IPO Book Building

PRESENTATION
on
IPO’s Through Book
Building
Regulatory Frame work and
Case studies
(Part II)
 SEBI Registered intermediaries
Market Intermediaries As on 31st March 1993 1998 2006 2008 2009

Stock Exchanges (Cash Market) 21 22 22 19 20

Stock Exchanges (Derivatives) NA NA 2 2 2

Brokers (Cash Segment) 5290 9005 9339 9464 9628

Corporate Brokers (Cash Segment) NA 2976 3933 4138 4308

Sub-brokers (Cash Segment) NA 3760 23479 41081 60947

Brokers (Derivative) NA NA 1120 1414 1587

Foreign Institutional Investors 18 496 882 1303 1626

Custodians NA NA 11 15 16

Depositories NA 1 2 2 2

Depository Participants NA 52 526 653 714

Merchant Bankers 74 802 130 151 134

Bankers to an Issue NA 72 60 50 51

Underwriters NA 43 57 35 19

Debenture Trustees NA 32 32 28 30

Credit Rating Agencies NA NA 4 5 5

Venture Capital Funds NA NA 80 104 132

Foreign Venture Capital Investors NA NA 39 97 129

RTI and STA NA 334 83 76 71

Portfolio Managers 28 16 132 201 232

Mutual Funds NA 38 38 39 44

Collective Investment Schemes NA NA 0  

Approved Intermediaries (Stock Lending Schemes) NA 1 3 3

NA: Not Available Source SEBI Bulletin          

 Resource mobilized from primary markets

Total Category-wise

Year No. Amount Public Rights

    Rs in Crs No. Amount No. Amount

      Public Rs Crs Rights Rs Crs

1993-94 1143 24372 773 15449 370 8923

1995-96 1725 20804 1426 14240 299 6564

1999-00 93 7817 65 6257 28 1560

2002-03 26 4070 14 3639 12 431

2003-04 57 23272 35 22265 22 1007

2004-05 60 28256 34 24640 26 3616

2005-06 139 27382 103 23294 36 4088

2006-07 124 33508 85 29797 39 3711

2007-08 124 87029 92 54511 32 32518

2008-09 46 14719 21 2082 25 12637

Source SEBI Bulletin        

 Size wise classification

>50
>5 cr <50 cr<100
Year Total < 5 cr. cr cr > 100 cr.
                     
  No. Rs No. Rs No. Rs No. Rs No. Rs
                     
                     

1995-96 1725 20804 1066 3183 593 6177 43 2934 23 8511

2002-03 26 4070 2 6 11 263 0 0 13 3801
2003-04 57 23272 6 16 21 366 5 351 25 22539
2004-05 60 28256 2 3 22 505 11 723 25 27025
2005-06 139 27382 6 20 51 1377 33 2189 49 23815

2006-07 124 33508 3 10 46 1174 31 2386 44 29938

2007-08 124 87029 4 16 34 926 25 1669 61 84418
2008-09 46 14720 1 3 22 516 9 1222 14 12978
Source SEBI Bulletin                    
 Regulatory Considerations for Issuers coming out with IPO’s

Companies seeking a listing must adhere to the SEBI (DIP) Guidelines, SCRA Rules
and the listing requirements/policies of the stock exchange they wish to list on

SEBI (DIP)
Guidelines/SCRA
Rules

FDI/FII Regulatory Considerations Listing

policy

Exchange
Requirements/
Policies

Either
 Indian Public offerings Listing on the Bourses
Eligibility Considerations

Conditions laid down by SEBI

Company with :
Profitability track record for 3 out of 5 years
Networth of minimum Rs. 1 crores in each preceding 3 years
Net tangible assets of at least Rs.3 crores in each preceding 3 years

YES NO

Issue Size >5 times pre-issue Bookbuilt IPO with at least 50% allocation to QIBs
networth Minimum post issue face value of capital is Rs.10 Cr

