Professional Documents
Culture Documents
Initial Public Offer
Initial Public Offer
Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities
or an offer for sale of its existing securities or both for the first time to the public. This paves way
for listing and trading of the issuer’s securities.
SPECAL
Book Building is basically a capital issuance process used in Initial Public Offer (IPO) which aids
price and demand discovery. It is a process used for marketing a public offer of equity shares of a
company. It is a mechanism where, during the period for which the book for the IPO is open, bids
are collected from investors at various prices, which are above or equal to the floor price. The
process aims at tapping both wholesale and retail investors. The offer/issue price is then
determined after the bid closing date based on certain evaluation criteria.
• The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'.
• The Issuer specifies the number of securities to be issued and the price band for orders.
• The Issuer also appoints syndicate members with whom orders can be placed by the
investors.
• Investors place their order with a syndicate member who inputs the orders into the
'electronic book'. This process is called 'bidding' and is similar to open auction.
• A Book should remain open for a minimum of 5 days.
• Bids cannot be entered less than the floor price.
• Bids can be revised by the bidder before the issue closes.
• On the close of the book building period the 'book runner evaluates the bids on the basis
of the evaluation criteria which may include -
o Price Aggression
o Investor quality
o Earliness of bids, etc.
• The book runner and the company conclude the final price at which it is willing to issue
the stock and allocation of securities.
• Generally, the number of shares is fixed; the issue size gets frozen based on the price
per share discovered through the book building process.
• Allocation of securities is made to the successful bidders.
• Book Building is a good concept and represents a capital market which is in the process
of maturing.
Rules governing book building is covered in Chapter XI of the Securities and Exchange Board of
India (Disclosure and Investor Protection) Guidelines 2000.
• BSE offers the book building services through the Book Building software that runs on the
BSE Private network.
• This system is one of the largest electronic book building networks anywhere spanning
over 350 Indian cities through over 7000 Trader Work Stations via eased lines, VSATs
and Campus LANS
• The software is operated through book-runners of the issue and by the syndicate
member brokers. Through this book, the syndicate member brokers on behalf of
themselves or their clients' place orders.
• Bids are placed electronically through syndicate members and the information is
collected on line real-time until the bid date ends.
• In order to maintain transparency, the software gives visual graphs displaying price v/s
quantity on the terminals.
Corporates may raise capital in the primary market by way of an initial public offer, rights issue or
private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the
primary market. This Initial Public Offering can be made through the fixed price method, book
building method or a combination of both.
In case the issuer chooses to issue securities through the book building route then as per SEBI
guidelines, an issuer company can issue securities in the following manner:
a. 100% of the net offer to the public through the book building route.
b. 75% of the net offer to the public through the book building process and 25% through the
fixed price portion.
1.5 Difference between shares offered through book building and offer of shares through
normal public issue:
Pricing Price at which the securities are Price at which securities will be offered/ allotted is
offered/ allotted is known in advance not known in advance to the investor. Only an
to the investor. indicative price range is known.
Demand Demand for the securities offered is Demand for the securities offered can be known
known only after the closure of the everyday as the book is built.
issue
Bid
A bid is the demand for a security that can be entered by the syndicate/sub-syndicate members in
the system. The two main components of a bid are the price and the quantity.
Bidder
The person who has placed a bid in the Book Building process
Floor Price
The minimum offer price below which bids cannot be entered. The Issuer Company in
consultation with the Book Running Lead Manager fixes the floor price.
Merchant Banker
An entity registered under the Securities and Exchange Board of India (Merchant Bankers)
Regulations, 1999.
Syndicate Members
Syndicate Members are the intermediaries registered with the Board and permitted to carry on
activity as underwriters. The Book Running Lead Managers to the issue appoints the Syndicate
Members.
Order Book
It is an 'electronic book' that shows the demand for the shares of the company at various prices.
Reverse
Delisting Exchange
Delisting Exchange means the exchange from which the securities of the company are proposed
to be delisted in accordance with these Guidelines.
Exchange
Exchange means any stock exchange, which has been granted recognition under section 4 of the
Securities Contracts (Regulation) Act, 1956.
Promoter
Promoter means a promoter as defined in clause (h) of sub-regulation (1) of Regulation 2 of the
Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers)
Regulation, 1997 and includes a person who is desirous of getting the securities of the company
delisted under these Guidelines.
Public Shareholding
Public Shareholding means the shareholding in a company held by persons other than the
promoter, the acquirer or the persons acting in concert with him as defined in regulation 2(1)(j) of
the Securities and Exchange Board of India (Substantial Acquisition of shares and Takeovers)
Regulation, 1997 and the term 'public holders of securities' shall be construed accordingly;
Voluntary Delisting
It means delisting of securities of a body corporate voluntarily by a promoter or an acquirer or any
other person other than the stock exchange(s).
