for the company. Generateswealth for Promoters; Share holders and other stake holders.
Once company is listed, its comparatively easy to drawcheaper global finance for expansion /diversification of
production capacity.
The listed company has better visibility & corporate image.
Market analyst & investors attach more credibility to wellperformed Co. They have market validation and regulatory
scrutiny besides corporate governance hence bettervaluations & human resources. 9
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Going public- Strategic Dimension.
IPO opens up the large retail window with immense potential forfund raising if company performs up to the market expectation.
Strategically the company should go for an IPO when it is maturedenough for it. Depends on following:
Does company need the IPO as liquidity event for the existinginvestors?
Is there an option for private exit route to postpone the IPO route?
Whether the company is matured to unlock the value?
Is companys business model retail-oriented with strong brandpresence to identify with retail investors?
Whether visibility of the company is sufficient in the market forinvestors to perceive the value for investment to unlock the valuefor the share holders?
Whether company is confident of strong top line & bottom linegrowth to sustain market expectations?
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I P O Financial Dimension
For some industry going public is no choice option. The capitalintensive industry i.e. cement; steel; shipping; power and powertransmission; heavy engineering etc. For balance capital structuregoing for IPO is essential. They may need multiple round of public
issue for growth and consolidation. Here IPO and Offer for sale ismore a financial decision rather strategic.
Unlocking value through an IPO is financial decision. But how togenerate more value is strategic decision.
Company can look to raise funds through strategic sale of equity
through private window that realises better value rather an IPO asprivate valuation offer significantly higher valuation than in theretail market.
Third aspect of financial dimension is to properly evaluate howmuch capital should be ideally raised through IPO and how it
should be optimally deployed.11
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IPO Financial Demension.
IPO with well laid down investment plans and convincingapplication of funds sell better.
Sometime requirement of funds through IPO is pretty large withoutcausing dilution of promoters stake. The issue structure in such
cases is determined in consultation with the MB and down size theissue if necessary and raise funds through alternate route.
Threats:
Listed co. face threat of hostile take over.
Future acquisition of stake by promoters become costlier. Brings additional cost of Issue exp; regulatory compliances
etc.
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I P O Investment Banking Dimension
Merchant Banker takes a call on the IPO proposal based on thebusiness plan and financial position of the company, expectedfuture performance, prevailing market condition, expected issuepricing. Size of the issue and the post issue capita structure.
The key drive for the MB is the market condition and his ownplacement strength. If post issue involves high dilution ofpromoters stake, may not receive well by the market. If promoter is
also enhancing his stake at offer price creates a confidence. If DFIalso contributes to the issue on firm allotment basis as project
appraiser, creates confidence in the market. The important factors are:
i; Credibility of the apprising institute;
ii; Institutional investment in the IPO;
iii; Rating/gradation of the IPO. iv; The impact of the past issue. 13
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Agenda
Fund Raising Options
Fund Raising HistoryIndia
Why IPO?
Eligibility Criteria under SEBI DIP and BSE Regulations
Minimum Public Shareholding
Minimum Promoters Contribution and Lock-in
Pricing
Issue StructureBook Building
Corporate Governance Requirements
Disclosures in the Offer Document
Special Dispensation to PSUs
Intermediaries involved and their Roles
Process and Timeline
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Options for Raising Funds
Fund Raising Options
HybridDebt Equity
In India
outside India
From Banks & FIs
Public issue ofBonds/Debentures
ECB ADR/GDR
IPO
FPO
Rights Issue
Pref. Issue
Various forms ofConvertibles
FCCB & FCEB
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Fund Raising History India
Capital Market Issues
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
FY-2004 FY-2005 FY-2006 FY-2007 FY-2008
IPO FPO Rights Issue QIP
Total Funds
Raised
Rs. 18,812 cr Rs. 24,707 cr Rs. 27,477 cr Rs. 32,950 cr Rs. 104,937 cr
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Why IPO??