NO OR
YES
At least 50% participation by FIs / Banks of which at
least 10% is from appraiser(s)
Bookbuilt IPO with at Fixed Price IPO Minimum post-issue face value of capital is Rs.10 Cr
least 50% allocation to OR
QIBs Bookbuilt IPO

Partnership firms or companies formed out of division of an existing company : Eligibility needs to be considered on the
accounts recast as per Schedule VI of the Companies Act 1956
No outstanding Warrants or Financial Instruments with option to convert into equity shares at a later date, except ESOPs;
No company shall make a public or rights issue unless partly paid shares are made fully paid up or forfeited;
Means of finance other than issue to be firmed up to the extent of 75% of the same;
 Eligibility Criteria - Exemptions
 Banking company set up under sub-section (c) of Section 5 of the
Banking Regulation Act, 1949 and which has received license
from the Reserve Bank of India,
OR
 Under the Banking Companies (Acquisition and Transfer of
Undertaking) Act, 1970 Banking Companies (Acquisition and Transfer
of Undertaking) Act, 1980, State Bank of India Act 1955 and State
Bank of India (Subsidiary Banks) Act, 1959
 Infrastructure company (exempt from Rule 19(2)b also)
 Whose project has been appraised by a Public Financial Institution or
Infrastructure Development Finance Corporation (IDFC) or
Infrastructure Leasing and Financing Services Ltd. (IL&FS) and
 Not less than 5% of the project cost is financed by FI/IDFC/ILFS, by
way of loan or subscription to equity or a combination of both.
 Rights issue by a listed company (exempt from Rule 19(2)b also)
 Indian Public offerings Listing on the Bourses

Minimum Offer Size

Conditions Laid Down by SEBI

Net
Net Offer
Offer to
to the
the public
public
At
At least 25% of the post issue equity , excluding reservation/firm
least 25% of the post issue equity , excluding reservation/firm allotments
allotments

No
No

SEBI
SEBI SCRA
SCRA

At least 10% of the post issue equity is to be The offering is to be through book
offered to the public building with minimum 60%
allocation to QIBs
At least two million securities are offered to
the public (excluding reservation, firm Exception
Exception
allotment and promoters’ contribution)
Companies providing Infrastructure
The size of the net offer to the public is at facility
least Rs. 1,000 mn
Government Companies, with
specific exemption from SEBI
 Indian Public Offerings Listing on the Bourses

Allocation Buckets

Net
Net Offer
Offer to
to the
the public
public
At
At least
least 25%
25% of
of the
the post
post issue
issue equity
equity ,, excluding
excluding reservation/firm
reservation/firm allotments
allotments

No
Yes

SCRA
SEBI

At least 50% to the QIBs At least 60% to the QIBs

Not less than 35% to Retail Not less than 30% to Retail Investors
Investors Not less than 10% to Non Institutional
Not less than 15% to Non Investors
Institutional Investors
 Other Regulations for compliance

Cap on foreign holding for Print Media, Broadcasting companies

FDI Policy FDI restricted in retail sector
FDI restricted in real estate sector

Restriction on holding in Banking Sector

RBI/FEMA Offer for sale requires FIPB/RBI permission
FII limits and Sub-account limits
Monitoring of FDI/FII limits on the secondary market

Information & Broadcasting ministry

Sector specific
regulators Telecom
Insurance
 Indian Public Offerings Listing on the Bourses

Promoter Contribution
Promoter includes person or persons :
Who are in over-all control of the company OR named in
Promoter prospectus as promoters;
Who are instrumental in the formulation of a plan or program
pursuant to which the securities are offered to the public
Promoter’s shareholding not to be less than 20% of the post issue capital
In case of a shortfall, promoter to bring in full amount of promoter’s
Promoter contribution atleast one day prior to the issue opening date at the IPO
Contribution valuation
Listed Companies, exempted, if having a track record of 3 year profitability
Participation in excess of 20% will attract preferential pricing
Following securities during the preceding 3 years
Acquired for consideration other than cash
Out of Bonus issue, out of revaluation reserves or reserves without accrual of
Ineligibility for cash resources
Promoter
Contribution Shares acquired in preceding one year at a price lower than the Offer price

