Thursday, August 20, 2020

INITIAL PUBLIC OFFER : NEW ISSUE MARKET PART 2

 

  • PRIMARY MARKET : NEW ISSUE:IPO 
  • FINANCIAL SERVICES AND MARKETS
  • DR SHASHI AGGARWAL ( ACS)
  • IPO :NEW ISSUE MARKET

1.       MEANING OF IPO

2.       BASIC TERMINOLOGY

3.       TYPES OF INVESTORS

4.       INTERMEDIARIES

  • PUBLIC ISSUE

·         WHEN AN ISSUE OFFER SECURITIES IS MADE TO  GENERAL INVESTORS.THE PROCESS IS GENERALLY CALLED PUBLIC ISSUE

·         PUBLIC ISSUE CAN BE FURTHER CLASSIFIED :

  • INITIAL PUBLIC OFFER : WHEN AN UNLISTED COMPANY MAKES EITHER FRESH ISSUE OF SECURITIES OR OFFERS ITS EXISTING SECURITIES IS CALLED AN IPO. THIS PAYS WAYS FOR THE LISTING AND TRADING
  • FOLLOW ON PUBLIC OFFER ( FPO) : WHEN AN ALREADY LISTED COMPANY MAKES EITHER A FRESH ISSUE OF SECURITIES TO THE PUBLIC OR AN OFFER FOR SALE TO THE PUBLIC IT IS CALLED A FOLLOW ON PUBLIC OFFER
  • FIXED PRICE
  • WHEN THE ISSUE AT THE OUTSET DECIDES THE ISSUE PRICE AND MENTION IN THE OFFER DOCUMENT. FIXED PRICE
  • BOOK BUILDING
  1. IS A PROCESS OF PRICE DISCOVERY
  2. MECHANISM WHERE DURING THE PERIOD FOR WHICH THE IPO IS

3.       OPEN

4.       BIDS ARE COLLECTED FROM INVESTORS AT VARIOUS PRICES WHICH  ARE ABOVE OR EQUAL TO FLOOR PRICE

5.       THE OFFER PRICE IS DETERMINED AFTER THE BID CLOSING DATE

  1. THE ISSUER OF THE INITIAL PUBLIC OFFER DISCLOSE A PRICE BAND OR FLOOR PRICE AT LEAST TWO WORKING DAYS BEFORE THE OPENING OF THE IPO
  2. THE APPLICATION BID FOR THE SHARES QUOTING THE PRICE AND QUANTITY THAT THEY WOULD LIKE TO BID
  3. AFTER THE BIDDING PROCESS OS COMPLETE THE CUT OFF PRICE OS ARRIVED AT BASED ON THE DEMAND OF THE SECURITIES
  4. THE BASIS OF THE ALLOTMENT IS THEN FINALIZED AND ALLOTMENT OR REFUND IS UNDERTAKEN
  5. THE FINAL PROSPECTUS WITH ALL DETAILS INCLUDING THE FINAL ISSUE PRICE AND ISSUE SIZE IS FILED WITH ROC
  • BOOK BUILDING PROCESS
  • APPOINTMENT OF INVESTMENT BANKERS :
  1. APPOINTING THE LEAD INVESTMENT BANKERS .
  2. CONDUCT DUE DILIGENCE
  3. PROPOSE THE SIZE
  4. PROPOSE THE PRICE BAND
  5. LOWER PRICE RANGE-----FLOOR PRICE
  6. HIGHER END IS KNOWN AS –CEILING PRICE
  7. FINAL PRICE AT WHICH THE SECURITIES ARE INDEED OFFERED FOR SALE AFTER THE ENTIRE BOOK BUILDING PROCESS IS COMPLETE—CUT OFF THE PRICE
  • COLLECTING THE BID :