For Funding Needs
Funding Capital Requirements for Organic Growth
Expansion through Greenfield or Brownfield or De-bottle Necking Projects
Diversification
Funding Inorganic Growth through Acquisitions
Funding Global Requirements
Funding Joint Venture and Collaborations needs
Funding Infrastructure Requirements, Marketing Initiatives and Distribution
Channels
Financing Working Capital Requirements
Funding General Corporate Purposes
Investing in businesses through other companies
Repaying debt to strengthen the Balance Sheet
Meeting Issue Expenses
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Why IPO??
For Non-funding Needs
Enhancing Corporate Stature
Retention and incentive for Employees through stock
options
Providing Investors exit options
Provide liquidity to the shareholders
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IPO Requirements
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Eligibility Criteria for Unlisted Companies - SEBI
Companies with track record Companies without track record
Track record of distributable profits for 3out of the immediately preceding 5 years
Pre-issue net worth of not less than Rs. 1Crore in each of the preceding 3 full years
Net tangible assets of atleast Rs. 3 Croresfor each of the preceding 3 full years
Not more than 50% of these to be held inthe form of monetary assets
(Proposed IPO + Previous Issues in thesame financial year) < 5 times the pre-issue
net worth
In case the company has changed its namewithin the last one year, atleast 50% of therevenue for the preceding 1 full year isearned by the company from the activitysuggested by the new name
Prospective allottees in the IPO should notbe less than 1000 in number
Primary Criteria
Choice of Route: Fixed Price orBook Building
Choice of Route: BookBuilding
In case of projectfunding, 15%
participation byFinancial Institutions/ ScheduledCommercial Banks
10% of this mustcome fromappraiser
10% of issue sizeto be allotted toQIBs
50% of the netoffer to public
being allotted toQIBs
Minimum post-issue face valuecapital must beRs. 10 Crores
OR Compulsory
market makingfor at least 2years from thedate of listing ofshares
+ +
Minimum post-issue face valuecapital must be Rs.10 Crores OR
Compulsory marketmaking for at least2 years from thedate of listing ofshares
Choice of Route: FixedPrice or Book Building
Exemptions A banking company
including a local areabank set up underthe BankingRegulation Act, 1949
A correspondingnew bank set upunder the BankingCompanies Act, 1970
An infrastructurecompany:
Whose project hasbeen appraised bya public financial
institution (PFI) Not less then 5% of
the project cost isfinanced by any ofthe PFI
Rights issue by alisted company
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Eligibility Criteria For IPO Stock Exchange (BSE)
Large Companies Small Companies
The minimum post-issue paid-up
capital of the applicant company(hereinafter referred to as "theCompany") shall be Rs. 3 crore; and
The minimum issue size shall be Rs.10 crore; and
The minimum market capitalization
of the Company shall be Rs. 25 crore(market capitalization shall becalculated by multiplying the post-issue paid-up number of equityshares with the issue price).
BSE Eligibility Criteria
The minimum post-issue paid-up capital of theapplicant company (hereinafter referred to as"the Company") shall be Rs. 3 crore; and
The minimum issue size shall be Rs. 3 crore; and
The minimum market capitalization of theCompany shall be Rs. 5 crore (marketcapitalization shall be calculated by multiplyingthe post-issue paid-up number of equity shareswith the issue price).
The minimum income/turnover of the Companyshall be Rs. 3 crore in each of the precedingthree 12 months period; and
The minimum number of public shareholdersafter the issue shall be 1000
A due diligence study may be conducted by an
independent team of CAs or Merchant Bankersappointed by BSE.
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Minimum Public ShareholdingPromoter includes: The person or persons
who are in over-allcontrol of the company;
The person or personswho are instrumental inthe formulation of a planor programme pursuantto which the securitiesare offered to the public;
The persons or personsnamed in the prospectusas promoters(s).
Promoter Group
Defined under clause6.8.3.2 of SEBI DIP
Public
Implies all investorsother than Promoter andPromoter Group
In case of PSUs, thePromoter is Governmentof India (represented byPresident of India).
