latest ipo advisory

8/8/2019 Latest IPO Advisory

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Roadmap to IPO


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Page 2

IPO Process An Overview

Key IPO RegulationsIPO Associated Costs and Time-lines

Corporate Governance and Clause 49 requirement

Contents


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Initial Public Offering - Synopsis

Liquidity for Existing shares Investor Preference

Increases market visibility and reputation

Valuation Benchmark

Platform for future Fund raising exercise

Attract/Retain Talent through ESOPS

Advantages

Issues Higher issuance costs Company under constant regulatory/

market scrutiny

Compliance requirements


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The Overall IPO Process

Decision to gofor IPO

Appointment ofIntermediaries

Due Diligence

Drafting the Draft RedHerring Prospectus

Filing with SEBI AndStock Exchanges

Pre- Marketing

SEBI Clearance

& ROC Filing

Road Shows

Book Building

Pricing

ROC Filing ofFinal prospectus

Listing(within 12 working

days of closingof Issue)

Prepa

ration

Marke

ting

&

Pricing

Launc

hand

Completio

n

Timelines 17 weeks

Allocation


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Page 5

Intermediaries

Legal Counsel

Conducting Due Diligence

Advise on regulations & issues

Drafting certain sections in the

DRHP

Drafting of escrow, syndicate,

escrow agreements

Provide Legal opinions to

Company & Lead Managers

Registrar to the Issue

Preparing & finalizing the Basisof Allotment

Coordinating with Lead

Managers and Escrow Bankers

for submitting reports to SEBI

Assisting in refunds and credits

in demat accounts

Escrow Bank

Statutory Auditor

Provide Auditors Report

Verification of fin. Info. in theDRHP/RHP/Prospectus and

providing Comfort Letter

Providing certificates with

regard to eligibility, basis for

issue price, etc.

Ad Agency

Assist in Media Interaction and PR

Corporate/Issue advertising

Manage Road Shows

Lead Manager

Coordinator among allintermediaries

Managing the Issue

Grading Agency

Conduct Grading exercise

and provide grading for the

IPO

Collection of application money during

Issue period

Provide collection details and provide

reports required for post issue

processes

Intermediaries involved in ListingLead Manager to act as a Coordinator

Syndicate Members

Processing of bid cum application

formsASBA Bank

Processing of applications

received through ASBA


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Approvals and Regulatory Compliance

Approvals Required

Approval for

authorized capital

Board Resolution ofIssuer for IPO

/Offer for Sale

Formation of an

IPO Committee

Section 81(1A)

resolution by

Issuers shareholders

Approval from project

finance lenders

Corporate Approvals

SEBI Filing - mandatory

Disclosure as per SEBI

ICDR Regulations Merchant Banker to

submit due diligence

30 days period for

SEBI to give its

comments on the

draft red herring

prospectus

No change in capital

structure permitted

post filing of the

document except as

disclosed essentially

to enable Pre-IPO

SEBI

Approval for MOA & AOA

Filing of draft red

herring prospectus

with stock exchangesfor in principle approval

Compliance with listing

requirements

Final listing and trading

Approvals

ROC filings of:Red Herring

ProspectusFinal Prospectus

Stock Exchanges/ROC RBI/FIPB

RBI/FIPB approval

required for certain

companies to issue to

non-resident investors

Sectoral Guidelines

Corporate Structure

Instrument


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Page 7

Drafting the Draft Red Herring Prospectus

Industry Business

Risk factors

Financial Information

Company Related

Other Information

Issue Related

Promoter and GroupCompany Disclosures

Capital Structure

Objects of the issue

Basis of the Issue price

Terms of Issue

Financial performance

statement for the last five years

(recast as per SEBI)

Government Approvals

Legal and Litigation

Related Party Transactions

Issue Proceeds

Rating/IPO Grading

Management

discussion and

analysis

Statement of tax

benefits

Legal and secretarial

matters


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Page 8




Contents


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Page 9

Eligibility CriteriaMinimum public shareholding to be 25%

Minimum networth of Rs. 1

crore

Net tangible assets> Rs. 3

crore for each of the

preceeding 3 full years

Profits in 3 of last 5 years

50% of revenues from activitysuggested by the new name

in case the name has

changed in last one year

Aggregate issue + previous

issues in same year < 5 times

pre issue net worth

All listed Companies to have

minimum 25% public

shareholding for continuous

listing

Book Building Process with

minimum 50% of the issue

size allotted to QIBs,

OR

At least 15% participation by

FIs/Banks of which 10% is

from appraiser. In addition10% to be allocated to QIBs

AND

minimum post issue cap to be

Rs. 10 cr.