Exception made to shares acquired pursuant to scheme of merger

Pledged shares (ref 30th April 2007)

 Indian Public Offerings Listing on the Bourses

Lockup Provisions

Minimum promoter contribution to be locked in for period of three year

Promoter Excess promoter contribution to be locked in for a period of one year
Contribution
Shortfall in firm allotment subscribed by the promoters to be locked in for a
period of one year
Pre issue capital locked in for a period of 1 years

Except
Held by SEBI registered Venture Funds for period
Others of one year
Held for a period of one year at the time of filing of
the prospectus with SEBI and Offered for sale
Held by employees issued under a SEBI compliant
ESOP scheme

Relaxation of
lock in Inter-se transfer of shares among promoters or pre issue holders subject
conditions to continuation of residual lock-in period
 BOOK BUILDING
(Regulatory Framework)

 14th Aug 2003

 28th May 2004
 29th March 2005
 19th Sept 2005
 22nd January 2006
 30th April 2007
 29th November 2007
 24th Feb 2009
 9th July 2009
 CONCEPT OF GREEN SHOE OPTION

 SIMPLE THEORY OF ECONOMICS

 OVER ALLOTMENT OF SHARES
 APPROVAL OF SHAREHOLDERS
 MONEY RECEIVED THROUGH THIS PROCESS
USED FOR STABILISATION
 ADDITIONAL ALLOTMENT UPTO 15% OF
ISSUE SIZE
 LENDING BY PROMOTERS
 STABILIZING AGENT (SA) BRLM
 CONCEPT OF GREEN SHOE OPTION

 DISCLOSURES IN OFFER DOCUMENT

 GSO BANK AND DEMAT ACCOUNT
 SA CAN ONLY BUY IF MARKET PRICE
IS BELOW ISSUE PRICE
 SA CANNOT SELL SINGLE SHARE
 CANNOT BUY BEYOND OVER
ALLOTMENT
 CONCEPT OF GREEN SHOE OPTION

 ADDITIONAL ALLOTMENT IN CASE

OF SHORTFALL
 BALANCE TRANSFERRED TO IPF OF
SE
 AVAILABLE FOR 30 DAYS ONLY
 CALLED SO AFTER A COMPANY
NAMED GS ADOPTED THIS CONCEPT
IN ITS IPO
 Green shoe option

XYZ
XYZLimited
Limited
Existing
Existingcapital
capitalby
byMr.A
Mr.A -- 300
300lakh
lakhshares
shares
Issue
IssueSize
Size -- 200
200lakh
lakhshares
shares
GSO
GSO(15%)
(15%) -- 30
30lakh
lakhshares
shares
Shares
Shareslent
lentby
byMr.A
Mr.A -- 30
30lakh
lakhshares
shares

Promoter
Promoterholding
holdingon
onIPO
IPO- - 270
270lakh
lakhshares
shares
Public
Publicholding
holding -- 230
230lakh
lakhshares
shares
Issue
Issueprice
price -- Rs.100/share
Rs.100/share
Promoter/Lender
Promoter/Lender -- Mr.
Mr.AA
GSO
GSOBank
BankA/c.
A/c. -- Rs.30
Rs.30Crores
Crores
SITUATIONS EMERGING AT THE END OF 30 DAYS

GSO BANK A/C GSO DEMAT A/C ACTION TO FOLLOW POST %OF
ISSUE PROMOTO
CAPITAL R
HOLDING

           
1 Rs.30 Crores NIL Transfer 30 Cr. To XYZ Ltd. Co. 530 lakh 300/530
to allott 30 lakh shares to Mr. A shares =57%

           

2 Rs.30 Cr.-Rs.27 Cr = Rs.3 30 lakh shares @ Transfer 30 lakh shares to Mr. 500 lakh 300/500 =
Cr. To IPF Rs.90/share A shares 60%