SEBI has grantedexemption on issuestructure from Rule19(2)(b) on case to case
basis
Clause 40A of the Listing Agreement
At least 25% of the post issue paid up capital with the public (ie. other than promoter and
promoter group)
Exceptions under Rule 19(2)(b) of SCRR
As per rule 19(2)(b), a minimum of 25% of each class of security must be offered to the public
for subscription
However, at least 10% can be offered if the following 3 conditions are fulfilled:
Minimum 2 MM securities (excluding reservations, firm allotment & promoter
contribution) to be offered to the public
Minimum offer sizeRs. 100 crores
Issuance through book building with 60% QIB allocation
Continuous fulfillment of minimum shareholding criteria
Continuous public shareholding needs to be maintained as per Clause 40A of the listing
agreement since listing
Exemption
The aforesaid requirement of maintaining minimum level of public shareholding on a
continuous basis will not be applicable to government companies (as defined under Section
617 of the Companies Act, 1956), infrastructure companies (as defined under clause 1.2.1(xv)
of the SEBI (DIP) Guidelines, 2000) and companies referred to the Board for Industrial andFinancial Reconstruction.
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Government Cos & Infrastructure Cos
GovernmentCompanies
Section 617 of the Companies Act, 1956
Government company, means any company in which not less than fifty
one per cent of the paid-up share capital is held by the Central
Government, or by any State Government or Governments, or partly by
the Central Government and partly by one or more State Governments,
and includes a company which is a subsidiary of a Government company
as thus defined.
InfrastructureCompanies
Clause 1.2.1(xv) of the SEBI (DIP) Guidelines, 2000
Infrastructure Company means, a company wholly engaged in
the business of developing, maintaining and operating
infrastructure facility.
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Minimum Promoters Contribution and Lock-in
Promoters
Contribution
Minimum of 20% of the post issue capital of the Company for unlistedcompanies; for listed companies, either to extent of 20% in issue or to
ensure post issue holding of 20%
shares are ineligible for the computation of Promoters contribution. If
Issued in last one year at a price lower than issue price, unless topped
up Issued in last three years out of bonus issue or revaluation reserve
for consideration other than cash
Lock-in period
For Promoters:
Lock-in for a period of 3 years from the date of allotment or from the date ofcommencement of commercial production, whichever is later
Balance pre-issue capital, other than held by Indian and Foreign Venture Funds(registered with SEBI) and shares held for at least one year and being offered forsale in the issue
Must be locked-in for a period of 1 year from the date of allotment
Shares issued last will be locked-in first
Exemption
In case of public issue of securities by a company which has been listed on astock exchange for at least 3 years and has a track record of dividend payment forat least 3 immediately preceding years.
In case of companies where no identifiable promoter or promoter group exists.
In case of rights issues.
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Pricing
SEBI allows free pricing of equity shares in an IPO
Approval of RBI might be required for public issues by banks
Differential pricing is permissible in a public issue to retail individual investors and retail
individual shareholders
Retail investors can be offered shares at a discount to the price offered to other investor
categories (Max discount can be 10%)
Price Band: The cap price can be 20% more than the floor price. Price band can be revised
by 20% from the floor price.
No payment of commission by the promoter or issuer company to the public
If the issue price is above Rs.500 then the issuer can fix the FV of shares below Rs.10 but a
minimum of Rs.1.
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Issue Structure Book Building
Of the Net Offer to Public
Maximum 50% to QIBs
At least 15% to HNIs
At least 35% to retail
Dilution = 25% Dilution = 10% to 25%
Of the Net Offer to Public
At least 60% to QIBs
Maximum 10% to HNIs
Maximum 30% to retail
Net offer to the public shall mean the offer made to Indian public and does not include reservations/ firm allotments/ promoters contribution.
