Académique Documents
Professionnel Documents
Culture Documents
( Critical)
Swati Gupta
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Meaning
Different Kinds of issues
Public Issue (IPO, FPO)
Rights Issue
Bonus Issue
Offer Document
Draft Prospectus, Red Herring
Letter of Offer
Placement Document
Regulation for Different Kinds of Issue
IPO Grading
Book Building
Listing
DR, ADR, GDR, IDR, FCCB, ECB
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To begin with...
The capital market has 3 components - the equity market, the debt market, and the
derivative market.
It consists of all those connected with issuing and trading in equity shares and also
medium and long term debt instruments, namely, bonds and debentures.
It is well accepted that tenures less than one year are considered as short term; while
tenures more than one year and up to three years may be taken as medium term while
more than three years can be considered as long term.
Both equity and debt market have 2 segments - the primary market dealing with new
issues of equity and debt instruments and the secondary market which facilitates trading in
equity and debt instruments thereby imparting liquidity to the instruments and making it
possible for people with different liquidity preferences to participate in the market.
The capital market operations are regulated by the Securities and Exchange Board of India
[SEBI]
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Primary Market
The primary market enables the government as well as corporates in raising the
capital that is required to meet their requirements of capital expenditure and/or
discharge of other obligations such as exit opportunities for venture capitalist/
PE firms. The most common primary mechanism for raising capital is an Initial
Public Offer (IPO)
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The exchanges where the instrument will be listed, will there be enough trading.
Apart from the fundamental strength of the company, you should look at the
auditor, the merchant banker, the registrar, the track record of the promoters in their
existing listed companies
......and also find out what the press has on the said issue.
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Primary Market
The primary market is governed by the provisions of the Companies Act, 1956,
which deals with issues, listing, and allotment of securities.
Additionally, SEBI prescribes the eligibility and disclosure norms through the
ICDR( Issue of Capital and Disclosure Requirements Regulations)2014 that the
issuer and the promoter need to comply with for accessing the market..
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Rights Issue - Here, a listed organization proposes to issue fresh securities to its
existing shareholders as on a record date. The rights are offered in a particular ratio
to the number of securities held prior to the issue. This route is best suited for
organizations who would like to raise capital without diluting the stake of its
existing shareholders.
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IPO Grading
IPO grading is the grade assigned by a Credit Rating Agency, registered with SEBI, to
the initial public offering (IPO) of equity shares or any other security which may be
converted into or exchanged with equity shares at a later date. The grade represents a
relative assessment of the fundamentals of that issue in relation to the other listed
equity securities in India. Such grading is generally assigned on a five-point scale with
a higher score indicating stronger fundamentals and vice versa as below.
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IPO Management
Duties of the IPO management team involve a vast amount of preparatory work,
which includes research and due diligence.
IPO filings require a prospectus detailing plans for the future, including proposed
responsibilities of the offering company and potential shareholders.
The group managing an IPO develops the plan for staffing and production during an
initial public offering.
Intermediaries involved in the Issue Process: 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.
Underwriters Duty
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Few Terminologies
1. When a listed company declares
dividends or bonus issues, there has to
be a cut-off date for such benefits to be
transferred to the shareholders.
2. When the markets go down
3. are additional shares given to the current
shareholders without any additional cost,
based upon the number of shares that a
shareholder owns.
4. The first draft prospectus
5. ____________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.
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Offer Document
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.
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(c) Introduction
Under this head a summary of the industry in which the issuer company operates, the business of the Issuer
Company, offering details in brief, summary of consolidated financial statements and other data relating to
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, IPO Grading in case of First Issue of Equity capital
and details of underwriting Agreements are given. 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 also covered.
(d) About us
Under this head a review of the details of business of the company, business strategy, competitive strengths,
insurance, industryregulation (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 and dividend policy are given.
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(b) Whom should I approach if the information disclosed in the offer document appears to be factually incorrect?