a)       INVESTORS ARE REQUESTED TO BID TO BUY THE SHARES

b)       BID THE NUMBER OF SHARES

c)        BID ALONG WITH THE APPLICATION MONEY IS SUPPOSED TO SUBMITTED TO THE INVESTMENT BANKER

d)       LEAD INVESTMENT BANKERS CAN APPOINT SUB –AGENTS FOR FURTHER COLLECTION OF BIDS

  • PUBLICIZING: IN THE INTEREST OF TRANSPARENCY.STOCK EXCHANGE REQUIRE THAT COMPANIES MAKE PUBLIC THE DETAILS OF THE BIDS THAT WERE RECEIVED BY THEM. DUTY OF THE LEAD INVESTMENT BANKERS TO RUN ADVERTISEMENTS CONTAINING THE DETAILS FOR SPECIFIC PERIOD
  • SETTLEMENT  :APPLICATION AMOUNT RECEIVED FROM THE VARIOUS BIDDERS HAS TO BE ADJUSTED AND SHARES HAVE TO BE ALLOTTED
  • PARTIAL BOOK BUILDING
  1. ANOTHER VARIATION OF THE BOOK BUILDING
  2. INSTEAD OF INVITING BIDS FROM THE GENERAL PUBLIC
  3. INVITE BIDS FROM CERTAIN LEADING INSTITUTIONS
  4. BASED ON THEIR BIDS A WEIGHTED AVERAGE OF THE PRICE IS CREATED AND CUT OFF  PRICE IS DECIDED
  5. CUT OFF PRICE IS THEN OFFERED TO RETAIL INVESTOR
  • IPO TERMINOLOGY
  • EXCHANGE : THE STOCK EXCHANGE WHERE THE IPO SHARES ARE PROPOSED TO BE LISTED
  • IPO OPEN AND ISSUE CLOSE DATE : INVESTOR CAN APPLY IN AN IPO DURING THE OPENING AND CLOSING DATE OF THE IPO PROCESS
  • LOT SIZE : THE MINIMUM COUNT OF SHARES AN INVESTOR CAN APPLY FOR AN IPO. A LOT SIZE OF 100 MEANS THAT AN INVESTOR NEEDS TO BID AT LEAST 100 SHARES
  • ISSUE PRICE : THE PRICE PER EQUITY SHARE :
  • BOOK BUILDING : WILL HAVE PRICE RANG SAY 100-120 AND INVESTOR NEED TO BID WITH IN THE PRICE RANGE
  • FIXED PRICE ISSUE HAS SPECIFIC PRICE TO BID

·         ISSUE SIZE : TOTAL MONETARY VALUE OF THE IPO. NUMBER OF SHARES X ISSUE PRICE PER SHARE

·         ASBA : APPLICATION SUPPORTED BY BLOCKED AMOUNT IS A WAY TO APPLY IN IPO BY SIMPLY BLOCKING THE FUND IN THE BANK ACCOUNT

  • INVESTORS
  • PRIMARY MARKET ATTRACTS WIDE SPECTRUM OF INVESTORS. DIFFERENT CATEGORIES OF INVESTORS BUY SHARES IN THE PRIMARY MARKET.
  • THERE MAY BE RESERVATION FOR RETAIL INVESTORS,NON INSTITUTIONAL INVESTORS,QUALIFIED INSTITUTIONAL BIDDERS ( QIBS) EMPLOYEES OF THE ISSUING COMPANY,EXISTING SHAREHOLDERS OF THE ISSUING COMPANY ETC. INVESTORS ARE BROADLY CATEGORIZED AS :
  • INVESTORS
  • . INVESTORS ARE BROADLY CATEGORIZED AS :
  1. QUALIFIED INSTITUTIONAL BUYERS
  2. NON INSTITUTIONAL INVESTORS
  3. RETAIL INVESTORS
  • INVESTORS ARE OFFERED A SPECIFIED NUMBER OF SHARES IN AN IPO WHICH IS DETERMINED BY THE COMPANY
  • THE COMBINED NUMBER OF SHARES TO THESE THREE CATEGORIES FORM THE  CORE OF THE OFFER AND CALLED NET OFFER
  • RETAIL INVESTORS
  1. IN THE RETAIL INDIVIDUAL INVESTOR CATEGORY INVESTORS CAN NOT APPLY MORE THAN RS TWO LACS
  2. RESIDENT INDIAN INDIVIDUAL,NRIS AND HUF WHO APPLY FOR LESS THEN 2 LACS IN IPO UNDER RETAIL INVESTOR
  3. NOT LESS THAN 35% OF THE OFFER IS RESERVED FOR THIS CATEGORY
  4. BID AT CUTT OFF PRICES
  5. PERMITTED TO WITHDRAW THEIR BIDS UNTIL THE DAY OF ALLOTMENT
  6. ALLOTMENT TO RETAIL INVESTORS
  7. IN CASE THE ISSUE IS NOT OVER SUBSCRIBED,FULL ALLOTMENT TO ALL APPLICANTS
  8. FOR SMALL VERY SUBSCRIPTION EACH SUCCESSFUL APPLICANT ALLOTTED 1 LOT OF SHARES AND BALANCE SHARES SHALL BE ALLOTTED PROPORTIONATELY
  9. IF THE OVER SUBSCRIPTION IS SO LARGE THAT EACH SUCCESSFUL APPLICANT THEN 1 LOT IS ALLOTTED BY LUCKY DRAW USING A COMPUTER

 

