FINANCIAL MANAGEMENT

TOPIC:
IPO Procedure
Eligibility for IPO
Parties Involved in IPO
Prospectus for IPO

By:
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Jagpreet Singh Bhatia (16BSP1029)

Hormaz Kavina (16BSP0997)
Honey Hingorani (16BSP0994
Hiral Patel(16BSP0987)
Hormaz Bhesania(16BSP0996)
Jagruti Mohapatra( 16BSP1032)

PROCEDURE FOR IPO

Step 1: Preparation of Registration Statement

To begin an IPO process, the company involved must submit a registration
statement to the SEBI, which includes a detailed report of its fiscal health
andbusiness plans. SEBI scrutinizes this report and does its own
background check of the company. It must also see that registration
statement fulfils all the mandatory requirements and satisfies all rules and
regulations.
Step 2: Getting the Prospectus Ready
While awaiting the approval, the company, with assistance from the
underwriters, must create a preliminary 'Red Herring' prospectus. It
includes detailed financial records, future plans and the specification of
expected share price range. This prospectus is meant for prospective
investors who would be interested in buying the stock. It also has a legal
warning about the IPO pending SEBI approval.
A preliminary prospectus filed by a company with the Securities and
Exchange Commission (SEC), usually in connection with the company's
initial public offering. A red herring prospectus contains most of the
information pertaining to the company's operations and prospects, but
does not include key details of the issue such as its price and the number
of shares offered. The term "red herring" is derived from the bold
disclaimer in red on the cover page of the preliminary prospectus. The
disclaimer states that a registration statement relating to the securities
being offered has been filed with the SEC but has not yet become
effective, the information contained in the prospectus is incomplete and
may be changed, the securities may not be sold and offers to buy may not
be accepted before the registration statement becomes effective. No price
or issue size is stated in the red herring.
Draft Offer document" means the offer document in draft stage. The draft
offer documents are filed with SEBI, at least 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

FINAL PROSPECTUS
BREAKING DOWN 'Red Herring'

The red herring prospectus contains substantial information on the

company, including use of proceeds from the offering, market potential for
its product/service, financial statements, details of officers, directors and
major shareholders, pending litigation, etc.

The red herring prospectus is used to solicit expressions of interest in the

issue. Once the registration statement becomes effective, a final
prospectus that contains the final IPO price and issue size is disseminated.
Expressions of interest are then converted to orders for the issue at the
buyer's option.
The minimum period between the time a registration statement is filed
and its effective date is 20 days. Note that the SEC does not approve the
securities but simply ensures that all relevant information is disclosed in
the registration statement.
Step 3: The Roadshow
Once the prospectus is ready, underwriters and company officials go on
countrywide 'roadshows', visiting the major trade hubs and promote the
company's IPO among select few private buyers (Usually corporates or
HNIs). They are fed with detailed information regarding company's future
plans and growth potential. They get a feel of investor response through
these tours and try to woo big investors.
Step 4: SEBI Approval & Go Ahead
Once SEBI is satisfied with the registration statement, it declares the
statement to be effective, giving a go ahead for the IPO to happen and a
date to be fixed for the same. Sometimes it asks for amendments to be
made before giving its approval. The prospectus cannot be given to the
public without the amendments suggested by SEBI. The company needs
to select a stock exchange where it intends to sell its shares and get
listed.
Step 5: Deciding On Price Band & Share Number
After the SEBI approval, the company, with assistance from the
underwriters decide on the final price band of the shares and also decide
the number of shares to be sold.
There are two types of issues: Fixed Price and Book Building
Fixed Price In a Fixed price issue the company decides the price of the
share issue and the number of shares being sold. Ex: ABC Ltd public issue