The Exchange has a separate Listing Department to grant approval for listing of securities of
companies in accordance with the provisions of the Securities Contracts (Regulation) Act, 1956,
Securities Contracts (Regulation) Rules, 1957, Companies Act, 1956, Guidelines issued by SEBI
and Rules, Bye-laws and Regulations of the Exchange.
2.1 A company intending to have its securities listed on the Exchange has to comply with
the listing requirements prescribed by the Exchange. Some of the requirements are as
under:-
III Minimum Requirements for companies delisted by this Exchange seeking relisting of this Exchange
VI Allotment of Securities
The following revised eligibility criteria for listing of companies on the Exchange, through Initial
Public Offerings (IPOs) & Follow-on Public Offerings (FPOs), effective August 1, 2006.
[II] Minimum Listing Requirements for companies listed on other stock exchanges
The Governing Board of the Exchange at its meeting held on 6th August, 2002 amended the
direct listing norms for companies listed on other Stock Exchange(s) and seeking listing at BSE.
These norms are applicable with immediate effect.
1. The company should have minimum issued and paid up equity capital of Rs. 3 crores.
2. The Company should have profit making track record for last three years. The
revenues/profits arising out of extra ordinary items or income from any source of non-
recurring nature should be excluded while calculating distributable profits.
3. Minimum networth of Rs. 20 crores (networth includes Equity capital and free reserves
excluding revaluation reserves).
4. Minimum market capitalisation of the listed capital should be at least two times of the paid
up capital.
5. The company should have a dividend paying track record for the last 3 consecutive years
and the minimum dividend should be at least 10%.
6. Minimum 25% of the company's issued capital should be with Non-Promoters
shareholders as per Clause 35 of the Listing Agreement. Out of above Non Promoter
holding no single shareholder should hold more than 0.5% of the paid-up capital of the
company individually or jointly with others except in case of Banks/Financial
Institutions/Foreign Institutional Investors/Overseas Corporate Bodies and Non-Resident
Indians.
7. The company should have at least two years listing record with any of the Regional Stock
Exchange.
8. The company should sign an agreement with CDSL & NSDL for demat trading.
[III] Minimum Requirements for companies delisted by this Exchange seeking relisting of
this Exchange
The companies delisted by this Exchange and seeking relisting are required to make a fresh
public offer and comply with the prevailing SEBI's and BSE's guidelines regarding initial public
offerings.
[IV] Permission to use the name of the Exchange in an Issuer Company's prospectus
The Exchange follows a procedure in terms of which companies desiring to list their securities
offered through public issues are required to obtain its prior permission to use the name of the
Exchange in their prospectus or offer for sale documents before filing the same with the
concerned office of the Registrar of Companies. The Exchange has since last three years formed
a "Listing Committee" to analyse draft prospectus/offer documents of the companies in respect of
their forthcoming public issues of securities and decide upon the matter of granting them
permission to use the name of "Bombay Stock Exchange Limited" in their prospectus/offer
documents. The committee evaluates the promoters, company, project and several other factors
before taking decision in this regard.
As per Section 73 of the Companies Act, 1956, a company seeking listing of its securities on the
Exchange is required to submit a Letter of Application to all the Stock Exchanges where it
proposes to have its securities listed before filing the prospectus with the Registrar of Companies.
As per Listing Agreement, a company is required to complete allotment of securities offered to the
public within 30 days of the date of closure of the subscription list and approach the Regional
Stock Exchange, i.e. Stock Exchange nearest to its Registered Office for approval of the basis of
allotment.
In case of Book Building issue, Allotment shall be made not later than 15 days from the closure of
the issue failing which interest at the rate of 15% shall be paid to the investors.
A company should scrupulously adhere to the time limit for allotment of all securities and dispatch
of Allotment Letters/Share Certificates and Refund Orders and for obtaining the listing
permissions of all the Exchanges whose names are stated in its prospectus or offer documents.
In the event of listing permission to a company being denied by any Stock Exchange where it had
applied for listing of its securities, it cannot proceed with the allotment of shares. However, the
company may file an appeal before the Securities and Exchange Board of India under Section 22
of the Securities Contracts (Regulation) Act, 1956.
The companies making public/rights issues are required to deposit 1% of issue amount with the
Regional Stock Exchange before the issue opens. This amount is liable to be forfeited in the
event of the company not resolving the complaints of investors regarding delay in sending refund
orders/share certificates, non-payment of commission to underwriters, brokers, etc.
All companies listed on the Exchange have to pay Annual Listing Fees by the 30th April of every
financial year to the Exchange as per the Schedule of Listing Fees prescribed from time to time.
The schedule of listing fees for the year 2006-2007, prescribed by the Governing Board of the
Exchange is given hereunder :
Sr. Amount
Particulars
No. (Rs.)