  • NON INSTITUTIONAL INVESTORS
  1. INDIVIDUAL INVESTORS,NRI’S ,COMPANIES TRUST ETC WHO BID FOR MORE THAN RS 2 LACS ARE KNOWN AS NON INSTITUTIONAL BIDDERS
  2. HIGH NET WORTH INDIVIDUALS ( HNI) : WHO APPLIES FOR OVER 2 LACS IN AN IPO FALLS UNDER THIS CATEGORY
  3. RESIDENT INDIAN INDIVIDUALS ,ELIGIBLE NRIS,HUF,COMPANIES,CORPORATE BODIES ,SCIENTIFIC INSTITUTIONS,SOCIETIES AND TRUST WHO APPLY FOR THAN 2 LACS OF IPO SHARES FALL UNDER NII
  4. THEY DO NOT HAVE TO REGISTER WITH SEBI
  5. NOT LESS THAN 15% OF THE OFFER IS RESERVED FOR NII CATEGORY
  6. PERMITTED TO WITHDRAW THEIR BIDS UNTIL THE DAY OF ALLOTMENT
  7. ARE NOT ELIGIBLE TO BID AT CUT OFF PRICE
  8. ALLOTMENT IS PROPORTIONATE
  9. IF THE IPO IS SUBSCRIBED 100 TIMES IN NII.INVESTOR WHO APPLIED FOR 100 SHARES WILL GET ONE SHARE
  • QUALIFIED INSTITUTIONAL BUYERS ( QIB)
  1. FINANCIAL INSTITUTIONS SUCH AS BANKS,FII,INSURANCE COMPANIES AND MUTUAL FUND WHO ARE REGISTERED WITH SEBI ARE CALLED QIB. THEY USUALLY APPLY IN VERY HIGH QUANTITIES.
  2. 50% OF THE OFFER SIZE IS RESERVED FOR QIB
  3. PROHIBITED BY SEBI GUIDELINES TO WITHDRAW BIDS AFTER THE CLOSE OF THE IPO
  4. ARE NOT ELIGIBLE TO BID AT CUT OFF PRICE
  5. ALLOTMENT IS PROPORTIONATE

 

  • EMPLOYEES AND SHAREHOLDERS
  1. SHARES RESERVED FOR EMPLOYEES AND SHAREHOLDERS IN THE ANPRENT COMPANY
  2. RESERVATION FOR BOTH THESE CATEGORIES IS OFFERED OVER AND ABOVE THE SHARES REGISTERED FOR RETAIL INVESTORS
  3. MAXIMUM APPLICATION SIZE UNDER SHAREHOLDERS OF THE EMPLOYEE RESERVATION IS OFTEN BIGGER WHICH IMPLIES HIGHER ALLOTMENT IN CASE OF UNDER SUBSCRIPTION
  4. OFFER SPECIFIC DETAILS : AVAILABLE IN THE PROSPECTUS

 

  1. SEBI ALLOWS APPLICATION UP TO RS 5 LACS ( NET OF DISCOUNT IF ANY ) UNDER EMPLOYEE CATEGORY WHILE SHAREHOLDERS CAN BID FOR THE ENTIRE RESERVATION PORTION
  2. IF INVESTOR PLACE TWO APPLICATION UNDER RETAIL AND SHAREHOLDERS QUOTA BOTH APPLICATION NEED TO BE INDIVIDUALLY LESS THAN 2 LACS

 

  • ANCHOR INVESTORS

1.       ANCHOR INVESTORS ARE INSTITUTIONAL INVESTORS ( QIB) WHO ARE INVITED TO SUBSCRIBE TO THE SHARES ,MINIMU OF RS 10 CRORES BEFORE THE INITIAL PUBLIC OFFER (IPO) OPENS AT A FIXED PRICE TO MAKE OTHER INVESTORS CONFIDENT AND IMPROVE THE DEMAND OF THE SHARE.

2.       THEY ARE SUPPOSED TO ANCHOR TH ISSUE BY AGREEING TO SUBSCRIBE TO SHARES AT A FIXED  PRICE SO THAT OTHER INVESTORS MAY KNOW THAT THERE IS DEMAND FOR THE SHARES OFFERED

