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IPO/FPO :
BOOK BUILDING
PROCESS
1
FINANCIAL MARKETS
The securities market has two interdependent
and inseparable segments,
•The new issues (primary) market ...
FUND RAISING OPTIONS
3
4
What is an IPO?
• The first sale of stock by a company to the public.
•Process by which a private company can go public by...
What is an FPO?
•A Follow on public offering (FPO) is when an already listed company makes either a fresh issue
of securit...
REASONS FOR IPO
•To raise funds for financing capital expenditure needs like expansion
diversification etc.
•To finance in...
•Access to Capital
•Stockholder Diversification
•Easier to raise new capital
•Enhances liquidity
•Establishes value for th...
LIMITATIONS
•Dilution
•Loss of Flexibility
•Accountability
•Public Pressure
•Adverse Selection
•Self dealings
•Inactive ma...
IS GOING PUBLIC RIGHT FOR YOUR
COMPANY?
•An attractive product or service, preferably one with a competitive advantage and...
INTERMEDIARIES
•Merchant Banker
•Underwriter
•Syndicate Members
•Registrar
•Bankers to the issue
11
Merchant Banker
•Merchant banker can work as lead manager, co-lead manager, investment banker, underwriter
etc
•LM gets th...
Post issue activities:
•Management of escrow accounts
•Dispatch of refunds to bidders
•Demat delivery of shares
BOOK RUNNE...
Underwriter
•“Underwriting,” means an agreement with or without conditions to subscribe to the securities
of the issuer co...
Syndicate Members
•Commercial or investment banks responsible for underwriting IPO's
•Co-book runners and sub-write the IP...
Registrar
•The registrar provides administrative support to the issue process.
•Each agent is registered with SEBI.
•If th...
Bankers to the issue
•Any scheduled bank registered with SEBI can be appointed as the banker to the
issue.
•The main funct...
SEBI ENTRY NORMS FOR AN IPO
Entry Norm I (Profitability Route)
a) Net tangible assets of at least Rs. 3 crore in each of t...
Alternative routes
SEBI has provided the alternative route to the companies not satisfying any of the above
conditions, fo...
Entry Norm III (EN III): ‘Appraisal Route’.
(a) The “project” is appraised and participated to the extent of 15% by FIs/Sc...
Exemptions to certain category of entities from the eligibility norms
The following categories of entities are eligible fo...
A listed issuer making a public issue (Further Public Offer i.e. FPO) is required to
satisfy the following requirements:
(...
SEBI’S NEW E-IPO RULES
• SEBI approved norms for companies to launch their initial public offerings (IPOs) in an electroni...
PROMOTER’S CONTRIBUTION
• For IPO by unlisted companies (IPO), minimum of 20% of the post issue capital
of the Company
• F...
LOCK-IN PERIOD
• For Promoters:
• Lock-in for a period of 3 years from the date of allotment or from the date of
commencem...
IPO PROCESS
BOD APPROVAL
FILING DRHP WITH
SEBI BEFORE 21 DAYS
FROM REGISTERING
WITH ROC
APPLICATION WITH
STOCK EXCHANGES
A...
DUE DILIGENCE
Due diligence involves a detailed investigation by the company’s advisers into the company and
its plans
The...
• The first document filed by companies with SEBI and stock exchanges for
approval
• Contains all details about the compan...
• The draft offer document is placed by SEBI on its website for public comments
for a period of 21 days.
• Once the mercha...
IPO PROCESS
BOD APPROVAL
FILING DRHP WITH
SEBI BEFORE 21 DAYS
FROM REGISTERING
WITH ROC
APPLICATION WITH
STOCK EXCHANGES
A...
IPO GRADING
IPO grading is the grade
assigned by a Credit
Rating Agency (CRAs)
registered with SEBI
• IPO grade 1 ‐ Poor f...
IPO GRADING
•A relative assessment of the fundamentals of that issue in relation to the
other listed equity securities in ...
FACTORS CONSIDERED
33
•Business Prospects and Competitive Position
i. Industry Prospects
ii. Company Prospects
•Financial ...
IPO PROCESS
BOD APPROVAL
FILING DRHP WITH
SEBI BEFORE 21 DAYS
FROM REGISTERING
WITH ROC
APPLICATION WITH
STOCK EXCHANGES
A...
•Document which is placed with SEBI after clearing all comments received from
public and SEBI.
•Significance: The merchant...
IPO PROCESS
BOD APPROVAL
FILING DRHP WITH
SEBI BEFORE 21 DAYS
FROM REGISTERING
WITH ROC
APPLICATION WITH
STOCK EXCHANGES
A...
•Management gets to travel all over to meet with investors and market the
company
•Research analysts meet with institution...