3 Companies which have a paid-up capital* of more than Rs. 20 crores will pay
additional fee of Rs. 750/- for every increase of Rs. 1 crores or part thereof.
*includes equity shares, preference shares, fully convertible debentures, partly convertible
debenture capital and any other security which will be converted into equity shares.
Kindly Note the last date for payment of listing fee for the year 2006-2007 is April 30, 2006.
Failure to pay the listing fee(for the equity and/or debt segment) before the due date i.e.
April 30, 2006 will attract imposition of interest @ 12% per annum w.e.f. May 1, 2006.
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The companies desirous of getting their securities listed are required to enter into an agreement
with the Exchange called the Listing Agreement and they are required to make certain
disclosures and perform certain acts. As such, the agreement is of great importance and is
executed under the common seal of a company. Under the Listing Agreement, a company
undertakes, amongst other things, to provide facilities for prompt transfer, registration, sub-
division and consolidation of securities; to give proper notice of closure of transfer books and
record dates, to forward copies of unabridged Annual Reports and Balance Sheets to the
shareholders, to file Distribution Schedule with the Exchange annually; to furnish financial results
on a quarterly basis; intimate promptly to the Exchange the happenings which are likely to
materially affect the financial performance of the Company and its stock prices, to comply with the
conditions of Corporate Governance, etc.
The Listing Department of the Exchange monitors the compliance of the companies with the
provisions of the Listing Agreement, especially with regard to timely payment of annual listing
fees, submission of quarterly results, requirement of minimum number of shareholders, etc. and
takes penal action against the defaulting companies.
Companies intending to utilise the above facility for payment of listing fee would be required to
furnish the information, (mentioned below) in the Cash Management Cash Deposit Slip. These
slips would be available at all the HDFC Bank centres.
Client
1. Bombay Stock Exchange Limited
Name
Client
2. BSELIST
Code
Cheque
3. mention the cheque No & date
No.
state the name of the company and the company code No.The last digits
mentioned in the Ref. No. on the Bill is the company code No.e.g If the Ref. No in
5. Drawer
the Bill is mentioned as : Listing/Alf-Bill/2004-2005/4488, then the code No of
that company is 4488
Drawee
6. state the bank on which cheque is drawn
Bank
Drawn on
7. Mention the location of the drawee bank.
Location
Pickup
8. Not applicable
Location
No. of
9. Not applicable
Insts
The Cheque should be drawn in favour of Bombay Stock Exchange Limited , and should be
payable, locally.Companies are requested to mention in the deposit slip, the financial year(s) for
which listing fee is being paid. Payment made through any other slips would not be considered.
The above slips will have to be filled in quadruplicate. One acknowledged copy would be provided
to the depositor by the HDFC Bank.
In case Companies require any further clarifications please contact Shri Sydney Miranda on 022-
22723158 or Shri Rajesh Ghadi on Tel No 022- 22721233 ext. No 8158.
A follow on public offering (FPO) is when an already listed company makes either a fresh issue of
securities to the public or an offer for sale to the public, through an offer document. An offer for
sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.
Rights Issue (RI) is when a listed company which proposes to issue fresh securities to its existing
shareholders as on a record date. The rights are normally offered in a particular ratio to the
number of securities held prior to the issue. This route is best suited for companies who would
like to raise capital without diluting stake of its existing shareholders unless they do not intend to
subscribe to their entitlements.
Any company making a public issue or a listed company making a rights issue of value of more
than Rs.50 lakhs is required to file a draft offer document with SEBI for its observations. The
company can proceed further on the issue only after getting observations from SEBI. The validity
period of SEBI’s observation letter is three months only ie. the company has to open its issue
within three months period.
SEBI does not recommend any issue nor does take any responsibility either for the financial
soundness of any scheme or the project for which the issue is proposed to be made or for the
correctness of the statements made or opinions expressed in the offer document.
It is to be distinctly understood that submission of offer document to SEBI should not in any way
be deemed or construed that the same has been cleared or approved by SEBI. The Lead
manager certifies that the disclosures made in the offer document are generally adequate and are
in conformity with SEBI guidelines for disclosures and investor protection in force for the time
being. This requirement is to facilitate investors to take an informed decision for making
investment in the proposed issue.
The investors should make an informed decision purely by themselves based on the contents
disclosed in the offer documents. SEBI does not associate itself with any issue/issuer and should
in no way be construed as a guarantee for the funds that the investor proposes to invest through
the issue. However, the investors are generally advised to study all the material facts pertaining
to the issue including the risk factors before considering any investment. They are strongly
warned against any ‘tips’ or news through unofficial means.