           

3 30Cr.-9Cr. = 21 Cr. 21-20 10 lakh shares @ Transfer 10 lakh shares to Mr. 520 lakh 300/520 =
= 1 Cr. To IPF Rs.90/ shares A. Transfer Rs.20 Cr. To XYZ shares 58%
Ltd. XYZ Ltd. To allot 20 lakh
shares to Mr.A
What is ASBA? 30th July 2008

 ASBA is an application for

subscribing to an issue
containing an authorisation to
block the application money in
a bank account
 APPLICATIONS SUPPORTED BY
BLOCKED ACCOUNTS
 Eligible investors

 Resident Retail Individual

Investors (INV RET)
 Bidding at cut off with single
option
 Foregoes option to revise bid
 Not under any reserved
categories
 ASBA ADVANTAGES

 No Cheque to be issued and hence no

clearing
 Money lies in the a/c and earns interest
 Lien marked only to the extent of the
bid amount
 Money to be appropriated only on
allotment of shares
 No physical refund involved
 No choking of the system
 Lesser movement of documents
BOOK BUILDING GUIDELINES DATED 28th May 2004

 RESTRICTION ON SPLITTING PRE IPO

 FACE VALUE Rs.10/- FOR ISSUE PRICE BELOW Rs.500/-
 MINIMUM APPLICATION VALUE Rs.5,000/- TO Rs.7,000/-
 FLEXIBILITY TO ISSUER FOR DETERMINING MINIMUM
APPLICATION LOT
 ALLOTMENT ON PROPORTIONATE BASIS ROUNDED OF TO
NEAREST INTEGER
 FACE VALUE IN RELATION TO ISSUE PRICE (RISK
FACTOR)
 GSO FOR ALL ISSUES
 LENDING BY ANYONE HOLDING 5% OR MORE
 BOOK BUILDING GUIDELINES
DATED 29th March 2005

 ENHANCING ALLOCATION FOR RETAIL

CATEGORY
 25 TO 35% RETAIL
 25 TO 15% HNI
 50% QIB
 DEFINITION OF RETAIL INVESTOR FROM
50K TO 100K
 BIDDING PERIOD REDUCED FROM 5 TO 10
DAY TO 3 TO 7 DAYS
 FOR LISTED COMPANIES – ONE DAY
BEFORE BIDS OPEN
 BOOK BUILDING GUIDELINES DATED 30th April 2007

 Processing of draft offer documents

Observations within 30 days
15 days of receipt of satisfactory reply
In principle approval from all SE’s
Comments on reference made to other
agencies
 Grading of IPO’s
By the agencies registered with SEBI
BOOK BUILDING GUIDELINES DATED 30th April 2007

 Guidelines for preferential allotment

Pricing presupposes 6 months listing history
Less than 6 months complying with modified pricing and
disclosure norms
 Guidelines for QIP’s
1 year listing history Notice u/s 81 (1A)
 Eligibility of pledged shares for computation of
minimum promoters contribution
Collateral security not eligible for computation of
minimum promoters contribution
BOOK BUILDING GUIDELINES Other important notifications
24th February 2009
 Enhancing validity period of SEBI observations 3 to 12 Months
 Reducing time lines for Bonus Issues
 Announcement of price band for IPO 2 working days prior to
issue opening.
 9th July 2009
 Shares being allotted on conversion of CD DR etc to be
considered for promoters eligibility and lock in
 Introduction of Anchor Investors
 AI shall be QIB’s
 Minimum size 10 crores
 One third for MF
 Bidding to open 1 day before Issue opens
 Allocation on discretionary basis (Min 2 for 250 crores & Min 5
for more than 250 Crores
 Info on public domain
 Margin money of at least 25 % balance within 2 days of closure
BOOK BUILDING GUIDELINES Other important notifications
 9th July 2009 ( Continued )
 Introduction of Anchor Investors
 Bidding to open 1 day before Issue opens
 Allocation on discretionary basis (Min 2 for 250
crores & Min 5 for more than 250 Crores
 Info on public domain
 Margin money of at least 25 % balance within 2
days of closure
 If issued at lower price to pay the difference
 If IPO price less than AI price no refund
 Lock in for 30 days from date of Allotment
 Related to BRLM disallowed to apply as AI
 Discretion with identified parameters available
for inspection by SEBI
 AI can also apply in Public Issue in the QIB
portion and such applications will not be
considered as multiples.
 BOOK BUILDING