IPO PROCESS
BOD APPROVAL
FILING DRHP WITH
SEBI BEFORE 21 DAYS
FROM REGISTERING
WITH ROC
APPLICATION WITH
STOCK EXCHANGES
A...
FACTORS DETERMINING PRICE
• Financials of the Company – Net worth, EPS, profit margin.
• Industry P/E Ratio.
• Standing of...
Fixed price Issue:
◦ Price is decided on the basis of firm’s value and the number of shares it wants
to issue.
◦ Many othe...
IPO PROCESS
BOD APPROVAL
FILING DRHP WITH
SEBI BEFORE 21 DAYS
FROM REGISTERING
WITH ROC
APPLICATION WITH
STOCK EXCHANGES
A...
IPO METHODS
PUBLIC
OFFER
BOOK
BUILDING
42
PUBLIC OFFER
Issue Type Offer Price Demand Payment Reservations
Fixed Price Issues
Price at which the
securities are
offer...
BOOK BUILDING
PROCESS
44
BOOK BUILDING PROCESS
•When the price of an issue is discovered on the basis of demand raised from the
prospective investo...
THE PROCESS
•The Issuer who is planning an offer nominates lead merchant banker(s) as 'book
runners'.
•The Issuer specifie...
KEY TERMS
1
•Open Bookbuilding
2
•Price Band
3
•Cut off Price
47
IPO PROCESS
BOD APPROVAL
FILING DRHP WITH
SEBI BEFORE 21 DAYS
FROM REGISTERING
WITH ROC
APPLICATION WITH
STOCK EXCHANGES
A...
ALLOTMENT
•Once the issue closes for subscription, the BRLM along with the Issuer Company
decide the final Issue Price for...
Retail Investor
applies for
stocks for a
value of not
more than Rs
200,000
total allotment
has to be at least
35% of the t...
BASIS OF ALLOTMENT
•All bids at and above the final Issue Price are aggregated under different
categories such as firm all...
THE BIDDING PROCESS
52
If at Rs. 53,
Number of shares to be allotted: 4,00,000
Number of shares bid for: 50,00,000
Thus,
Oversubscription Ratio =...
Number of days for an investor to receive
the refund order/allotment
•Companies are required to finalize the basis of allo...
IPO PROCESS
BOD APPROVAL
FILING DRHP WITH
SEBI BEFORE 21 DAYS
FROM REGISTERING
WITH ROC
APPLICATION WITH
STOCK EXCHANGES
A...
FINAL PROSPECTUS
•Final Prospectus is called the offer document
•Post SEBI Clearance of offer documents through various st...
GUIDE TO UNDERSTAND AN OFFER
DOCUMENT
•Cover Page
•Risk Factors
•Introduction
•About Us
• Financial Statements
•Legal and ...
IPO PROCESS
BOD APPROVAL
FILING DRHP WITH
SEBI BEFORE 21 DAYS
FROM REGISTERING
WITH ROC
APPLICATION WITH
STOCK EXCHANGES
A...
LISTING
•Listing agreement with the stock exchange.
•The Issuer Company needs to get its Red Herring Prospectus as well as...
GREEN SHOE OPTION
•A Green shoe is a clause contained in the underwriting agreement of an initial
(IPO) that allows underw...
GREEN SHOE OPTION
Over-allotment option
•Allows companies to intervene in the market to stabilise share
prices during the ...
EXAMPLE
For instance, a company plans to issue 1 lakh shares, but to use the greenshoe option;
it actually issues 1.15 lak...
How to apply for an IPO?
•To apply for an IPO, there are two options available
- Offine
- Online
•Demat account is require...
ASBA (Application Supported by Blocked
Amount)
•In an endeavour to make the existing public issue process more efficient, ...
•The investor continues to earn interest on the application money as the same
remains in the bank account, which is not th...
ESCROW ACCOUNT
•An escrow account is a temporary pass through account held by a third party during
the process of a transa...
PARAMETERS TO JUDGE AN IPO
• Promoters
• Industry outlook
• Business plans
• Financials
• Risk factors
• Key names- lead m...
Introducing
I.P.O – “MANPASAND”
68
MANPASAND BEVERAGES LTD.
Incorporated in 1997
Promoter : Mr. Dhirendra Singh
It is a Gujarat based fruit drink manufacturi...
The objects of the Issue are:
•Setting-up of a new manufacturing facility in the state of Haryana;
•Modernization of exist...
•Highly Dependent on One Brand
•Falling Rural Income – Negative for the Company
•Unfavorable movement in the raw material
...
INVESTMENT RATIONALE
•Strong Presence in Underpenetrated Semi Urban and Rural Market
•Wide distribution network will help ...