The primary issuances are governed by SEBI in terms of SEBI (Disclosures and Investor
protection) guidelines. SEBI framed its DIP guidelines in 1992. Many amendments have been
carried out in the same in line with the market dynamics and requirements. In 2000, SEBI issued
“Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000”
which is compilation of all circulars organized in chapter forms. These guidelines and
amendments thereon are issued by SEBI India under section 11 of the Securities and Exchange
Board of India Act, 1992. SEBI (Disclosure and investor protection) guidelines 2000 are in short
called DIP guidelines. It provides a comprehensive framework for issuances buy the companies.
3.9 How does SEBI ensure compliance with Disclosures and Investor protection?
The Merchant Banker are the specialized intermediaries who are required to do due diligence and
ensure that all the requirements of DIP are complied with while submitting the draft offer
document to SEBI. Any non compliance on their part, attract penal action from SEBI, in terms of
SEBI (Merchant Bankers) Regulations. The draft offer document filed by Merchant Banker is also
placed on the website for public comments. Officials of SEBI at various levels examine the
compliance with DIP guidelines and ensure that all necessary material information is disclosed in
the draft offer documents.
3.10 With the presence of the Central Listing Authority, what would be the role of SEBI in
the processing of Offer documents for an issue?
The Central Listing Authority’s , CLA, functions have been detailed under Regulation 8 of SEBI
(Central Listing Authority) Regulations, 2003 (CLA Regulations) issued on August 21, 2003 and
amended up to October 14, 2003. In brief, it covers processing applications for letter precedent to
listing fromapplicants; to make recommendations to the Board on issues pertaining to the
protection of the interest of the investors in securities and development and regulation of the
securities market, including the listing agreements, listing conditions and disclosures to be made
in offer documents; and; to undertake any other functions as may be delegated to it by the Board
from time to time. SEBI as the regulator of the securities market examines all the policy matters
pertaining to issues and will continue to do so even during the existence of the CLA. Since the
CLA is not yet operational, the reply to this question would be updated thereafter.
3.11 What is the difference between an offer document, Red Herring Prospectus, a
prospectus and an abridged prospectus? What does it mean when someone says “draft
offer doc”?
“Offer document” means Prospectus in case of a public issue or offer for sale and Letter of Offer
in case of a rights issue, which is filed Registrar of Companies (ROC) and Stock Exchanges. An
offer document covers all the relevant information to help an investor to make his/her investment
decision. “Draft Offer document” means the offer document in draft stage. The draft offer
documents are filed with SEBI, atleast 21 days prior to the filing of the Offer Document with ROC/
SEs. SEBI may specifies changes, if any, in the draft Offer Document and the issuer or the Lead
Merchant banker shall carry out such changes in the draft offer document before filing the Offer
Document with ROC/ SEs. The Draft Offer document is available on the SEBI website for public
comments for a period of 21 days from the filing of the Draft Offer Document with SEBI.
Red Herring Prospectus is a prospectus, which does not have details of either price or number of
shares being offered, or the amount of issue. This means that in case price is not disclosed, the
number of shares and the upper and lower price bands are disclosed. On the other hand, an
issuer can state the issue size and the number of shares are determined later. An RHP for and
FPO can be filed with the RoC without the price band and the issuer, in such a case will notify the
floor price or a price band by way of an advertisement one day prior to the opening of the issue.
In the case of book-built issues, it is a process of price discovery and the price cannot be
determined until the bidding process is completed. Hence, such details are not shown in the Red
Herring prospectus filed with ROC in terms of the provisions of the Companies Act. Only on
completion of the bidding process, the details of the final price are included in the offer document.
The offer document filed thereafter with ROC is called a prospectus.
Abridged Prospectus means the memorandum as prescribed in Form 2A under sub-section (3) of
section 56 of the Companies Act, 1956. It contains all the salient features of a prospectus. It
accompanies the application form of public issues.
Lock-in indicates a freeze on the shares. SEBI (DIP) Guidelines have stipulated lock-in
requirements on shares of promoters mainly to ensure that the promoters or main persons who
are controlling the company, shall continue to hold some minimum percentage in the company
after the public issue.
3.15 How the word Promoter has been defined?
The promoter has been defined as a person or persons who are in over-all control of the
company, who are instrumental in the formulation of a plan or programme pursuant to which the
securities are offered to the public and those named in the prospectus as promoters(s). It may be
noted that a director / officer of the issuer company or person, if they are acting as such merely in
their professional capacity are not be included in the definition of a promoter.
'Promoter Group' includes the promoter, an immediate relative of the promoter (i.e. any spouse
of that person, or any parent, brother, sister or child of theperson or of the spouse). In case
promoter is a company, a subsidiary or holding company of that company; any company in which
the promoter holds 10% or more of the equity capital or which holds 10% or more of the equity
capital of the Promoter; any company in which a group of individuals or companies or
combinations thereof who holds 20% or more of the equity capital in that company also holds
20% or more of the equity capital of the issuer company.