IPO GRADING &

UNDERWRITING
Underwriting
UNDERWRITING = INSURANCE

 Hard Underwriting
 Underwriter agrees to buy his commitment at its earliest stage
 Guarantees a fixed amount to the issuer from the issue
 If 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
 Soft Underwriting
 Underwriter agrees to buy the shares at later stages as soon as
the pricing process is complete
 Subsequently, he places those shares with Institutional Investors
 Also holds an 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
 IPO Grading (Unlisted Companies)

 IPO Grading Compulsory from May 1, 2007

 Five-point point scale
 Higher score indicating stronger Fundamentals and vice versa
 All the grades to be disclosed
 Activity to run parallel to the filing of draft offer document
 Price of the IPO not taken into account for Grading
IPO Grade : Price Matrix
First IPO Grading

High Grade High Grade  CRISIL

High Price Low Price  Kiri Dyes and Chemicals Ltd – 2/5
(Subscription – 1.3 times)

Low Grade Low Grade  ICRA

High Price Low Price  SRS Entertainment – 2/5
 IPO Grading (Unlisted Companies)
Factors Considered for IPO Grading
 Business Prospects and Competitive Position
 Industry Prospects
 Company Prospects
 Financial Position
 Management Quality
 Corporate Governance Practices
 Compliance and Litigation History
 New Projects — Risks and Prospects

Key Components of Investment Decision

Fundamental
Fundamental Returns
Returns Investor
Investor
Analysis
Analysis Analysis
Analysis Preference
Preference
IPO GRADING

 Was grading not a factor

in investors' decision
making process?
 Or the bullish secondary
market conditions will
always overweigh?
 Good to remember that
IPOs can be floated only in
buoyant markets. Even the
best issues will not sell in
a bear market
 IPO GRADING
 It is being assumed by
most that IPO grading
is a perfect and an
objective process.
 If it was, there are no
problems. In reality, it
appears to be a hugely
subjective and an
imperfect process.
TIME LINES
FOR AN

I P O
Proposed timeline (post issue)
S.No Activity Responsibility No Of
Da ys
1 Book Clos e s ISSUER / BRLM s T

2 Finalis e CANs BRLM s / Law ye r T + 1

3 Is s ue Pr icing ISSUER/BRLM s T + 4

4 Subm is s ion of all for m s to the Bank e r by Syndicate BRLM s T + 2

5 Bank e r s to hand ove r 100% of the Bid for m s to Re gis tr ar Bank e r s T + 3

6 Unde r w r iting Agr e e m e nt Signe d ISSUER/BRLM s T + 4

7 Publis h Statutor y Adve r tis e m e nt (Is s ue Pr ice AD) ISSUER / BRLM s / T + 6

Ad Age ncy
8 Bank e r s to Pr ovide Pr ovis ional Ce r tificate by 6 pm Bank e r s T + 4

9 File duly update d Pr os pe ctus s igne d by the Board of ISSUER T + 6

dir e ctor s along w ith the U/A w ith ROC
10 Com ple te the for m alitie s for paym e nt of s tam p duty in ISSUER / Re gis tr ar s T + 7
r e lation to the s har e s to be is s ue d
11 File Pr os pe ctus & Unde r w r iting agr e e m e nt w ith SEBI BRLM s T + 6