Company Name Manpasand Beverages Ltd.
Issue Open June 24, 2015 to June 26, 2015
Price Band Rs. 290 to Rs. 320
Bid Lot 45 E...
Category Allocation Issue Size (in
Crs)
QIB 75% Rs. 300 Crs.
NIB 15% Rs. 60 Crs.
Retail 10% Rs. 40 Crs.
Total 100% Rs. 400...
Issue Subscription Detail
Number of Times Issue is Subscribed (BSE +
NSE)
As on Date & Tim
e
QIB NII RII Total
Shares Offe...
LISTING DAY TRADING INFORMATION
BSE NSE
Issue Price: Rs. 320.00 Rs. 320.00
Open: Rs. 291.00 Rs. 300.00
Low: Rs. 286.00 Rs....
77
FINANCIAL SUMMARY
78
79
THANK YOU!
80
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IPO/FPO : Book building process

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IPO/FPO : Book building process

  1. 1. IPO/FPO : BOOK BUILDING PROCESS 1
  2. 2. FINANCIAL MARKETS The securities market has two interdependent and inseparable segments, •The new issues (primary) market and •The stock (secondary) market PRIMARY MARKET provides the channel for creation and sale of new securities Whenever a new company wants to enter the market it has to first enter the primary market investors buy securities directly from the company issuing them SECONDARY MARKET deals in securities previously issued investors trade previously issued securities without the issuing companies' involvement 2
  3. 3. FUND RAISING OPTIONS 3
  4. 4. 4
  5. 5. What is an IPO? • The first sale of stock by a company to the public. •Process by which a private company can go public by sale of its stocks to general public. • It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public • Investors can place requests to buy these shares and once done, the share gets listed in a registered stock exchange. 5
  6. 6. What is an FPO? •A Follow on public offering (FPO) is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations. YEAR NO. OF FPOs AMOUNT (Rs.crore) 2008-09 0 0.00 2009-10 5 21992.98 2010-11 5 13083.89 2011-12 1 4578.20 2013-14 2 7455.96 2014-15 0 0.00 6
  7. 7. REASONS FOR IPO •To raise funds for financing capital expenditure needs like expansion diversification etc. •To finance increased working capital requirement •As an exit route for existing investors •For debt financing. 7
  8. 8. •Access to Capital •Stockholder Diversification •Easier to raise new capital •Enhances liquidity •Establishes value for the firm •Builds Image of the Company •Signals from the Market •Other advantages: •Additional incentive for employees in the form of the companies stocks. This also helps to attract potential employees. •Window of opportunity. •It commands better valuation of the company. •Better situated for making acquisitions. ADVANTAGES 8
  9. 9. LIMITATIONS •Dilution •Loss of Flexibility •Accountability •Public Pressure •Adverse Selection •Self dealings •Inactive market low price •Control •Incur additional costs •Share of profits 9
  10. 10. IS GOING PUBLIC RIGHT FOR YOUR COMPANY? •An attractive product or service, preferably one with a competitive advantage and sufficiently large market •An experienced management team • A positive trend of historical financial results •Favourable financial prospects •A well-thought-out, focused business plan •Strong financial, operational, and compliance controls 10
  11. 11. INTERMEDIARIES •Merchant Banker •Underwriter •Syndicate Members •Registrar •Bankers to the issue 11
  12. 12. Merchant Banker •Merchant banker can work as lead manager, co-lead manager, investment banker, underwriter etc •LM gets the company shares to the right investors, sets the initial offer price, creates enthusiasm for the stock and creates the prospectus Pre issue activities:  Due diligence of company’s operations/ management/ business plans/ legal etc  Drafting and design of Offer documents, statutory advertisements  Ensure compliance with stipulated requirements and completion of prescribed formalities with the Stock Exchanges  Appointment of other intermediaries viz., Registrar, Printers, Advertising Agency and Bankers to the Offer  Marketing of the offer 12
  13. 13. Post issue activities: •Management of escrow accounts •Dispatch of refunds to bidders •Demat delivery of shares BOOK RUNNER: •The bookrunner is usually the lead manager •In charge of "keeping the book" which simply means keeping record of who bought shares for how much. 13
  14. 14. Underwriter •“Underwriting,” means an agreement with or without conditions to subscribe to the securities of the issuer company when the public investors are not subscribing it. •It involves a commitment from the underwriter to subscribe to the shares of a particular company to the extent it is under subscribed by the public or existing shareholders of the corporate. •An underwriter should have a minimum net worth of 20 lakhs and his total obligation at any time should not exceed 20 times his net worth. •A commission is paid to the writers on the issue price for undertaking the risks of under subscription 14