OR

market making for 2 years

If the post issue capital

calculated at offer price is

4000 crores.

Dilution of 5% per annum

Choice of Route: Fixed Price

or Book Building

Choice of Route: Book

Building Process

Under ICDR

Regulations, 2009

Under Securities

(Regulation)(Amend-

ment) Rules, 2010*

Minimum dilution

25% of Post Issue Capital 10% of Post Issue Capital

* Notified on June 4, 2010


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Capital Structure PromotersMinimum Promoters Contribution: 20% of Post Issue Capital

Person or Persons who are in

Overall control of the Company Instrumental in the formulation of a plan or program pursuant to which

securities are offered to the public

Named in the offer document as promoter(s)

Promoter

Minimum of 20% of the post issue capital of the Company for unlistedcompanies

Following shares are ineligible for Promoters contribution Issued in last one year at a price lower than issue price, unless topped up Issued in last three years out of bonus issue out of revaluation reserve or

reserves created without accrual of cash resources

Acquired in the last three years for a consideration other than cash andrevaluation of assets or capitalization of intangible assets is involved in thesetransactions

Pledged shares, other than for use towards Objects of the Issue

PromotersContribution

For Promoters: Lock-in of 20% of the post issue capital for 3 years fromlater of allotment date or commencement of commercial production Balance entire pre-issue capital must be locked-in for a period of 1 year

from the date of allotment, other than shares held by Venture Capital Funds (registered with SEBI) & have held

shares for one year prior to the date of filing the draft prospectus with SEBI shares allotted to employees under the employee stock option/purchase

scheme & full disclosure of the ESOP has been made in the offer document.

Lock-in

Period


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Book Building ProcessIssue Price determined through Bid Process

What is

Book Building

Used in IPOs/Follow-on offerings - Aids price and demand discovery

Bids collected from investors at various prices within a price band

Retail investors have an option to bid at cut-off price

Bids can be revised or withdrawn

Issue price determined by the Lead Manager in consultation with the

Company

Demand displayed at bidding centers on real time basis on BSE &

NSE website

Qualified

Institutional

Buyers

(QIB)

Retail

Investors

Definition

Allocation

Defined under ICDRRegulations

Minimum 50%

Individuals applyingFor Rs. 1,00,000 or

less per application

At least 35%

Non-

Institutional

All other InvestorCategories

At least 15%

Anchor

Investors

Application of avalue of at

least Rs. 10 crores

Discretionary basis and

30% of portion available

for allocation to QIBs


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Audited Financial StatementsRestated Financial Information for the last 5 years

The Auditors report is to be prepared in accordance with the SEBI ICDR Regulations on the

Restated Financial Information for the last five financial years and interim period 5 year accounts in accordance with SEBI ICDR Regulations from statutory auditor.

Consolidated financials and subsidiaries financials also to be reported for the last 5 years

Audited financial statements not older than 6 months as on the date of opening of the Issue

Restated financial statements to be based on:

adjustments arising on account of prior period items,

changes in accounting policies,

qualifications in auditors reports,

incorrect accounting policies,

extraordinary items, etc.

Major events in each of the preceding three financial years to be highlighted


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Page 13

Certification from the Auditors

Financial information as per US GAAP may be included in the offer document.

Reconciliation between Indian and US GAAP should also be included in case US GAAP

information is given

Key business issues to be highlighted

Dependence on customers/suppliers

Business trends, seasonality and uncertainties, if any Other certificates required:

Eligibility criteria as per SEBI Guidelines on a stand alone basis

Basis for Issue Price as per SEBI Guidelines

Tax benefits certificate

Comfort Letters

Comfort Letters are required at the time of filing at DRHP/RHP/offer document stage


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Objects of the IssueFund Requirement to be justified

Purpose of the Issue

Activities proposed to be undertaken by the Issuer by the Funds raised. The activities fall within

the main objects listed in the Memorandum of Association

Funds Requirement

The Fund requirement should be disclosed clearly

Where the company proposes to undertake more than one activity, i.e., diversification, expansion,

etc., the total project cost shall be given activity- wise or project wise

Where the company is implementing the project in a phased manner, the cost of each phase,

including the phase, which has already been implemented should be given separately.