In case the promoter is an individual, any company in which 10% or more of the share capital is
held by the promoter or an immediate relative of the promoter' or a firm or HUF in which the
'Promoter' or any one or more of his immediate relative is a member; any company in which a
company specified in (i) above, holds 10% or more, of the share capital; any HUF or firm in which
the aggregate share of the promoter and his immediate relatives is equal to or more than 10% of
the total, and all persons whose shareholding is aggregated for the purpose of disclosing in the
prospectus "shareholding of the promoter group".
Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines
have provided that the issuer in consultation with Merchant Banker shall decide the price. There
is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The company
and merchant banker are however required to give full disclosures of the parameters which they
had considered while deciding the issue price. There are two types of issues one where company
and LM fix a price (called fixed price) and other, where the company and LM stipulate a floor price
or a price band and leave it to market forces to determine the final price (price discovery through
book building process).
3.18 What does “price discovery through book building process” mean?
“Book Building” means a process undertaken by which a demand for the securities proposed to
be issued by a body corporate is elicited and built up and the price for the securities is assessed
on the basis of the bids obtained for the quantum of securities offered for subscription by the
issuer. This method provides an opportunity to the market to discover price for securities.
Book building is a process of price discovery. Hence, the Red Herring prospectus does not
contain a price. Instead, the red herring prospectus contains either the floor price of the securities
offered through it or a price band along with the range within which the bids can move. The
applicants bid for the shares quoting the price and the quantity that they would like to bid at. Only
the retail investors have the option of bidding at ‘cut-off’. After the bidding process is complete,
the ‘cut-off’ price is arrived at on the lines of Dutch auction. The basis of Allotment (Refer Q. 15.j)
is then finalized and letters allotment/refund is undertaken. The final prospectus with all the
details including the final issue price and the issue size is filed with ROC, thus completing the
issue process.
The red herring prospectus may contain either the floor price for the securities or a price band
within which the investors can bid. The spread between the floor and the cap of the price band
shall not be more than 20%. In other words, it means that the cap should not be more than 120%
of the floor price. The price band can have a revision and such a revision in the price band shall
be widely disseminated by informing the stock exchanges, by issuing press release and also
indicating the change on the relevant website and the terminals of the syndicate members. In
case the price band is revised, the bidding period shall be extended for a further period of three
days, subject to the total bidding period not exceeding thirteen days.
3.21 Who decides the price band?
It may be understood that the regulatory mechanism does not play a role in setting the price for
issues. It is up to the company to decide on the price or the price band, in consultation with
Merchant Bankers. The basis of issue price is disclosed in the offer document. The issuer is
required to disclose in detail about the qualitative and quantitative factors justifying the issue
price.
A company making an issue to public can reserve some shares on “allotment on firm basis” for
some categories as specified in DIP guidelines. Allotment on firm basis indicates that allotment to
the investor is on firm basis. DIP guidelines provide for maximum % of shares, which can be
reserved on firm basis. The shares to be allotted on “firm allotment category” can be issued at a
price different from the price at which the net offer to the public is made provided that the price at
which the security is being offered to the applicants in firm allotment category is higher than the
price at which securities are offered to public.
Reservation on Competitive Basis is when allotment of shares is made in proportion to the shares
applied for by the concerned reserved categories. Reservation on competitive basis can be made
in a public issue to the Employees of the company, Shareholders of the promoting companies in
the case of a new company and shareholders of group companies in the case of an existing
company, Indian Mutual Funds, Foreign Institutional Investors (including non resident Indians and
overseas corporate bodies), Indian and Multilateral development Institutions and Scheduled
Banks.
The allotment to the Qualified Institutional Buyers (QIBs) is on a discretionary basis. The
discretion is left to the Merchant Bankers who first disclose the parameters of judgment in the
Red Herring Prospectus. There are no objective conditions stipulated as per the DIP Guidelines.
The Merchant Bankers are free to set their criteria and mention the same in the Red Herring
Prospectus.
3.25 Who is eligible for reservation and how much? (QIBs, NIIs, etc.,)
In a book built issue allocation to Retail Individual Investors (RIIs), Non Institutional Investors
(NIIs) and Qualified Institutional Buyers (QIBs) is in the ratio of 35: 15: 50 respectively. In case
the book built issues are made pursuant to the requirement of mandatory allocation of 60% to
QIBs in terms of Rule 19(2)(b) of SCRR, the respective figures are 30% for RIIs and 10% for NIIs.
This is a transitory provision pending harmonization of the QIB allocation in terms of the aforesaid
Rule with that specified in the guidelines.
‘Retail individual investor’ means an investor who applies or bids for securities of or for a value of
not more than Rs.1, 00,000.