  15. 15. Syndicate Members •Commercial or investment banks responsible for underwriting IPO's •Co-book runners and sub-write the IPO •Work as intermediaries for Issuer Company and the buyers of the IPO stocks •Investors submit their bids for IPO shares through Syndicate Members appointed by the Issuer Company 15
  16. 16. Registrar •The registrar provides administrative support to the issue process. •Each agent is registered with SEBI. •If the IPO is oversubscribed they provide computerized program for allotment. •They manage refund orders and allotment letters. ◦ Ensures that crediting of shares to the demat accounts of the applicants is done and the dispatch of refund orders to those applicable are sent. ◦ They provide the final list of allotees to Lead Manager, ROC and stock exchange. •The Lead manager coordinates with the Registrar to ensure follow up so that that the flow of all activities is maintained. 16
  17. 17. Bankers to the issue •Any scheduled bank registered with SEBI can be appointed as the banker to the issue. •The main function of banker involves ◦ The bank provides application forms to the investors. ◦ They accept duly filled forms with cheque/ drafts. ◦ They prepare collection reports and transfer funds and applications to the company/registrar. ◦ Transfer funds to Escrow accounts 17
  18. 18. SEBI ENTRY NORMS FOR AN IPO Entry Norm I (Profitability Route) a) Net tangible assets of at least Rs. 3 crore in each of the preceding three full years b) Distributable profits in at least three out of the preceding five years. c) Net worth of at least Rs. 1 crore in each of the preceding three full years. d) If there has been a change in the company’s name, at least 50% of the revenue for preceding one year should be from the new activity denoted by the new name e) The issue size should not exceed 5 times the pre-issue net worth 18
  19. 19. Alternative routes SEBI has provided the alternative route to the companies not satisfying any of the above conditions, for accessing the primary market, as under: Entry Norm II (QIB Route) • Issue shall be through book building route, with at least 50% of net offer to the public to be mandatory allotted to the Qualified Institutional Buyers (QIBs). • The company shall refund the subscription money if the minimum subscription of QIBs is not attained. •The minimum post-issue face value capital shall be Rs. 10 crore or there shall be compulsory market making for at least 2 years. OR 19
  20. 20. Entry Norm III (EN III): ‘Appraisal Route’. (a) The “project” is appraised and participated to the extent of 15% by FIs/Scheduled Commercial Banks of which at least 10% comes from the appraiser(s). In addition, at least 10 per cent of the issue size shall be allotted to QIBs, failing which the full subscription monies shall be refunded. (b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory market-making for at least 2 years. In addition to satisfying the aforesaid eligibility norms, the company shall also satisfy the criteria of having at least 1000 prospective allotees in its issue 20
  21. 21. Exemptions to certain category of entities from the eligibility norms The following categories of entities are eligible for exemption from entry norms: • Public Sector Banks • Private Sector Banks • An infrastructure company ◦ Whose project has been appraised by a Public Financial Institution (PFI) ◦ Not less than 5% of the project cost is financed by any of the PFI • Rights Issue by a listed company 21
  22. 22. A listed issuer making a public issue (Further Public Offer i.e. FPO) is required to satisfy the following requirements: (a) If the company has changed its name within the last one year, at least 50% revenue for the preceding 1 year should be from the activity suggested by the new name. (b) The aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed five times its pre-issue net worth as per the audited balance sheet of the preceding financial year. Any listed company not fulfilling these conditions shall be eligible to make a public issue (i.e. FPO) by complying with QIB Route as specified for IPOs i.e. issue shall be through book building route, with at least 75% to be mandatory allotted to the Qualified Institutional Buyers (QIBs). Norms for FPO’s 22
  23. 23. SEBI’S NEW E-IPO RULES • SEBI approved norms for companies to launch their initial public offerings (IPOs) in an electronic form. • Will reduce the time taken between the share sale and the listing, enhance the reach of retail investors in the share sale, and reduce costs. • ASBA will be made mandatory for all categories of investors while applying for an IPO. • Time period for listing: T+6 compared to T+12 currently • These will come into effect on 1 January 2016. • Depository participants and RTAs (registrar and transfer agents) will also be able to accept IPO applications. 23