3.       EACH ANCHOR INVESTOR MINIMUM OF 10 CRORES

4.       ANCHOR INVESTORS

5.       THE ANCHOR INVESTOR IS NOT ALLOWED TO SELL HIS SHARE FOR AT LEAST 30 DAYS AFTER THE ALLOTMENT

6.       GUARANTEED ALLOTMENT FOR APPLYING UNDER ANCHOR QUOTA

7.       ALLOTMENT IS DONE A DAY BEFORE THE IPO OPENS

8.       INTRODUCED BY SEBI IN 2009

9.       BOOK BUILT IPOS ARE SUPPOSED TO HAVE 50% RESERVATION FOR QUALIFIED INSTITUTIONAL BUYERS

10.    UP TO 30% OF THE TOTAL ISSUE SIZE CAN BE ALLOTTED TO  ANCHOR INVESTORS

11.    NO MERCHANT BANKERS,BANKERS AND PROMOTERS OR THEIR RELATIVE CAN APPLY FOR SHARES UNDER THE ANCHOR INVESTOR CATEGORY

12.    OFFER SIZE IS LESS THAN 250 CRORES---MAXIMUM OF 15 ANCHOR INVESTORS

13.    OVER 250 CRORES --- SEBI REMOVED THE CAP OF NUMBER OF ANCHOR INVESTORS. NOW THERE COULD BE 10 ADDITIONAL INVESTORS FOR EVERY EXTRA RS 250 CRORES SUBJECT TO MINIMUM ALLOTMENT OF RS 5 CRORES

  • PRIMARY MARKET INTERMEDIARIES
  • THE NEW ISSUE MARKET AND ACTIVITY WAS REGULATED BY THE CONTROLLER OF CAPITAL ISSUE ( CCI)
  • WITH THE REPEAL OF THE ACT IN 1992,THE PROTECTION OF THE INTEREST OF THE INVESTORS IN SECURITIES MARKET AND PROMOTION OF THE DEVELOPMENT AND REGULATIONS OF THE MARKET ACTIVITY BECAME THE RESPONSIBILITY OF THE SEBI
  • PRIMARY MARKET INTERMEDIARIES
  • INTERMEDIARIES :
  1. LEAD MANAGERS
  2. REGISTRARS AND SHARE TRANSFER AGENTS
  3. BANKERS TO THE ISSUE
  4. UNDERWRITERS
  5. STOCK BROKERS AND SUB BROKERS
  6. DEPOSITORIES
  • LEAD MANAGERS
  • MERCHANT BANKERS ARE APPOINTED TO MANAGE THE ISSUE –CALLED LEAD MANAGER
  • DEPENDING ON THE SIZE OF THE ISSUE : A COMPANY MAY APPOINT MORE THAN ONE MERCHANT BANKERS
  • THE PRE ISSUE AND POST ISSUE RESPONSIBILITY OF THE MERCHANT BANKERS ARE PROPERLY STRUCTURED
  • LEAD MANAGERS
  • THE LEAD MANAGERS ASSIST THE COMPANY RIGHT FROM THE PREPARATION OF PROSPECTUS TO THE LISTING OF THE SECURITIES
  • MAIN PRE ISSUE DUTIES OF THE MERCHANT BANKERS :
  1. PREPARATION OF THE BUDGET EXPENSE TO THE ISSUE
  2. PROVIDING VALUABLE SUGGESTION ABOUT THE APPROPRIATE TIMING
  3. LEAD MANAGERS
  4. OFFERING ADVICE TO THE COMPANY ON THE APPOINTMENT OF REGISTRAR TO ISSUE,UNDERWRITERS,BROKERS,BANKERS TO THE ISSUE,ADVERTISING AGENTS
  5. GIVING DIRECTIONS TO VARIOUS AGENCIES
  6. MAINTAINING DUE DILIGENCE OF THE COMPANY’S OPERATION MANAGEMENT/BUSINESS PLANS/LEGAL MATTERS
  7. COMPLETING ALL THE FORMALITIES REQUIRED BY STOCK EXCHANGE,ROC AND SEBI
  8. PAYING REQUISITE FEES  FOR FILING THE OFFER DOCUMENTS
  • MAIN POST ISSUE DUTIES WITH MERCHANT BROKERS
  1.  MANAGEMENT OF ESCROW ACCOUNT
  2. COORDINATION OF NON INSTITUTIONAL ALLOCATION
  3. FINALIZATION OF TRADING,DEALING OF THE INSTRUMENTS,DISPATCH OF CERTIFICATES AND DEMATERILIZATION OF DELIVER IF SHARES
  4. SUBMISSION OF THE POST ISSUE MONITORING REPORTS AS SPECIFIED BY SEBI WITH THREE WORKING DAYS FROM THE DUE DATE
  5. MAIN POST ISSUE DUTIES WITH MERCHANT BROKERS
  6.  SUBMISSION OF 50 DAYS POST ISSUE MONITORING REPORT FROM THE DATE OF CLOSURE OF THE SUBSCRIPTION OF  THE ISSUE
  7. REDRESSAL OF INVESTOR GRIEVANCE : ALLOTMENT,REFUND AND DISPATCH