The document is prepared by Merchant Banker(s), registered with SEBI. They are required to do the due diligence while
preparing an offer document. The draft offer document submitted to SEBI is put on website for public comments. In case,
you find any instance of misinformation/ lack of information, you may send your complaint to Lead Manager to the issue
and/ or to SEBI, at this address:
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(d) How can I know about the demand for an issue at any point of time?
The status of bidding in a book built issue is available on the website of BSE/NSE on a
consolidated basis. The data regarding bids is also available investor category wise. After the price
has been determined on the basis of bidding, the 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. However, in case of a fixed price issue, information is
available only after the closure of the issue through a public advertisement, issued within 10 days of
dispatch of the certificates of allotment/ refund orders.
(e) How will I get my refund in an issue?
You can get refunds in an issue through various modes viz. registered/ordinary post, Direct Credit,
RTGS (Real Time Gross Settlement), ECS (Electronic Clearing Service) and NEFT (National
Electronic Funds Transfer). As stated above, if you are residing in one of the 68 centers as specified
by Reserve Bank of India, then you will get refunds through ECS only except where you are
otherwise disclosed eligible under Direct Credit and RTGS. If you are residing at any other center,
then you will continue to get refunds through registered/ordinary post. You are therefore advised to
read the instructions given in the prospectus/ abridged prospectus/ application form about centers.
For more details, you may read subsection on Electronic Clearing Scheme for Refunds.
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Book Building
Book building is essentially a process used in IPOs for efficient price discovery,
wherein during the period when the offer is open, bids are collected from investors
at various prices, which are above or equal to the floor price.
The offer price is determined after the bid closing date. In its endeavour to
continuously improve the Indian securities market, the NSE has offered an
infrastructure for conducting online IPOs through book building.
It helps to discover prices as well as the demand for the security to be issued
through a process of bidding.
The advantages are that (a) the investor parts with his/her money only after the
allotment, (b) it eliminates refunds except in the case of direct applications, and (c)
it reduces the time taken to process the issue.
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Book building is a process of price discovery. The issuer discloses a price band or
floor price before opening of the issue of the securities offered. On the basis of the
demands received at various price levels within the price band specified by the
issuer, Book Running Lead Manager (BRLM) in close consultation with the issuer
arrives at a price at which the security offered by the issuer, can be issued.
The price band is a band of price within which investors can bid. The spread
between the floor and the cap of the price band shall not be more than 20%. The
price band can be revised. If revised, the bidding period shall be extended for a
further period of three days, subject to the total bidding period not exceeding
thirteen days.
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Book building is a process of price discovery. A floor price or price band within which
the bids can move is disclosed at least two working days before opening of the issue in
case of an IPO and atleast one day before opening of the issue in case of an FPO. The
applicants bid for the shares quoting the price and the quantity that they would like to
bid at. After the bidding process is complete, the cut off price is arrived at based on
the demand of securities. The basis of Allotment is then finalized and 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. Only the retail
investors have the option of bidding at cut off.
Cutoff option is available for only retail individual investors i.e investors who are
applying for securities worth up to Rs 1,00,000/ only. Such investors are required to
tick the cutoff option which indicates their willingness to subscribe to shares at any
price discovered within the price band. Unlike price bids (where a specific price is
indicated) which can be invalid, if price indicated by applicant is lower than the price
discovered, the cutoff bids always remain valid for the purpose of allotment
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You 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 or revising the bids shall be completed within the date of closure of the issue.
You can cancel your bid anytime before the finalization of the basis of allotment by
approaching/ writing/ making an application to the registrar to the issue.
What Proof can I 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. You can retain this as a sufficient proof that the bids have been accepted by
the trading / syndicate member for uploading on the terminal.
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Lock- in
Lock-in indicates a freeze on the sale of shares for a certain period of time. SEBI
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
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Listing
Listing means admission of securities to dealings on a recognised stock exchange. The
securities may be of any public limited company, Central or State Government, quasi
governmental and other financial institutions/corporations, municipalities, etc.
The BSE Limited has a dedicated 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 BSE.