  24. 24. PROMOTER’S CONTRIBUTION • For IPO by unlisted companies (IPO), minimum of 20% of the post issue capital of the Company • For FPO by listed companies, either to extent of 20% of the proposed issue size or to the extent of 20% of the post-issue capital. 24
  25. 25. LOCK-IN PERIOD • For Promoters: • Lock-in for a period of 3 years from the date of allotment or from the date of commencement of commercial production, whichever is later 25
  26. 26. IPO PROCESS BOD APPROVAL FILING DRHP WITH SEBI BEFORE 21 DAYS FROM REGISTERING WITH ROC APPLICATION WITH STOCK EXCHANGES AND REGISTERATION WITH ROC IPO GRADING (INDEPENDENT) FILING OF RHP WITH SEBI, ROC, STOCK EXCHANGES ROADSHOWS ESTIMATION OF PRICE BANDS BOOKBUILDING ISSUE TAKES PLACE ALLOTMENT FINAL PROSPECTUS SECONDARY MARKET/ LISTING WITH STOCK EXCHANGES 26
  27. 27. DUE DILIGENCE Due diligence involves a detailed investigation by the company’s advisers into the company and its plans There are usually three main streams to due diligence: ◦ Legal due diligence ◦ Business due diligence ◦ Financial due diligence ◦ Debts ◦ Pending and potential lawsuits ◦ Leases ◦ Warranties ◦ Long-term customer agreements ◦ Employment contracts ◦ Compensation arrangements ◦ Litigations against the Company and/or Promoters 27
  28. 28. • The first document filed by companies with SEBI and stock exchanges for approval • Contains all details about the company but does not include issue specific details like price band, issue size, number of shares being offered etc. • After reviewing, SEBI communicates their observations to the Company, which the company has to incorporate in the offer document. • SEBI typically requires a period of 30 days for processing a draft offer document. 28 DRAFT RED HERRING PROSPECTUS
  29. 29. • The draft offer document is placed by SEBI on its website for public comments for a period of 21 days. • Once the merchant bankers clear the comments, they update the document and place it again with SEBI. • In most cases a second round of public and SEBI comments follows. • Once the SEBI is satisfied with all answers it issues a clearance card to the bankers. 29
  30. 30. IPO PROCESS BOD APPROVAL FILING DRHP WITH SEBI BEFORE 21 DAYS FROM REGISTERING WITH ROC APPLICATION WITH STOCK EXCHANGES AND REGISTERATION WITH ROC IPO GRADING (INDEPENDENT) 30
  31. 31. IPO GRADING IPO grading is the grade assigned by a Credit Rating Agency (CRAs) registered with SEBI • IPO grade 1 ‐ Poor fundamentals • IPO grade 2 ‐ Below‐Average fundamentals • IPO grade 3 ‐ Average fundamentals • IPO grade 4 ‐ Above‐average fundamentals • IPO grade 5 ‐ Strong fundamentals 31
  32. 32. IPO GRADING •A relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India •Intended to run parallel to the filing of offer document with SEBI and the consequent issuance of observations •It is mandatory •Can the issuer reject an IPO grade? •Bearing of the cost •Has been introduced as an endeavor to make additional information available for the investors in order to facilitate their assessment of equity issues offered through an IPO. 32
  33. 33. FACTORS CONSIDERED 33 •Business Prospects and Competitive Position i. Industry Prospects ii. Company Prospects •Financial Position •Management Quality •Corporate Governance Practices •Compliance and Litigation History
  34. 34. IPO PROCESS BOD APPROVAL FILING DRHP WITH SEBI BEFORE 21 DAYS FROM REGISTERING WITH ROC APPLICATION WITH STOCK EXCHANGES AND REGISTERATION WITH ROC IPO GRADING (INDEPENDENT) FILING OF RHP WITH SEBI, ROC, STOCK EXCHANGES 34
  35. 35. •Document which is placed with SEBI after clearing all comments received from public and SEBI. •Significance: The merchant bankers can start advertising the issue. •The contents of this document, as approved by SEBI can be used as publicity material by merchant bankers to sell shares being offered in the issue. •It describes the issue (IPO) and the prospects of the company •You could think of the RHP as the SEBI approved version of the DRHP •It is called so because it contains a passage in red that states the prospectus is subject to change and no offer can be accepted at this stage. 35 RED HERRING PROSPECTUS
  36. 36. IPO PROCESS BOD APPROVAL FILING DRHP WITH SEBI BEFORE 21 DAYS FROM REGISTERING WITH ROC APPLICATION WITH STOCK EXCHANGES AND REGISTERATION WITH ROC IPO GRADING (INDEPENDENT) FILING OF RHP WITH SEBI, ROC, STOCK EXCHANGES ROADSHOWS 36