Yes. He can bid in a book-built issue for a value not more than Rs.1,00,000. Any bid made in
excess of this will be considered in the HNI category.
3.28 Where can I get a form for applying/ bidding for the shares?
The form for applying/bidding of shares is available with all syndicate members, collection
centers, the brokers to the issue and the bankers to the issue.
3.29 What is the amount of faith that I can lay on the contents of the documents? And
whom should I approach if there are any lacunae?
The document is prepared by an independent specialized agency called Merchant Banker, which
is registered with SEBI. They are required to do through due diligence while preparing an offer
document. The draft offer document submitted to SEBI is put on website for public comments. In
case, you have any information about the issuer or its directors or any other aspect of the issue,
which in your view is not factually reflected, you may send your complaint to Lead Manager to the
issue or to SEBI, Division of Issues and Listing.
The FAQs relating to demat have been covered in the Investor Education section of the SEBI
website in a separate head. They are available on the
http://investor.sebi.gov.in/faq/dematfaq.html.
3.32 What are the dos and don’ts for bidding / applying in the issue?
The investors are generally advised to study all the material facts pertaining to the issue including
the risk factors before considering any investment. They are strongly warned against any ‘tips’ or
relying on news obtained through unofficial means.
As per Clause 8.8.1, Subscription list for public issues shall be kept open for at least 3 working
days and not more than 10 working days. In case of Book built issues, the minimum and
maximum period for which bidding will be open is 3–7 working days extendable by 3 days in case
of a revision in the price band. The public issue made by an infrastructure company, satisfying the
requirements in Clause 2.4.1 (iii) of Chapter II may be kept open for a maximum period of 21
working days. As per clause 8.8.2., Rights issues shall be kept open for at least 30 days and not
more than 60 days.
Yes. The investor can change or revise the quantity or price in the bid using the form for
changing/revising the bid that is available along with the application form. However, the entire
process of changing of revising the bids shall be completed within the date of closure of the issue.
3.35 What proof can bidder request from a trading member or a syndicate member for
entering bids?
The syndicate member returns the counterfoil with the signature, date and stamp of the syndicate
member. The investor can retain this as a sufficient proof that the bids have been taken into
account.
3.36 Can I know the number of shares that would be allotted to me?
In case of fixed price issues, the investor is intimated about the CAN/Refund order within 30 days
of the closure of the issue. In case of book built issues, the basis of allotment is finalized by the
Book Running lead Managers within 2 weeks from the date of closure of the issue. The registrar
then ensures that the demat credit or refund as applicable is completed within 15 days of the
closure of the issue. The listing on the stock exchanges is done within 7 days from the finalization
of the issue.
3.37 Which are the reliable sources for me to get information about response to issues?
In the case of book-built issues, the exchanges (BSE/NSE) display the data regarding the bids
obtained (on a consolidated basis between both these exchanges). The data regarding the bids is
also available category wise. After the price has been determined on the basis of bidding, the
statutory public advertisement containing, inter alia, the price as well as a table showing the
number of securities and the amount payable by an investor, based on the price determined, is
issued.
3.38 How do I know if I am allotted the shares? And by what timeframe will I get a refund if
I am not allotted?
The investor is entitled to receive a Confirmatory Allotment Note (CAN) in case he has been
allotted shares within 15 days from the date of closure of a book Built issue. The registrar has to
ensure that the demat credit or refund as applicable is completed within 15 days of the closure of
the book built issue.
3.39 How long will it take after the issue for the shares to get listed?
The listing on the stock exchanges is done within 7 days from the finalization of the issue. Ideally,
it would be around 3 weeks after the closure of the book built issue. In case of fixed price issue, it
would be around 37 days after closure of the issue.
3.40 How does one come to know about the issues on offer? And from where can I get
copies of the draft offer document?
SEBI issues press releases every week regarding the draft offer documents received and
observations issued during the period. The draft offer documents are put up on the website under
Reports/Documents section. The final offer documents that are filed with SEBI/ROC are also put
up for information under the same section. Copies of the draft offer documents in hard copy form
may be obtained from the office of SEBI, Mittal Court, ‘A’ wing, Ground Floor, 224, Nariman Point,
Mumbai – 400021 on a payment of Rs.100 or from SES, LMs etc. The soft copies can be
downloaded from the SEBI website under Reports/Documents section. Some LMs also make it
available on their web sites for download. The final offer documents that are filed with SEBI/ROC
can also be downloaded from the same section of the website.
Merchant Bankers to the issue or Book Running Lead Managers (BRLM), syndicate members,
Registrars to the issue, Bankers to the issue, Auditors of the company, Underwriters to the issue,
Solicitors, etc. are the intermediaries to an issue. The issuer discloses the addresses,
telephone/fax numbers and email addresses of these intermediaries. In addition to this, the issuer
also discloses the details of the compliance officer appointed by the company for the purpose of
the issue.