Means of financing to be decided

Quantum of bank financing and other means, if any, to be ascertained

75% of the Means of finance except IPO proceeds to be tied up before filing Draft Red Herring

Prospectus

Certificate of a latest date from Chartered Accountant relating to the money spent on objects of

the issue.


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Listing RequirementsEnsuring Corporate Governance

Compliance to be ensured with Corporate Governance norms as per listing agreement prior to

filing the DRHP

Professional directors to be inducted in the Board, if required

Optimum combination of Executive and Non-executive directors. If the chairman is a non-executive director, at

least 1/3rd of the Board should comprise of independent directors and in case, the Chairman of the Board is an

executive director, at least of the Board should consist of Independent Directors.

Requisite committees to be formed, viz. Audit Committee, Remuneration Committee, Investors Grievance

Committee

Audit Committee

2/3rd Independent Directors, one director should have finance background.

Remuneration Committee

Should be constituted entirely by non executive directors. Chairman should be an independent director

Shareholders/Investors Grievance Committee

Chairman should be a non-executive director. No specific regulation on constitution apart from chairmanship,

however it is advisable to have majority independent directors in the committee


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Our understanding of Quintiles India




Contents


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Page 17

1715

The Execution Process Timeline

1413121110090807060504030201

Capital

Structuring

InvestorEducation

Comments

received

Appoint Bankers

/Lawyers

Drafting/Data Room/

Due Diligence

SEBI Review

File Draft

Prospectus

Final

Approval

Finalize Price band &

Print Red Herring

Public Research

Roadshow/Book building

Sign under-

Writing

agreement

PricingLaunch offering, Distribute

Red

Herring prospectus

16

Basis of

Allotment

Listing &

Trading

Week

P

R

O

C

E

DU

R

E

&

A

C

T

IV

I

T

I

E

S

Preparation of DocumentsPreparation of Documents Launch & CompletionLaunch & CompletionMarketing & Estimation of

Price Range

Marketing & Estimation of

Price Range

Phase I Phase II Phase III

~ 17 weeks


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IPO Expenses

Particulars 100 crore issue 500 crore issue

Lead Managers Fees 4.00% 2.00%

Legal Counsel Domestic &

International

0.50% 0.50%

Registrar to the Issue 0.10% 0.04%

Printing and Dispatch 0.60% 0.20%

Advertisements -TV/HoardingNewspapers/Road Shows

0.75% 0.40%

Filing & Stock Exchange Fees 0.07% 0.07%

Underwriting, Selling & Brokerage 2.00% 1.00%

Other Expenses 1.00% 0.50%

Total 9.02% 4.71%


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Key IPO Regulations

IPO Planning, Execution, Associated Costs and Time-lines


Contents


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Clause 49 The intent

IDENTIFY AND MANAGE KEY BUSINESS RISKS

BUILD AND PROTECT VALUE

ClientsLaborunions

Supplieurs

CompetitorsNGOs

Swisscompany lawSWXregulations

Foreign regulations

Institutional investorsOther investors

FinancialanalystsRating agencies

Media

IDENTIFY AND MANAGE KEY BUSINESS RISKS

BUILD AND PROTECT VALUE

ClientsLaborunions

Suppliers

CompetitorsNGOs

Swisscompany lawSWXregulations

Foreign regulations

Institutional investorsOther investors

FinancialanalystsRating agencies

Media

Accountability of

CFO/CEO Information for oversight

action Stronger Boards

More emphasis on

forced compliance Alignment with

global trends

Increased focus onauditor

responsibilities

Information on controls

and risk profile More active audit

committees Existence of a risk

management strategy

Active policing of

interests by the audit

committee Quality financial

reporting information Globally consistent

interpretation


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Clause 49 Key Requirements

Board of Directors

Audit Committee

Risk Management

CEO/CFO Certification

Compliance Reporting

Code of Conduct

Clause 49(Key Requirements)

Whistleblower Procedures


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Detailed Requirements

Area Points to Consider

Composition of Board of Directors

Directors compensationBoard ProcedureCode of conductQualified and Independent Audit CommitteeMeetings and Role of Audit CommitteeLegal compliance framework

Risk assessment and minimization proceduresEstablishment of Risk management framework