  37. 37. •Management gets to travel all over to meet with investors and market the company •Research analysts meet with institutional investors 1 on 1 and tell them about the company, and sales teams at banks maintain close contact with investors and figure out what they think – do they like the sector? The company itself? What price will they pay? •Based on feedback from these meetings and their own internal valuations, banks set a price range for the offering. 37 ROADSHOWS
  38. 38. IPO PROCESS BOD APPROVAL FILING DRHP WITH SEBI BEFORE 21 DAYS FROM REGISTERING WITH ROC APPLICATION WITH STOCK EXCHANGES AND REGISTERATION WITH ROC IPO GRADING (INDEPENDENT) FILING OF RHP WITH SEBI, ROC, STOCK EXCHANGES ROADSHOWS ESTIMATION OF PRICE BANDS 38
  39. 39. 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 39
  40. 40. Fixed price Issue: ◦ Price is decided on the basis of firm’s value and the number of shares it wants to issue. ◦ Many other factors are considered such as demand and interest for the shares by the investors. ◦ Generally share is priced 10% - 20% below its estimated value. ◦ This is done to attract institutional investors. 40
  41. 41. IPO PROCESS BOD APPROVAL FILING DRHP WITH SEBI BEFORE 21 DAYS FROM REGISTERING WITH ROC APPLICATION WITH STOCK EXCHANGES AND REGISTERATION WITH ROC IPO GRADING (INDEPENDENT) FILING OF RHP WITH SEBI, ROC, STOCK EXCHANGES ROADSHOWS ESTIMATION OF PRICE BANDS BOOKBUILDING 41
  42. 42. IPO METHODS PUBLIC OFFER BOOK BUILDING 42
  43. 43. PUBLIC OFFER Issue Type Offer Price Demand Payment Reservations Fixed Price Issues Price at which the securities are offered and would be allotted is made known in advance to the investors Demand for the securities offered is known only after the closure of the issue 100 % advance payment is required to be made by the investors at the time of application. 50 % of the shares offered are reserved for applications below Rs. 1 lakh and the balance for higher amount applications. Book Building Issues A 20 % price band is offered by the issuer within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding. Demand for the securities offered , and at various prices, is available on a real time basis on the BSE website during the bidding period.. 10 % advance payment is required to be made by the QIBs along with the application, while other categories of investors have to pay 100 % advance along with the application. 50 % of shares offered are reserved for QIBS, 35 % for small investors and the balance for all other investors. 43
  44. 44. BOOK BUILDING PROCESS 44
  45. 45. BOOK BUILDING PROCESS •When the price of an issue is discovered on the basis of demand raised from the prospective investors at various price levels, it is called ‘Book built issue’. •It is a process undertaken by which a demand for the securities built up and the price for the securities is assessed on the basis of the bids obtained for the quantum of securities offered for subscription by the issuer. •This method provides an opportunity to the market to discover the price for securities. 45
  46. 46. THE PROCESS •The Issuer who is planning an offer nominates lead merchant banker(s) as 'book runners'. •The Issuer specifies the number of securities to be issued and the price band for the bids. •The Issuer also appoints syndicate members with whom orders are to be placed by the investors. •The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open auction. •The book normally remains open for a period of 5 days. •Bids have to be entered within the specified price band. 46
  47. 47. KEY TERMS 1 •Open Bookbuilding 2 •Price Band 3 •Cut off Price 47
  48. 48. IPO PROCESS BOD APPROVAL FILING DRHP WITH SEBI BEFORE 21 DAYS FROM REGISTERING WITH ROC APPLICATION WITH STOCK EXCHANGES AND REGISTERATION WITH ROC IPO GRADING (INDEPENDENT) FILING OF RHP WITH SEBI, ROC, STOCK EXCHANGES ROADSHOWS ESTIMATION OF PRICE BANDS BOOKBUILDING ISSUE TAKES PLACE ALLOTMENT 48
  49. 49. ALLOTMENT •Once the issue closes for subscription, the BRLM along with the Issuer Company decide the final Issue Price for the share. •This price is determined based on the demand levels and the bids made by the investors in all categories. • The BRLM informs the Issue Price to the Registrar to the Issue who then prepares the ‘Basis of Allotment’ 49
  50. 50. Retail Investor applies for stocks for a value of not more than Rs 200,000 total allotment has to be at least 35% of the total issue also have an option of applying at the cut-off price Non-Institutional Investor commonly referred to as high net- worth individuals applies for stocks for a value of more than Rs 200,000. total allotment has to be at least 15% of the total issue Qualified Institutional buyers institutional investors who posses the expertise and the financial muscle to invest in the securities market. Mutual funds, financial institutions, scheduled commercial banks, insurance companies, provident funds, state industrial development corporations Allotted not more than 50% of the total issue TYPES OF INVESTORS 50