A Merchant banker possessing a valid SEBI registration in accordance with the SEBI (Merchant
Bankers) Regulations, 1992 is eligible to act as a Book Running Lead Manager to an issue.
3.43 What is the role of a Lead Manager? (Pre and post issue)
In the pre-issue process, the Lead Manager (LM) takes up the due diligence of company’s
operations/ management/ business plans/ legal etc. Other activities of the LM include drafting and
design of Offer documents, Prospectus, statutory advertisements and memorandum containing
salient features of the Prospectus. The BRLMs shall ensure compliance with stipulated
requirements and completion of prescribed formalities with the Stock Exchanges, RoC and SEBI
including finalisation of Prospectus and RoC filing. Appointment of other intermediaries viz.,
Registrar(s), Printers, Advertising Agency and Bankers to the Offer is also included in the pre-
issue processes.
The LM also draws up the various marketing strategies for the issue. The post issue activities
including management of escrow accounts, coordinate non-institutional allocation, intimation of
allocation and dispatch of refunds to bidders etc are performed by the LM. The post Offer
activities for the Offer will involve essential follow-up steps, which include the finalization of
trading and dealing of instruments and dispatch of certificates and demat of delivery of shares,
with the various agencies connected with the work such as the Registrar(s) to the Offer and
Bankers to the Offer and the bank handling refund business. The merchant banker shall be
responsible for ensuring that these agencies fulfill their functions and enable it to discharge this
responsibility through suitable agreements with the Company.
The Registrar finalizes the list of eligible allottees after deleting the invalid applications and
ensures that the corporate action for crediting of shares to the demat accounts of the applicants is
done and the dispatch of refund orders to those applicable are sent. The Lead manager
coordinates with the Registrar to ensure follow up so that that the flow of applications from
collecting bank branches, processing of the applications and other matters till the basis of
allotment is finalized, dispatch security certificates and refund orders completed and securities
listed.
Bankers to the issue, as the name suggests, carries out all the activities of ensuring that the
funds are collected and transferred to the Escrow accounts. The Lead Merchant Banker shall
ensure that Bankers to the Issue are appointed in all the mandatory collection centers as
specified in DIP Guidelines. The LM also ensures follow-up with bankers to the issue to get quick
estimates of collection and advising the issuer about closure of the issue, based on the correct
figures.
3.46 What is the recourse available to the investor in case of issue complaints?
Most of the issue complaints pertain to non-receipt of refund or allotment, or delay in receipt of
refund or allotment and payment of interest thereon. These complaints shall be made to the post
issue Lead Manager, who in turn will take up the matter with registrar to redress the complaints.
In case the investor does not receive any reply within a reasonable time, investor may complain
to SEBI, Office of investors Assistance
3.47 Where do I get data on primary issues? (Issuer, total issues, issue size, the
intermediaries, etc., during a given period)
SEBI brings out a monthly bulletin that is available off the shelf at bookstores. A digital version of
the same is available on the SEBI website under the “News/Publications” section. The Bulletin
contains all the relevant historical figures of intermediary issue and intermediary particulars during
the given period placed against historical figures.
3.48 What are the relevant regulations and where do I find them?
The SEBI Manual is SEBI authorized publication that is a comprehensive databank of all relevant
Acts, Rules, Regulations and Guidelines that are related to the functioning of the Board. The
details pertaining to the Acts, Rules, Regulations, Guidelines and Circulars are placed on the
SEBI website under the “Legal Framework” section. The periodic updates are uploaded onto the
SEBI website regularly.
Here, the issuer’s management gives its view on the Internal and external risks faced by the
company. Here, the company also makes a note on the forward-looking statements. This
information is disclosed in the initial pages of the document and it is also clearly disclosed in the
abridged prospectus. It is generally advised that the investors should go through all the risk
factors of the company before making an investment decision.
The introduction covers a summary of the industry and business of the issuer company, the
offering details in brief, summary of consolidated financial, operating and other data. General
Information about the company, the merchant bankers and their responsibilities, the details of
brokers/syndicate members to the Issue, credit rating (in case of debt issue), debenture trustees
(in case of debt issue), monitoring agency, book building process in brief and details of
underwriting Agreements are given here. Important details of capital structure, objects of the
offering, funds requirement, funding plan, schedule of implementation, funds deployed, sources of
financing of funds already deployed, sources of financing for the balance fund requirement,
interim use of funds, basic terms of issue, basis for issue price, tax benefits are covered.
This presents a review of on the details of the business of the company, business strategy,
competitive strengths, insurance, industry-regulation (if applicable), history and corporate
structure, main objects, subsidiary details, management and board of directors, compensation,
corporate governance, related party transactions, exchange rates, currency of presentation
dividend policy and management's discussion and analysis of financial condition and results of
operations are given.