 

  • UNDERWRITERS
  •  IF THERE IS UNDER SUBSCRIPTION,THE UNDERWRITERS SUBSCRIBE TO THE UNSUBSCRIBED PORTION
  • THE PERSON WHO ASSURES THE SUM IS CALLED UNDERWRITER
  • PAID UNDERWRITING COMMISSION CERTIFICATE OF REGISTRATION FROM SEBI HAS TO BE OBTAINED BY THE AGENCIES
  • UNDERWRITERS
  •  AFTER THE SELECTION THE UNDERWRITER,THE ISSUING COMPANY ENTERS INTO AGREEMENT WITH THE UNDERWRITER
  • DETAILS :
  1. THE PERIOD DURING WHICH THE AGREEMENT WILL REMAIN IN FORCE
  2. THE AMOUNT OF UNDERWRITING OBLIGATIONS
  3. THE MAXIMUM PERIOD WITH IN WHICH THE UNDERWRITER WILL HAVE TO SUBSCRIBE TO THE OFFER AFTER THE COMPANY’S INTIMATION
  4. THE RATE AND AMOUNT OF COMMISSION OR BROKERAGE CHARGEABLE BY THE UNDER WRITERS
  • BANKERS TO THE ISSUE
  1.  BANKS WHICH ACCEPT APPLICATIONS FORMS AND MONEY ON BEHALF OF THE PUBLIC ARE CALLED BANKERS TO THE ISSUE
  2. COLLECTED MONEY IS TRANSFERRED
  3. DESIGNATED ACCOUNT IN WHICH FUNDS CAN BE USED ONLY FOR SPECIFIED PURPOSE
  4. FUNDS ARE NOT AVAILABLE TO THE  COMPANY TILL THE ISSUE IS COMPLETED
  5. COMMISSION IS PAID TO THE BANKERS TO THE ISSUE
  6. COMMISSION IS PAID TO THE BANKERS TO THE ISSUE :
  7. KEEP A PROPER RECORD OF APPLICATION AND MONEY RECEIVED
  8. DETERMINE THE BASIS OF OF ALLOTMENT OF SECURITIES
  9. ASSIST THE FINALIZATION OF ALLOTMENT OF SECURITIES
  10. DISPATCH REFUND ORDER
  • REGISTRAR TO THE ISSUE
  • APPOINT THEM WITH THE CONSULTATION OF THE LEAD MANAGER
  • SOME MERCHANT BANKERS CARRY ON THE ACTIVITIES OF THE REGISTRAR TO AN ISSUE AS OF SHARE TRANSFER AGENT
  • MAIN DUTIES :
  1. RECEIVE ALL APPLICATION FROM FORMS BANKS AND ACQUIRE THE RELEVANT DATA
  2. CHECK THE FORMS
  3. IDENTIFY ALL OTHER TECHNICAL DEFECT
  4. RECONCILE THE APPLICATION FORM WITH ACTUAL MONEY RECEIVED
  5. IDENTIFY  AND KEEP ASIDE THE APPLICATION OF DISHONORED CHEQUES
  6. PREPARE THE BASIS OF ALLOTMENT WITH LEAD MANAGER
  7. SUBMIT THE BASIS TO THE STOCK EXCHANGE
  8. PROCEED WITH THE ALLOTMENT OF SHARES AND REFUND
  9. ATTEND TO ALL THE COMPLAINTS OF POST ALLOTMENT AND LISTING
  • SHARE TRANSFER AGENT
  • MAINTAIN THE RECORD OF THE HOLDERS OF SECURITIES OF THE COMPANY FOR AND ON BEHALF OF THE COMPANY.
  • HANDLE ALL MATTERS RELATING TO TRANSFER AND REDEMPTION OF SECURITIES
  • STOCK BROKERS AND SUB BROKERS
  • APPOINTING OF A BROKER IS NOT COMPULSORY BUT APPROVAL OF THE STOCK EXCHANGE IS MANDATORY
  • NAME AND ADDRESSES OF THE BROKERS TO THE ISSUE SHOULD BE GIVEN IN THE PROSPECTUS
  • BROKERAGE ACCORDING TO PROVISIONS
  • DEPOSITORIES
  • INTERMEDIARIES WHO HOLD THE SECURITIES IN DEMAT FORM ON BEHALF OF THE SHAREHOLDERS
  • ENABLE THE TRANSACTIONS OF SECURITIES BY BOOK ENTRY

 LINK TO PRIMARY MARKET 1

 https://www.gargshashi.com/2020/08/PRIMARY-MARKET.html

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