Management Discussion and Analysis to containcommentary on risks and concerns

Certification of financial statementsEvaluation of effectiveness of Internal controls over

financial reportingResponsibility to make disclosures relating to

material internal control weaknesses to auditors andaudit committee

Support to the working of the audit committee

Report on Corporate GovernanceDisclosures pertaining to Directors remuneration,

transactions of non-executive directorsDisclosure of material financial transactions which

may conflict with the interest of the company

Board and AuditCommittee

Board and AuditCommittee

Risk Management

Framework

Risk Management

Framework

CEO/ CFOcertificationCEO/ CFO

certification

Other KeyDisclosuresOther Key

Disclosures

Clause49

Clause49


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Clause 49 BoD and Audit Committee

Atleast 1/3 of the Board to

be Independent Directors

Qualified and Independent

Audit committee

Minimum number of

meetings in a year of the

Audit Committee

Role of Audit committee

Key requirements

Directors remuneration

Senior management to

disclose to Board all material

financial commercialtransactions which may

conflict with the interest of the

company

Report on Corporate

Governance

Key requirements


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Compliance - Role Of The Audit Committee

Oversight of the companys financial reporting processes and the disclosure of its

financial information to ensure that the financial statement is correct, sufficient andcredible.

Reviewing material internal control and internal audit deficiencies

Recommending the appointment and removal of external auditor, fixation of audit fee and

also approval for payment for any other services.

Review annual as well as quarterly financial statements with the management before

submitting the same to BOD Discussion with external auditors before the audit commences about nature and scope of

audit as well as post audit discussion to ascertain any area of concern.

Reviewing the companys financial and risk management policies.

To look into the reasons for substantial defaults in the payment to the depositors,

debenture holders, shareholders(in case of non payment of declared dividends) and

creditors. Oversight of the appointment of the internal auditor and the internal audit activity


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Clause 49 Requirements related to the RMFramework

The company shall:

Lay down procedures to inform Board members about the risk assessment

and minimization procedures.

Periodically review to ensure that executive management controls risk

through means of a properly defined framework.

Include in its Annual Report, a management discussion and analysis report

on the Risk and Concerns within the limits set by the companys competitiveposition


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Clause 49 - Requirements relating toInternal Controls

1.The CEO and the CFO certify that they:

accept the responsibility for establishing and maintaining

internal controls (over financial reporting);

have evaluated the effectiveness of internal control

systems

have disclosed to the Auditors and the Audit Committee:

deficiencies in internal controls (in design & operation)

and

remediation steps (taken or proposed to be taken)

2. They have indicated to the Auditors and Audit Committee

significant changes in internal control during the year


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Test controls (both IT & Process related) to reassure management

Continuous assurance through controls self assessment

Prepare remediation plans and close control gaps

AAEvaluate effectiveness of internal controls

Identify accounting units,subsidiaries & business

processes that can materially impact financial

reporting

Assess operating effectiveness of controls

Identify & evaluate design of controls over financial

reporting risk:

BB Establish process to indicate significant changes in the

controls environment

Obtain at least 75% coverage of material account balances

Map business processes to accounts

1111

2222

3333

For every process & activity, assess What Can Go Wrong

For each What Can Go Wrong, identify existing controls & control gaps

For control gaps, identify remediation plans

Proje

ct/maint e

nanc

e

Process

Internal control certification Key Activities


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ComplianceReporting

Code of

Conduct

Clause 49 Other key requirements

The Audit Committee shall mandatorily review reportsrelating to compliance with laws

The Independent Director shall periodically review legal

compliance reports prepared by the company as well as

steps taken to rectify instances of non-compliance

The Board has laid down a Code of Conduct for the

Board and Senior Management and it has been published

on the Companys web-site

Annual affirmation of compliance with the Code of

Conduct by Senior Management and Directors

Signed declaration by the CEO in the Annual Report


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Whistle blower

The company may establish a mechanism for employees

to report to the management concerns about unethical

behaviour, actual or suspected fraud or violation of the

companys code of conduct or ethics policy

Whistleblower Policy

Other Considerations

The Company has established a framework for identifying

and escalating any transactions that are fraudulent, illegal

or violative of the Code of Conduct

The Company has disclosed to the Auditors and the AuditCommittee any instances of fraud and the involvement

therein of an employee having a significant role in the

internal controls system

Clause 49 Other key requirements


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