Equity Issue

Ved Prakash Tiwari

IBS GURGAON

Factors to be Consider

Eligibility Criteria:
Net Tangible assets of Rs. 3.00 Crore in each of
the preceding 3 years.
Track record of Distributable profits at least 3 out
of 5 preceding years.
The Company has a Networth of Rs. 1.00 Crore in
preceding 3 years.
The proposed issue should not exceed 5 times of its Preissue

Eligibility criteria: (Alternate route)

Book building process and 50% of the offer to QIBs or
15% participation in project by F/Is or Schedule Banks;
10% of the Project cost from appraiser;
10% of the Issue to QIBs.
Minimum post issue face capital of Rs.10 Crores or
Market making for 2 years and Minimum number
of allottees atleast 1000

Initial Public Offer (IPO)

This is when an unlisted company makes either a fresh
issue or offers sale of its existing securities or both for the
first time to public.
This Initial Public Offering can be made through the fixed
price method, book building 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:
100% of the net offer to the public through the book
building route.
75% of the net offer to the public through the book building
process and 25% through the fixed price portion.

Price Discovery through Book

Building
Book Building is basically a process used
in Initial Public Offer (IPO) which helps to
determine price and demand discovery.
It is a process used for marketing a public
offer of equity shares of a company. It is a
process 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 offer/issue price is then determined
after the last date of IPO based on certain
evaluation criteria.

Appointment of UnderwriterThe underwriters is appointed who

commit to shoulder the liability and
subscribe to the shortfall in case the
issue is under
under--subscribed
subscribed.. For this
commitment they are entitled to a
maximum commission of 2.5 % on the
amount underwritten.

Appointment of Registrars:

Registrars process the application

forms, tabulate the amounts
collected during the issue and
initiate the allotment procedures.

Appointment of the brokers to

the issue:
Recognized members of the
Stock exchanges are appointed as
brokers to the issue for marketing the
issue.
They are eligible for a
maximum brokerage of 1.5%.

Appointment of Lawyers:
Lawyers are appointed by company to ensure that all the
agreements they enter are as per the rules and regulation.

Draft Prospectus:
A draft prospectus is prepared giving out details

of

the Company, promoters background,

Management, terms of the issue, project
details, modes of financing, past financial
performance, projected profitability and
others, The lead manager has to verify and certify the
facts stated in the draft prospectus and ensure that the
company is not making any false claims. Which is to
be filed with SEBI 21 days before IPO, SEBI gives

its observation and recommends necessary

changes

Filing of prospectus with

the Registrar of Companies:
The prospectus along with the copies of the
agreements entered into with the Lead
Manager, Underwriters, Bankers, registrars and
Brokers to the issue is filed with the Registrar
of Companies of the state where the registered
office of the company is located.

Printing and dispatch of

Application forms: The prospectus
and application forms are printed
and dispatched to all the merchant
bankers, underwriters, brokers to
the issue.

Filing of the initial listing

application:
A letter is sent to the Stock exchanges where
the issue is proposed to be listed giving the
details and stating the intent; of getting the
shares listed on the Exchange. The initial
listing application has to be sent with a fee of
Rs. 7,500/-.

Statutory announcement:
An abridged version of the prospectus and;
the Issue start and close dates are published in major
English; dailies and vernacular newspapers.

Processing of applications:
After the close of the Public Issue all the
application forms are scrutinized, tabulated and
then shares are allotted against these
application

Establishing the liability of the underwriter:

In case the Issue is not fully subscribed to, then
the liability for the subscription falls on the
underwriters who have to subscribe to the
shortfall.

Allotment of Shares:
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.

Listing of the Issue:

The shares after having been allotted have to be listed compulsorily
on the l stock exchange and optionally at the other stock exchanges.

Escrow Account: An escrow account is a designated account,

the funds in which can be utilised only for a specified purpose. In
other words, the bankers to the issue keep the funds in the escrow
account on behalf of the bidders.
These funds are not available to the company till the issue is
completed and allocation is made.

Coal India Issue.

Indian IPO sector has seen a lot of
action since the Coal India Limited
filed for an initial public offering.
The IPO was oversubscribed for 15
times signaling other governmentowned companies to jump into the
IPO market and make history

 Coal India IPO is the biggest IPO in India so far.

Coal India IPO succeeded due to the everincreasing trust of investors in the Company Coal
India Ltd.
Steady improvements in Coal India Ltds
performance and quality have been two major
hallmarks of this IPO.
Both foreign and domestic investors have shown
robust confidence as far as the companys credibility
is concerned.
The CIL IPO has received maximum bids up till
now.
Indian Government has sold 631.6 million shares in
the IPO so far.
Investors has borrowed heavy money to subscribe
for the Coal IPO shares, the price band was kept
between Rs. 225 to 245.

REASONS FOR SUCCESSFUL IPO OF COAL INDIA LTD.

The best thing about the Coal India IPO

is the pricing of the shares. The
Government has announced that the
price band for the offer of shares of
Coal India will be Rs. 225-245 per
share.
Coal India is offering a discount of 5%
for retail investors which means that the
price band will be Rs. 214 to 233.
At the FY 2010 consolidated & diluted
PE of Rs. 15.56, Coal Indias PE (after
retail discount) works out to 15 at the
higher end of the price band.