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Eligibility Criteria:
The following eligibility criteria have been prescribed for listing of companies on BSE,
through Initial Public Offerings (IPOs) & Follow-on Public Offerings (FPOs):
Minimum Listing Requirements for New Companies
The minimum post-issue paid-up capital of the applicant company (hereinafter referred
to as "the Company") shall be Rs. 10 crore for IPOs & Rs.3 crore for FPOs; and
The minimum market capitalization of the Company shall be Rs. 25 crore (market
capitalization shall be calculated by multiplying the post-issue paid-up number of equity
shares with the issue price).
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Further :
In respect of the requirement of paid-up capital and market capitalization, the issuers shall be
required to include in the disclaimer clause forming a part of the offer document that in the
event of the market capitalization (product of issue price and the post issue number of shares)
requirement of BSE not being met, the securities of the issuer would not be listed on BSE.
The applicant, promoters and/or group companies, shall not be in default in compliance of the
listing agreement.
The above eligibility criteria would be in addition to the conditions prescribed under SEBI
(Issue of Capital & Disclosure Requirements) Regulations, 2009.
The Issuer shall comply to the guidance/ regulations applicable to listing as bidding inter alia
from
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A DR is a type of negotiable (transferable) financial security traded on a local stock exchange but
represents a security, usually in the form of equity, issued by a foreign, publicly-listed company.
The DR, which is a physical certificate, allows investors to hold shares in equity of other countries.
One of the most common types of DRs is the American depository receipt (ADR), which has been
offering companies, investors and traders global investment opportunities since the 1920s.
Since then, DRs have spread to other parts of the globe in the form of global depository receipts
(GDRs).
The other most common type of DRs are European DRs and International DRs.
ADRs are typically traded on a US national stock exchange, such as the New York Stock Exchange
(NYSE) or the American Stock Exchange, while GDRs are commonly listed on European stock
exchanges such as the London Stock Exchange.
Both ADRs and GDRs are usually denominated in US dollars, but can also be denominated in
Euros.
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Indian companies can raise foreign currency resources abroad through the issue of
ADRs/ GDRs, in accordance with the Scheme for issue of Foreign Currency
Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism)
Scheme, 1993 and guidelines issued by the Government of India thereunder from
time to time.
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2. IDR
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3. FCCB
A type of convertible bond issued in a currency different than the issuer's domestic
currency.
In other words, the money being raised by the issuing company is in the form of a foreign
currency.
A convertible bond is a mix between a debt and equity instrument. It acts like a bond by
making regular coupon and principal payments, but these bonds also give the bondholder
the option to convert the bond into stock.
Due to the equity side of the bond, which adds value, the coupon payments on the bond
are lower for the company, thereby reducing its debt-financing costs.
The investors receive the safety of guaranteed payments on the bond and are also able to
take advantage of any large price appreciation in the company's stock. (Bondholders take
advantage of this appreciation by means warrants attached to the bonds, which are
activated when the price of the stock reaches a certain point.)
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It refers to commercial loans in the form of bank loans, buyers credit, suppliers
credit, securitized instruments (e.g. Floating rate notes and fixed rate bonds, nonconvertible, optionally convertible or partially convertible preference shares)
availed of from non-resident lenders with a minimum average maturity of 3 years.
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ECB can be accessed under two routes, viz.:A) Automatic Route:Access of funds under Automatic Route does not require RBI/GOI approval. Corporate
including hotel, hospital, software sectors (registered under the Companies Act 1956)
and Infrastructure Finance Companies (IFCs) except financial intermediaries such as
banks, FIs, HFCs, and NBFCs are eligible to raise ECB. Units in SEZs are allowed to
raise ECB . NGOs engaged in micro finance activities are eligible to avail of ECB
(subject to certain conditions). Trusts and Non-Profit making organizations are not
eligible to raise ECB.
ECB can be raised by borrowers from internationally recognized sources such as (i)
international banks, (ii) international capital markets, (iii) multilateral financial
institutions /Regional Financial Institutions and Government owned Development
Financial Institutions, (iv) Export Credit Agencies, (v) Suppliers of Equipments, (vi)
Foreign Collaborators and (vii) Foreign Equity Holders
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