Financial statement, changes in accounting policies in the last three years and differences
between the accounting policies and the Indian Accounting Policies (if the Company has
presented its Financial Statements also as per Either US GAAP/IAS are presented.
Outstanding litigations and material developments, litigations involving the company and its
subsidiaries, promoters and group companies are disclosed. Also material developments since
the last balance sheet date, government approvals/licensing arrangements, investment approvals
(FIPB/RBI etc.), all government and other approvals, technical approvals, indebtedness, etc. are
disclosed.
Green Shoe option means an option of allocating shares in excess of the shares included in the
public issue and operating a post-listing price stabilizing mechanism for a period not exceeding
30 days in accordance with the provisions of Chapter VIIIA of DIP Guidelines, which is granted to
a company to be exercised through a Stabilizing Agent. This is an arrangement wherein the issue
would be over allotted to the extent of a maximum of 15% of the issue size. From an investor’s
perspective, an issue with green shoe option provides more probability of getting shares and also
that post listing price may show relatively more stability as compared to market.
Any safety net scheme or buy-back arrangements of the shares proposed in any public issue
shall be finalized by an issuer company with the lead merchant banker in advance and disclosed
in the prospectus. Such buy back or safety net arrangements shall be made available only to all
original resident individual allottees limited up to a maximum of 1000 shares per allottee and the
offer is kept open for a period of 6 months from the last date of dispatch of securities. The details
regarding Safety Net are covered under Clause 8.18 of DIP Guidelines.
The Book Runner(s) may appoint those intermediaries who are registered with the Board and
who are permitted to carry on activity as an ‘Underwriter’ as syndicate members. The syndicate
members are mainly appointed to collect and entire the bid forms in a book built issue.
Presently, in issues made through book building, Issuers and merchant bankers are required to
ensure online display of the demand and bids during the bidding period. This is the Open book
system of book building. Here, the investor can be guided by the movements of the bids during
the period in which the bid is kept open. Under closed book building, the book is not made public
and the bidders will have to take a call on the price at which they intend to make a bid without
having any information on the bids submitted by other bidders.
Hard underwriting is when an underwriter agrees to buy his commitment at its earliest stage. The
underwriter guarantees a fixed amount to the issuer from the issue. Thus, in case the shares are
not subscribed by investors, the issue is devolved on underwriters and they have to bring in the
amount by subscribing to the shares. The underwriter bears a risk which is much higher in soft
underwriting.
Soft underwriting is when an underwriter agrees to buy the shares at later stages as soon as the
pricing process is complete. He then, immediately places those shares with institutional players.
The risk faced by the underwriter as such is reduced to a small window of time. Also, the soft
underwriter has the option to invoke a force Majeure (acts of God) clause in case there are
certain factors beyond the control that can affect the underwriter’s ability to place the shares with
the buyers.
In Book building issue, the issuer is required to indicate either the price band or a floor price in the
red herring prospectus. The actual discovered issue price can be any price in the price band or
any price above the floor price. This issue price is called “Cut off price”. This is decided by the
issuer and LM after considering the book and investors’ appetite for the stock. SEBI (DIP)
guidelines permit only retail individual investors to have an option of applying at cut off price.
Pricing of an issue where one category is offered shares at a price different from the other
category is called differential pricing. In DIP Guidelines differential pricing is allowed only if the
security to applicants in the firm allotment category is at a price higher than the price at which the
net offer to the public is made. The net offer to the public means the offer made to the Indian
public and does not include firm allotments or reservations or promoters’ contributions.
After the closure of the issue, the bids received are aggregated under different categories i.e.,
firm allotment, Qualified Institutional Buyers (QIBs), Non-Institutional Buyers (NIBs), Retail, etc.
The oversubscription ratios are then calculated for each of the categories as against the shares
reserved for each of the categories in the offer document. Within each of these categories, the
bids are then segregated into different buckets based on the number of shares applied for. The
oversubscription ratio is then applied to the number of shares applied for and the number of
shares to be allotted for applicants in each of the buckets is determined. Then, the number of
successful allottees is determined. This process is followed in case of proportionate allotment. In
case of allotment for QIBs, it is subject to the discretion of the post issue lead manager.
Qualified Institutional Buyers are those institutional investors who are generally perceived to
possess expertise and the financial muscle to evaluate and invest in the capital markets. In terms
of clause 2.2.2B (v) of DIP Guidelines, a ‘Qualified Institutional Buyer’ shall mean:
c. Mutual funds;
These entities are not required to be registered with SEBI as QIBs. Any entities falling under the
categories specified above are considered as QIBs for the purpose of participating in primary
issuance process.
4.0 Useful Links