  51. 51. BASIS OF ALLOTMENT •All bids at and above the final Issue Price are aggregated under different categories such as firm allotment, QIBs, NIBs and Retail individual investors. •The ‘Over Subscription’ ratios for each of the categories as against the shares reserved for each category are calculated. •Within each of the categories, the bids are segregated into different segments based on the number of shares applied for. •The ‘Over Subscription’ ratio is then applied to the number of shares applied for in each segment, to find the number of shares to be allotted for applicants in each of the segments. 51
  52. 52. THE BIDDING PROCESS 52
  53. 53. If at Rs. 53, Number of shares to be allotted: 4,00,000 Number of shares bid for: 50,00,000 Thus, Oversubscription Ratio = (Number of shares bid for) / (Number of shares to be allotted) i.e. Oversubscription Ratio = 50,00,000/4,00,000 = 12.5 For an investor who applied for 255 shares will be allotted shares as follows: Number of shares allotted = (number of shares bid for)/ (oversubscription ratio) = 255/ 12.5 = 20.4 Thus, the investor will be allotted 20 shares. 53
  54. 54. Number of days for an investor to receive the refund order/allotment •Companies are required to finalize the basis of allotment -within 30 days from the closure of the issue in case of a fixed price issue -within 15 days from the closure of the issue in case of a book building issue or else they are liable to pay interest at the rate of 15%pa •The refund orders/allotment advice is dispatched within two working days of finalizing the basis of allotment 54
  55. 55. IPO PROCESS BOD APPROVAL FILING DRHP WITH SEBI BEFORE 21 DAYS FROM REGISTERING WITH ROC APPLICATION WITH STOCK EXCHANGES AND REGISTERATION WITH ROC IPO GRADING (INDEPENDENT) FILING OF RHP WITH SEBI, ROC, STOCK EXCHANGES ROADSHOWS ESTIMATION OF PRICE BANDS BOOKBUILDING FINAL PROSPECTUS 55
  56. 56. FINAL PROSPECTUS •Final Prospectus is called the offer document •Post SEBI Clearance of offer documents through various stages •After bids are received and share price is fixed, the RHP is populated with the price figures and submitted again to SEBI. • The only difference between the RHP and the final prospectus is that for (i) price of share, (ii) number of shares to be issued and (iii) issue size •The RHP has blanks which mostly look like this – [•]. •These blanks are filled in the final prospectus 56
  57. 57. GUIDE TO UNDERSTAND AN OFFER DOCUMENT •Cover Page •Risk Factors •Introduction •About Us • Financial Statements •Legal and Other Information •Other regulatory and statutory disclosures •Offering Information •Other Information 57
  58. 58. IPO PROCESS BOD APPROVAL FILING DRHP WITH SEBI BEFORE 21 DAYS FROM REGISTERING WITH ROC APPLICATION WITH STOCK EXCHANGES AND REGISTERATION WITH ROC IPO GRADING (INDEPENDENT) FILING OF RHP WITH SEBI, ROC, STOCK EXCHANGES ROADSHOWS ESTIMATION OF PRICE BANDS BOOKBUILDING ISSUE TAKES PLACE ALLOTMENT FINAL PROSPECTUS SECONDARY MARKET/ LISTING WITH STOCK EXCHANGES 58
  59. 59. LISTING •Listing agreement with the stock exchange. •The Issuer Company needs to get its Red Herring Prospectus as well as the Basis of Allotment approved from the Stock Exchange with which it has entered into the Listing Agreement •The listing on the stock exchanges is done within 7 days from the finalization of the basis of allotment for the issue •Once the shares are listed, the investors can freely trade the securities of the Issuer Company. 59
  60. 60. GREEN SHOE OPTION •A Green shoe is a clause contained in the underwriting agreement of an initial (IPO) that allows underwriters to buy up to an additional 15% of the company shares at the offering price •It used for price stabilisation to be carried out by a stabilising agent on behalf of the company. 60
  61. 61. GREEN SHOE OPTION Over-allotment option •Allows companies to intervene in the market to stabilise share prices during the 30-day stabilisation period immediately after listing. •The green shoe option is also often referred to as an over- allotment provision. •It allows the underwriting syndicate to buy up to an additional 15% of the shares at the offering price if public demand for the shares exceeds expectations and the stock trades above its offering price. 61
  62. 62. EXAMPLE For instance, a company plans to issue 1 lakh shares, but to use the greenshoe option; it actually issues 1.15 lakh shares, in which case the over-allotment would be 15,000 shares. The 15,000 shares actually borrowed from the promoters with whom the stabilising agent signs a separate agreement. For the subscribers of a public issue, it makes no difference whether the company is allotting shares out of the freshly issued 1 lakh shares or from the 15,000 shares borrowed from the promoters. Once allotted, a share is just a share for an investor. For the company, however, the situation is totally different. The money received from the over-allotment is required to be kept in a separate bank account (i.e. escrow account) 62