of 10 lakh shares of face value Rs. 10/- each at a premium of Rs. 55/- each
is available to the public thereby generating Rs. 6.5 Crores.
Book Building A Book building issue helps the company discover the
price of the issue. The company decides a price band and it gives the
investor an option to choose the price at which he/she wishes to bid for
the company shares. Ex: ABC Ltd issue of 10 lakh shares of face value Rs.
10/- each at a price band of Rs. 60 to 70 is available to the public thereby
generating upto Rs. 7 Crores. Here the amount generated through the
issue would depend on the highest amount bid by most investors.
Step 6: Available to Public for Purchase
On the dates mentioned in the prospectus, the shares are available to
public. Investors can fill out the IPO form and specify the price at which
they wish to make the purchase and submit the application.
This open period usually lasts for 5 working days which is a SEBI
requirement.
Step 7: Issue Price Determination & Share Allotment
Once the subscription period is over, members of the underwriting banks,
share issuing company etc will meet and determine the price at which
shares are to be allotted to the prospective investors. The price would be
directly determined by the demand and the bid price quoted by investors.
Once the price is finalized, shares are allotted to investors based on the
bid amounts and the shares available.
Note: In case of oversubscribed issues, shares are not allotted to all
applicants.
Step 8: Listing & Refund
The last step is the listing in the stock exchange. Investors to whom
shares were allotted would get the shares credited to their
DEMAT accounts and for the remaining the money would be refunded.

SEBI Guidelines:Eligibility norms for an unlisted company for making a public

issue.

An unlisted company has to satisfy the following criteria to be eligible to

make a public issue:
Pre-issue networth of the co. should not be less than Rs.1 crore in last 3
out of last 5 years with minimum networth to be met during immediately
preceding 2 years and track record of distributable profits for at least
three (3) out of immediately preceding five (5) years and the issue size
(i.e. offer through offer document + firm allotment + promoters
contribution through the offer document) shall not exceed five (5) times
its pre-issue networth.
In case an unlisted company does not satisfy any of the above criterion, it
can come out with a public issue only through the Book-Building process.
In the Book Building process the company has to compulsorily allot at
least sixty percent (60%) of the issue size to the Qualified Institutional
Buyers (QIBs), failing which the full subscription monies shall be refunded.

Eligibility norms for a listed company for making a public issue.

A listed company is eligible to make a public issue if the issue size (i.e.
offer through offer document + firm allotment + promoters contribution
through the offer document) is less than five (5) times its pre-issue
networth.
If the issue size is more than or equal to 5 times of pre-issue networth,
then the listed company has to take the book building route and allot sixty

percent (60%) of the issue size to the Qualified Institutional Buyers (QIBs),
failing which the full subscription monies shall be refunded.

SEBI GuidelinesParties Involved

Merchant Banker/ Book Running Lead Managers:

First and Foremost the company appoints a merchant banker as a lead

manager to an issue which is given the major responsibility of handling the
issue.
A memorandum of understanding is entered between an issuer company
and BRLM which details the mutual rights and obligations.
Merchant banker does the due diligence to prepare the offer document
which contains all the details about the company.
They are also responsible for ensuring compliance with the legal
formalities in the entire issue process and for marketing of the issue.
Merchant Bankers play the most vital role amongst all intermediaries.
They assist the company right from preparing prospectus to the listing of
securities at the stock exchanges.
Merchant Bankers have to satisfy themselves about the correctness and
propriety of all the information provided in the prospectus.
It is mandatory for them to carry due diligence for all the information
provided in the prospectus and they must issue a certificate to this effect
to SEBI.

Registrars to the Issue:

The registrar provides administrative support to the issue process.

The registrar of the issue assists in everything from helping the lead
manager in the selection of Bankers to the Issue and the Collection
Centers to preparing the allotment and application forms, collection of

application and allotment money, reconciliation of bank accounts with

application money, listing of issues and grievance handling.
The Registrar finalizes the total list of all applicants and comes up with the
list of eligible applicants after deleting all invalid applications.
Then he ensures that shares are credited to the allotted accounts and
refunds are sent to unsuccessful applicants.