Net Offer to Public
Reservations / Firm Allotment shall not be made to categories other than: Permanent employees of the issuer company and in the case of a new company the permanent
employees of the promoting companies';
Shareholders of the promoting companies in the case of a new company and shareholders of
group companies in the case of an existing company either on a competitive basis or on a firm
allotment basis.
Persons who, on the date of filing of the draft offer document with the Board, have businessassociation, as depositors, bondholders and subscribers to services, with the issuer making aninitial public offering,
Reservations
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Corporate Governance Requirements
Compositionof the Board
Optimum number of executive and non executive directors with at least 50% being non-executive. Ifthe chairman, has executive powers then 50% of Board comprises of Independent directors. While ifchairman has non-executive powers then 1/3 of the Board comprises of Independent directors.
AuditCommittee
Mandatory constitution of Audit Committee with minimum three directors and headed by anIndependent director.
All members shall be financially literate (should be able to understand financial statements)and at least one member should have accounting and financial management expertise.
InvestorCommittee
Shareholder/Investor Grievances Committee to be formed under the chairmanship of a nonexecutive director to look into the redressing of shareholder and investor complaints liketransfer of shares, non-receipt of balance sheet, non-receipt of declared dividends
At least one director on the Board of the holding company shall be a director on the Board ofa material non listed Indian subsidiary Company
- Material non-listed subsidiary means a subsidiary whose turnover or net worth exceeds
20% of the consolidated turnover or net worth in the preceding accounting year Audit committee of the listed holding company shall also review the financial statements, inparticular, the investments by the unlisted subsidiary Company
A separate section on Corporate Governance to be included in the Annual Reports withdisclosures on compliance of mandatory and non-mandatory requirements
Submission of quarterly compliance report to the stock exchanges
CEO/CFO to certify the financial statements and cash flow statements
Subsidiary
Company
Report onCorp.
Governance
CEO/CFO
Certification
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Disclosures in the Offer Document
Capital
Structure
Shareholding Pattern (pre-issue and post-issue)
Securities Premium Account (pre-issue and post-issue)
Holding of the promoter and promoter group
Disclosure about ESOPs if any
Objects of theIssue
Total requirements of funds
Means of Financing
Undertaking by the issuer company confirming firm arrangements of financethrough verifiable means towards 75% of the stated means of finance(excluding proposed IPO)
Details about the appraisal of the project. Interim use of funds etc.
Business
Description about the Industry in which the Company operates
Detailed description about the business of the Company
Risks related to the Company
External Risk Factors
Details about the Board of Directors and various committees
Details about key management persons
Risk Factors
Company
Management
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Disclosures in the Offer Document (Contd)
FinancialDisclosures
Auditors Report to have five year restated financials for the
Issuer Company, and
All Subsidiaries of the Issuer Company or Consolidated Financials of theIssuer Company
Audited financials presented should not be more than six months old at the timeof filing DRHP with SEBI and must be updated to be not more than six months oldon the date of filing the prospectus with the ROC
All financials should be presented based on Indian GAAP
MD&A
Detailed discussion on performance for the past 3 years
Capital Expenditure
Cash Flow and Liquidity
Litigations
and Defaults
All pending litigations in which the Company/Promoters / Promoter
Group / Directors / Group companies are involved. Both, litigations filed by or against the Company/Promoters /
Promoter Group / Directors / Group companies
Outstanding litigations, defaults, etc., pertaining to matters likely toaffect operations and finances of the company.
The pending proceedings initiated for economic offences against the
directors, the promoters, companies and firms promoted by the
promoters indicating their present status.