  63. 63. How to apply for an IPO? •To apply for an IPO, there are two options available - Offine - Online •Demat account is required for both the offline and online options so that the Stocks can be deposited in your account after allotment. 63
  64. 64. ASBA (Application Supported by Blocked Amount) •In an endeavour to make the existing public issue process more efficient, SEBI introduced a supplementary process of applying in public issues, viz., the "Applications Supported by Blocked Amount (ASBA)" process. •ASBA is an application containing an authorization to block the application money in the bank account, for subscribing to an issue. •If an investor is applying through ASBA, his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized, or the issue is withdrawn/failed. 64
  65. 65. •The investor continues to earn interest on the application money as the same remains in the bank account, which is not the case in other modes of payment. •ASBA forms can be submitted only at the Self Certified Syndicate Banks (SCSBs). In case investor does not have an account with any of the SCSBs, then he can not make use of the ASBA. 65
  66. 66. ESCROW ACCOUNT •An escrow account is a temporary pass through account held by a third party during the process of a transaction between two parties. •Escrow Account is under the control of the Lead Manager(s) and the Registrar to the Issue, till the shares being issued are listed. •The applicants(Bidders) have to enclose cheques /demand drafts along with Bid- cum-Application Forms towards ‘MARGIN MONEY’ of their Bids. The margin money is deposited in the Escrow Account. 66
  67. 67. PARAMETERS TO JUDGE AN IPO • Promoters • Industry outlook • Business plans • Financials • Risk factors • Key names- lead manager and merchant banker • Pricing • Listing 67
  68. 68. Introducing I.P.O – “MANPASAND” 68
  69. 69. MANPASAND BEVERAGES LTD. Incorporated in 1997 Promoter : Mr. Dhirendra Singh It is a Gujarat based fruit drink manufacturing company, with a major focus on mango flavor based juice drinks. Flagship brand “Mango Sip” 69
  70. 70. The objects of the Issue are: •Setting-up of a new manufacturing facility in the state of Haryana; •Modernization of existing manufacturing facilities i.e. Vadodara 1 Facility and Varanasi Facility; •Setting-up of a new corporate office at Vadodara; •Repayment/prepayment of certain borrowings availed by the Company; and •General corporate purposes. 70 OBJECTS OF THE OFFER
  71. 71. •Highly Dependent on One Brand •Falling Rural Income – Negative for the Company •Unfavorable movement in the raw material 71 RISK AND CONCERNS
  72. 72. INVESTMENT RATIONALE •Strong Presence in Underpenetrated Semi Urban and Rural Market •Wide distribution network will help in fast penetration of products •Manufacturing Capacity Expansion to meet the Increasing Demand •Debt-free Operations post IPO 72
  73. 73. Company Name Manpasand Beverages Ltd. Issue Open June 24, 2015 to June 26, 2015 Price Band Rs. 290 to Rs. 320 Bid Lot 45 Equity Shares and in multiples of 45 Equity Shares thereafter. The Offer Public issue of 1.25 – 1.38 crore Equity Shares (Comprising of fresh issue) Issue Size Rs. 400 Crore IPO Process 100% Book Building Face Value Rs. 10.00 IPO Grading NA Exchanges NSE & BSE BRLM Kotak Mahindra Capital Company Limited, IIFL Holdings Limited, ICICI Securities Limited Registrar Karvy Computershare Private Limited Issue Snapshot 73
  74. 74. Category Allocation Issue Size (in Crs) QIB 75% Rs. 300 Crs. NIB 15% Rs. 60 Crs. Retail 10% Rs. 40 Crs. Total 100% Rs. 400 Crs. Issue Break up: 74
  75. 75. Issue Subscription Detail Number of Times Issue is Subscribed (BSE + NSE) As on Date & Tim e QIB NII RII Total Shares Offered / Reserved 4,137,931 2,068,966 1,379,310 7,586,207 Day 1 - Jun 24, 20 15 17:00 IST 0.0000 0.0000 0.3100 0.0600 Day 2 - Jun 25, 20 15 17:00 IST 0.4500 0.0500 0.5600 0.3600 Day 3 - Jun 26, 20 15 19:50 IST 1.9800 0.3800 1.1600 1.4000 75
  76. 76. LISTING DAY TRADING INFORMATION BSE NSE Issue Price: Rs. 320.00 Rs. 320.00 Open: Rs. 291.00 Rs. 300.00 Low: Rs. 286.00 Rs. 285.70 High: Rs. 341.90 Rs. 342.60 Last Trade: Rs. 326.85 Rs. 327.75 Volume: 1,578,793 4,876,093 76
  77. 77. 77
  78. 78. FINANCIAL SUMMARY 78
  79. 79. 79
  80. 80. THANK YOU! 80
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IPO/FPO book building process

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