Bankers to the Issue:

The Bankers to the Issue enable the movement of funds in the issue
process and therefore enable the registrars to finalize the basis of
allotment by making clear funds status available to the Registrars.
Bankers to the issue, as the name suggests are the people who carry out
all banking activities like accepting the money from the applicants,
transfer of funds to the promoters and transfer of refunds to unsuccessful
applicants.
Bankers to the Issue are banks which accept application from the public on
behalf of the company.

Underwriters:

Underwriters are intermediaries who undertake to subscribe to the

securities offered by the company in case these are not fully subscribed by
the public, in case of an underwritten issue.
Underwriters are the institutions/individuals who agree to buy the shares
of the company in case the company is unable to sell all its shares to the
public. For providing this safety, the underwriters charge a commission to
the company for providing this service.

What Are the Different Types of Prospectus?

A prospectus is a brief, legal document formulated in a simple style and

used to present to potential investors all important information about a
given company (issue of securities, investment offering, etc) in relation to
its . This document must be prepared by the company which files it with
and gets it approved by the securities commission before the company
may issue shares or debt to the public. The company sets out in its
prospectus the securities offered for sale, the unit and total issue price, its
management, its operations, how it intends to use the raised funds, and
all relevant technical and financial information (underwriting agreement,
dividend policy, capitalization, etc). A typical prospectus must contain all
material information that would allow investors to make an informed
decision as to whether to purchase the securities of the company that
constitute the offer.
The most common types (classifications) of prospectus are red-herring
prospectus, pink-herring prospectus, free-writing prospectus, abridged
prospectus, and reconfirmation prospectus.
Red-herring prospectus
A prospectus that contains most of the information that will be presented
in the final prospectus but often does not mention a price and/or the
number of securities. It can be distributed to potential investors after the

registration statement for a securities offering has been filed with the
securities commission. The name is derived from the red legend printed
across the body of the prospectus illustrating that the registration has
been filed but is not yet effective. A red-herring prospectus is alternatively
known as a preliminary prospectus.
Pink-herring prospectus
A prospectus that is issued without disclosure of the number of securities
being offered or, in an initial public offering, the estimated or indicative
price range. It is a preliminary prospectus that precedes the filing of a redherring prospectus.
Free-writing prospectus
Any sort of written, electronic, or graphic statement that describes an
offer in terms of its issuer or securities. It includes a legend stating that
the investor can have a copy of the prospectus at the website of relevant
securities commission. Typically, the issuer must file this prospectus with
the securities commission no later than the first date it is obtained. In the
case of inexperienced issuers, the securities commission may require that
a preliminary prospectus is filed before the filing of a free-writing
prospectus.
Abridged prospectus
A shorter version of the prospectus that includes all the most key
elements of the typical prospectus. An abridged prospectus contains
information very similar to the typical prospectus but in a concise and
compact form. Both versions of the prospectus must comply with the
disclosure requirements prescribed by the relevant securities commission.
Reconfirmation prospectus
A prospectus that a shell company must prepare and submit for the
approval of relevant securities and exchange authorities (the SEC) prior to
considering a reverse merger. This prospectus contains detailed
information about the private company merging into the shell. It is handed
over to purchasers in the shell's initial public offering (IPO) who must
reconfirm their investment after perusing the prospectus before the
merger can be finalized. At least 80 percent of purchasers must reconfirm
so that the merger transaction can be effected. Purchasers who do not
confirm will receive their investment back (of course, less expenses).

Other types that do exist in the global world of investment include shelf
prospectus and deemed prospectus:
Shelf prospectus

A prospectus that describes a set of unissued, but registered securities is

known as shelf prospectus. It is used in situations where securities are
issued in consecutive stages over a period of time because the size of
issue is too large (and funds to be raised are enormous, making the filing
of prospectus each time very expensive). Later on, an issuer will only need
to file the so-called information memorandum with the relevant securities
commission.
Deemed prospectus
A prospectus that is deemed to have been made by the issuer, though it is
actually offered to the public by a third party or the so-called issue house
(Indian terminology). The issuer saves the underwriting expenses in
selling its securities.