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Special dispensation to PSU - Precedents
* Obtained relaxation from SEBI and issue structure is 50% to QIB, 15% to HNI
and 35% Retail#Based on DRHP filed with SEBI
REC PFC Power Grid OIL India#
Promoter
Government of India, represented
by the President of India disclosed
as promoter with no additional
details
Yes Yes Yes Yes
Promoter group
companies
No promoter group companiesdisclosed. However, the
disclosures w.r.t Subsidiaries need
to be made
No No No No
Corporate
governanceClause 49 of the listing agreement Yes Yes Yes Yes
Issue structureCompliance with rule 19(2)(b) of
SCRRYes No* No* Yes
DisclosuresRemarksarticulars Only restatedAudited FinancialStatements needsto be disclosed in
the DRHP.However, SEBIhas granted
exemption oncase to casebasis to PSU
Banks whereby,even limited
review figureswere disclosed in
DRHP, so as tocomply with thecriteria offinancial
statements beingnot more than sixmonths old.
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Special dispensation to PSU
Has 2689 branches + subsidiaries in India (BOB
Caps, BOB Cards, BOB AMC) + foreignsubsidiaries
Limited Review for June 2005 numbers allowed.Limited Review done for only select (around 20branches) by auditors and rest were relied on by
auditors. Limited review of foreign subsidiary forJune 2005 allowed.
Bank ofBaroda
NTPC
Promoter is president of India
Relaxation in disclosure of promoter andpromoter group inoffer document.
SEBI guidelinesdo not allowlimited review orunaudited
numbers inprospectus
Limited review
allowed Disclosure of
promoter andpromoter group
Need to complywith
Corporate
governancenorms
Promoters
contribution
and lock-in
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Intermediaries Involved
IntermediariesInvolved
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Intermediaries and their Roles
Lead Managers
Overall Co-ordination
Conduct due diligence and finalize disclosure in Offer Document
Assist the legal counsel in drafting of Offer Document
Interface / ensure compliance protocol with SEBI / NSE / BSE
Domestic &International
Legal Counsels
Legal Due Diligence
Drafting the offer document
Guidance on any other incidental legal matters
Assistance in complying with requirement for selling in international geographies
Bankers Acting as collecting agents
Escrow Account & Refund account
Co-ordination with the Issuer and Bankers regarding collections, reconciliation, refunds etc
Securing allocation approval from Stock Exchanges
Post issue co-ordination collation and reconciliation of information
Reviewing and auditing financials and preparing financial statements for inclusion in the Offer Document
Verify/audit various financial and other data used in the Offer document and provide Comfort Letter
Bulk printing of the Red Herring Prospectus Bid Forms, final Prospectus, CAN, Refund orders etc.
Ensure timely dispatch and distribution of stationery to all centers
Registrars
Auditors
Printers
Preparing and getting published all statutory notices
Creating all advertisement materials
Advertisers
Self Certified SyndicateBank (SCSB)
Acting as collecting agents for ASBA (Application Supported by Block Amount) process
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Process & Timeline
Process & Timeline
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IPO Process Fixed Price Issue
Due diligence
Appointment of
BRLM and legal
counsel
Drafting of Draft
Prospectus
Filing with SEBI &
Stock Exchanges
SEBI Clearance& ROC Filing ofthe Prospectus
Pre-Marketing
Decision to go for
IPO
Roadshows
Issuer
Issue Open
Allotment
Issue Closure
Listing
Funds transferred to
issuer
Preparation / Approvals Filing the Prospectus and Marketing Launch & Completion
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IPO Process Book Built Issue
Due diligence
Appointment of
BRLM and legalcounsel
Drafting of Draft
Red Herring
Filing with SEBI &
Stock Exchanges
SEBI Clearance& ROC Filing
Pre-Marketing
Decision to go for
IPO
Roadshows
Issuer
Book building
RoC filing of final
Prospectus
Pricing & Allocation
Listing
Funds transferred
to issuer
Preparation / Approvals Marketing and Estimation of Price Range Launch & Completion
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Execution Process Timeline
Activity
Preparation Phase
Due Diligence
Filing of Draft Document1
week
Sebi Observation
Finalization & filing of offer Document
Issue PeriodMin. 3
Days
Post Issue Activities 2 - 3 weeks
IPO Process - 23 weeks
2 weeks
4 - 5 weeks
4 - 8 weeks
2 - 3 weeks
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Thank You
Thank You