12 Subm it thr e e day r e por t to SEBI ISSUER / BRLM s / T + 5

Re gis tr ar
13 Obtain RoC Appr oval ISSUER T + 7

14 Final Ce r tificate fr om Bank e r s along w ith che que re tur n BRLM s / Re gis tr ar / T + 6
s um m ar y ISSUER / Bank e r s
15 Re gis trar to com ple te Data e ntr y Re gis tr ar T + 7

16 ISSUER Se cr e tarial te am 's m e e ting w ith BSE/NSE ISSUER/ BRLM s / T + 7

Re gis tr ar / Stock
17 Confe r e nce call w ith Bank e r s on Re fund m odalitie s ISSUER / BRLM s / T + 7
Re gis tr ar
18 Re que s t BSE for ar r anging dr aw l of lots by public BRLM s / Re gis tr ar / T + 8
r e pr e s e ntative Stock Exchange s
19 Re gis trar to com ple te r e conciliation Bank e r s / Re gis tr ar T + 9

20 Re gis trar dr aw s the Bas is of Allocation ISSUER / BRLM s T + 12

 Proposed timeline (post issue)
S.No Activity Re sponsibility No Of
Da ys
21 Subm it bas is of allocation to Stock Exchange for ISSUER / BRLM s / T + 12
appr oval M or ning 12 noon Re gis tr ar / Stock
22 Bas is of Allocation appr ove d by the Stock Exchange s ISSUER / BRLM s / T + 12
e ve ning Re gis tr ar
23 De s ignate d date ISSUER / BRLM s T + 13

24 Ins tr uctions to Es cr ow bank s to tr ans fe r funds to BRLM s / Re gis tr ar / 11.00 am

Public Is s ue and Re fund account Bank e r (T+13)
25 Trans fe r of funds fr om Es cr ow to Public offe r a/c Bank e r 12.00 noon
(T+13)
26 Com m itte e appr oval/ BoD approval for adopting the ISSUER 1230 pm
bas is of allotm e nt (T+13)
27 Dis patch notice to r e tail inve s tor s for balance paym e nt Re gis tr ar 12.30 pm
(T+13)
28 Clos ing Date - re ce ive all the r e quir e d ce r tifications and ISSUER / BRLM s / 2.00 pm
opinions Auditor / Le gal (T+13)
29 Allotm e nt of Shar e s / Corpor ate Action be gis ns fir s t RIL/Re gis tr ar /BRLM 2.00 pm
QIBs to be com ple te d on s am e day s /DPs (T+13)
30 Com ple te Corpor ate Action for all cate gor ie s of RIL/Re gis tr ar /BRLM 10.00 am
inve s tor s s /DPs (T+14)
31 Auditor s to ce r tify that the Allotm e nt has be e n done on ISSUER/Auditor s 10.00 am
the bas is appr ove d by s toock e xchange (T+14)
32 Subm it all allotm e nt and lis ting docum e nts to the ISSUER / BRLM s / 11.00 am
De s ignate d SE Re gis tr ar / Stock (T+14)
33 Subm it Cor por ate Action r e por t fr om the DPs and the ISSUER / BRLM s / 12.00 noon
Auditor s ce r tificate and dis patch ce rtificate to SE Re gis tr ar / Stock (T+14)
34 Re tail, Non Ins titutional & QIB CANs and r e funds Re gis tr ar 2.00 pm
dis patch com ple te d (T+14)
35 Subm it the allotm e nt de tails to BSE and NSE and ISSUER / BRLM s / 2.00 pm
com ple te all docum e ntation for lis ting & tr ading Re gis tr ar (T+14)
36 Re ce ive lis ting appr oval Stock Exchange s 6.00 pm
(T+14)
37 Re ce ive notice of tr ading Stock Exchange s 6.00 pm
(T+14)
38 Bas is of Allotm e nt adve r tis e m e nt ISSUER T + 14

39 Lis ting of Equity Shar e s T + 15

40 Subm it 78 day re por t BRLM s / Re gis tr ar

THANK YOU