INITIAL PUBLIC OFFER. INITIAL PUBLIC OFFER (IPO). Governing Laws – Before 1992, Public issues were governed by Chief Controller of Capital Issues (CCCI). In 1992, CCCI has been abolished and SEBI has been formed. Now IPO is governed by Followings: The Companies Act 1956
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Governing Laws –
Before 1992, Public issues were governed by Chief Controller of Capital Issues (CCCI).
In 1992, CCCI has been abolished and SEBI has been formed.
Now IPO is governed by Followings:
The Companies Act 1956
SEBI (Disclosure & Investor Protection) Guidelines, 2000
Securities Contracts (Regulation) Act, 1956
Listing norms/Guidelines of NSE/BSE
Filing of draft offer document with SEBI through eligible Merchant Banker at least 30 days prior to filing of prospectus with ROC.
Any company prohibited by Board can not make an issue of security.
Filing of application with Stock exchange for listing and in principal approval is required.
Issue of securities in dematerialized form.
Unlisted company can not make allotment pursuant to public issue unless prospective allottees are less than 1000 in numbers.
Shares can be offered to public either in the form of IPO or offer for sale.
Any company issuing debt instrument which are to convertible or not into share on a later date is required to obtain credit rating of investment grade from at least 2 credit rating agencies before filing the offer document with the SEBI,
the company is not a willful defaulters of RBI and
Not defaulted in payment of interest or repayment of debentures issued to public
for a period of more than 6 months.
There should not be any outstanding warrant or financial instrument giving right to
holders an option to receive shares after IPO.
There should not be partly paid shares.
Firm arrangement of 75% means of finance.
Grading of IPO from at least one credit rating agency.
Disclosure of all grading has been to made.
Disclosure of all expenses incurred for obtaining grading for IPO.
Issue of Equity share or other securities to be converted into equity on later date by
an unlisted company:
Companies having track record must fulfill following conditions:
Net tangible assets of at least Rs.3.00 Crore in each of preceding 3 full year (Full 12 months each) of which not more than 50% is held in monetary assets; if excess, than the company must have firm commitment to deploy such excess monetary assets in business or project.- Clause 2.2.1(a)
Company must have track record of distributable profits for at least 3 years out of immediately preceding 5 years. - Clause 2.2.1(b)
Company must have net worth of Rs.1 Crore in preceding 3 years (full 12 months each). - Clause 2.2.1(c)
If name of the Company has been changed in last 1 year, 50% income of the Company must be earned from the activity suggested by new name. Clause 2.2.1(d)
Aggregate of proposed issue & all previous issues made during that financial year does not exceed to 5 times to its pre issue net worth as per the last audited balance sheet. Clause 2.2.1(e)
B. Companies not fulfilling conditions specified in Clause 2.2.1, have to fulfill following conditions:
(i) Issue through book building process with at least 50% of net offer to public to be issued to QIB.
Project has been appraised & at least 15% participation by FI/Sched. Commercial banks, of which at least 10% from appraiser & at least 10% of issue size from QIBs.
(ii) Minimum post issue face value of capital Rs.10.00 Crore.
Compulsory market making for at least 2 years from the date of listing subject to following:
Market maker undertake
In case of partnership firms are converted into Company, track record for distributable profit shall be considered, if the accounts are revised in the format prescribed as per companies Act and conforming all accounting standards.
Companies are free to price its share or security to be converted into shares at a later date are:
Listed companies for its Public/right issue
IPO by Banks (Subject to approval of RBI).
Unlisted Company : Firm allotment may be made on higher price than the price officer to Public. If equity shares or securities convertible into shares are issued to retail individual investor/retail individual share holder, the same can be issued at lower price than to other categories. The difference shall not exceed 10%.
Listed Company: Differential price may be charged in composite issue of public and right offer.
Justification of differential price in the offer document.
For Fixed price issues, there may be price band of 20% at the time of filing offer documents
Price shall be freezed in the final offer documents and before filing it to ROC.
DENOMINATION OF SHARE:
If issue price is more than Rs.500/- any face value denomination not less Re. 1/- and not in
If Issue price is less than Rs.500/-, face value shall be Rs.10/-
Only one denomination at a given time.
FACTORS DETERMINING PRICE:
Financials of the Company – Net worth, EPS, profit margin.
Industry P/E Ratio.
Standing of the Company in the relevant industry
Future prospect of the Industry as well as the Company
Background of the promoters.
In case of :
Unlisted Companies: 20% of post issue capital
For Offer for Sale : 20% of post issue capital
Listed Companies: 20% of proposed issue or 20% of post issue capital
Composite issue: 20% of proposed issue or 20% of post issue capital (Right issue component shall be excluded from Post Issue Capital) .
SECURITIES ELIGIBLE FOR PROMOTORS CONTRIBUTION:
Except following, all securities are eligible to form part of promoters contribution, if brought in by promoters:
Issue of any share with in preceding 3 years out of revaluation of assets or capitalization of intangible assets.
Resulting from Bonus issue out of revaluation reserves or reserves without cash generation or against the shares which are not eligible to form part of promoters contribution.
Any securities acquired by promoters within one year at a price lower than the offer price. (whether issued to acquired by promoters otherwise) (If difference of the same has been brought out before opening of issue, than eligible).
Funds brought in with in one year, in case of companies converted from partnership firm and shares allotted at lower price than offer price. (If partners capital existed on continuous basis since more than one year, than eligible)
Application less than Rs.25000/- in case of individual and Rs.100000/- in case of firm or body corporate.
Any private placement made by solicitation of subscription from unrelated person directly or through intermediary.
Contributors who have not given their specific consent for promoters contribution and lock in period.
Pledged securities held by promoters.
Promoters contribution to be brought in before opening of Issue.
In case of IPO, the locking period is as under:
Promoters contribution equal to 20% - start from date of allotment & end after 3
years from the date of allotment or date of commencement of commercial
production, whichever is later.
Promoters contribution in excess of 20% - 1 year
Pre issue share capital: In excess of promoters contribution equal to 20%, for 1
Basis of Lock in – Last allotted share locked in first – Omitted since 29.11.07.
Lock in of firm allotment security: For one year
Inter se transfer amongst promoter permissible.
Lead Manager will appoint:
Documents to be submitted with Draft offer documents:
- 3rd day monitoring report - for book building portion – 3rd day from the date of allocation of book building portion
-In other cases – 3rd day from the date of closure of issue.
- Final post issue monitoring report: 3rd day from the date of listing or 78 days from the date of closure of issue, whichever is earlier.
- Due diligence certificate with final report
A. In respect of Large Cap Companies with a minimum issue size of Rs. 10 crores and market capitalization of not less than Rs. 25 crores.
B. In respect of Small Cap Companies other than a large cap company.
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:
Application supported by Blocked Amount (ASBA) : Application for subscribing an issue with an authorization to block the amount in Bank account
ASBA Investor : an investor who is
a residential retail investor
not applying under any reservation,
bidding on cut off price with single option and not revising his bid and
applying through SCSB banks.
Self Certified Syndicate Bank (SCSB): Banker to the issue registered with SEBI, which offers the services of making ASBA.