NEW ISSUE : IPO : SEBI REGULATION AND IPO PROCESS

 

IPO : SEBI REGULATION AND IPO PROCESS

•     HISTORY

1.       THE PRIMARY MARKET IN INDIA GAINED IMPORTANCE AND POPULARITY AMONGST CORPORATE IN THE ERA OF LIBERALIZATION COMMENCING FROM THE YEAR 1992

2.       EARLIER THE CONTROLLER OF CAPITAL ISSUES ( CCI) WAS THE REGULATORY AUTHORITY GOVERNING THE PRIMARY MARKET IN INDIA

3.       IN 1992, THE GOVERNMENT OF INDIA ABOLISHED THE CCI AND CONSTITUTED SECURITY AND EXCHANGE BOARD OF INDIA THROUGH THE ACT OF PARLIAMENT

a)       KEY PHILOSOPHY : REGULATE RATHER THAN CONTROL

b)       KEY CHANGES : PRICING, DISCLOSURE BASED REGIME, REGULATE ISSUERS, INTERMEDIARIES AND MARKET PARTICIPANTS

c)        SEBI INTRODUCED THE DISCLOSURE OF INVESTOR PROTECTION CALLED DIP GUIDELINES IN 1991 WHICH WERE SUBSEQUENTLY AMENDED IN 2000

d)       SEBI ( ISSUES OF CAPITAL AND DISCLOSURE REQUIREMENTS ) REGULATIONS 2009

e)       UPDATED SEBI ( ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS 2018 (ICDR) AND COMPANIES ACT 2013

 

 

·         STEPS IN IPO PROCESS IN INDIA

1. HIRE AN INVESTMENT BANK ( LEAD MANAGER)
2. PREPARE DRAFT PROSPECTUS
3. ROADSHOWS ( DOG AND PONY SHOWS)
4. IPO PROCESS : RHP AND PRICING
5. IPO PROCESS IN INDIA THROUGH BOOK BUILDING
6. IPO ALLOTMENT
7. LISTING AND LOCK IN PERIOD

•     HIRE AN INVESTMENT BANK

§  NEEDS TO HIRE A MERCHANT INTERMEDIARIES RECOGNIZED BY REGULATORS

§  SELECTION OF INVESTMENT BANK IS MADE ON THE BASIS OF THE FOLLOWING FACTORS

i.            INDUSTRY EXPERTISE AND REPUTATION

ii.            DISTRIBUTION CAPABILITIES

iii.            PRIOR RELATIONSHIP WITH THE COMPANY

·         THE MANDATE FOR INVESTMENT BANKS IS TO FIND THE BEST VALUATION OF THE COMPANY

·         GET THE INVESTORS TO BUY

·         REQUIRED TO UNDERWRITE THE ISSUE EITHER THEMSELVES OR THROUGH THIRD PARTY

 

• INVESTMENT BANKS ADVISE THEIR CLIENTS ON THE IPO AFTER  GOING THROUGH THE COMPANY’ FINANCIAL STATEMENTS,INDUSTRY DYNAMICS AND RISK TAKING CAPACITY
• SYNDICATE IS FORMED FOR LARGE ISSUE

•     PREPARE DRAFT PROSPECTUS AND FILE WITH SEBI

·         DRAFT RED HERRING PROSPECTUS IS PREPARED AND FILED WITH SEBI

·         DRAFT PROSPECTUS : COVERS THE

i.            DETAILS ABOUT THE COMPANY’S BUSINESS PLANS

ii.            FUTURE PLANS AND COMPETITIVE SCENARIO

iii.            OBJECTIVE OF THE ISSUE

·         THE REGULATOR’S JOB IS TO VET THE DHRP

•     ROAD SHOWS( DOG AND PONY SHOWS)

i.            COMPANY MANAGEMENT AND  LEAD MANAGERS TRAVEL EXTENSIVELY ACROSS THE COUNTRY TO MARKET THE IPO TO POTENTIAL INVESTORS WHICH ARE MOSTLY INSTITUTIONAL INVESTORS

ii.            50 % IS RESERVED FOR QUALIFIED INSTITUTIONAL INVESTORS

iii.            IN INDIAN CONTEXT ROAD SHOWS MAY START EVEN BEFORE IPO IS APPROVED BY ITS REGULATOR

•     IPO PROCESS IN INDIA BIDDING THROUGH BOOK BUILDING

i.            AFTER FINALIZING THE PRICING THE IPO IS MADE AVAILABLE TO INVESTORS FOR BIDDING

ii.            TYPICALLY IPOS ARE  KEPT OPEN FOR AT LEAST 3 WORKING DAYS AND AN IPO CAN BE KEPT OPEN FOR MAXIMUM OF 10 DAYS

iii.            THE IPO BIDDING FRAMEWORK ALLOWS ON LINE AS WELL AS OFF LINE

iv.            ON LINE FACILITIES SUCH AS UPI AND ASBA APPLICATIONS ARE GAINING PROMINENCE

•     IPO ALLOTMENT

1. ALLOTMENT IS THE NEXT STEP AND RESPONSIBILITY IS WITH THE ISSUE REGISTRAR
2. SINCE STOCK TRADING IS MANDATORY IN DEMAT FORM
3. REGISTRAR HAS TO ENSURE CREDIT OF SHARES IN DEMAT ACCOUNT

• LISTING AND LOCK PERIOD

1. IPO PROCESS CULMINATES IN THE FORM OF LISTING OF THE COMPANY ON THE STOCK EXCHANGE
2. ANCHOR INVESTORS AND PROMOTERS ARE SUBJECT TO LOCK IN PERIOD
3. ANCHOR INVESTOR—30 DAYS LOCK IN PERIOD
4. ACCORDING TO SEBI REGULATIONS 20% OF THE COMPANY’S FULLY DILUTED POST OFFER EQUITY SHARES IS LOCKED IN FOR A PERIOD OF THREE YEARS FROM THE DATE OF ALLOTMENT
5. SEBI GUIDELINES FOR IPOS FOR UNLISTED COMPANIES

•  SEBI GUIDELINES FOR IPOS FOR UNLISTED COMPANIES

•    PROFITABILITY ROUTE--- ENTRY NORMS 1

1. THE MINIMUM NET WORTH OF THE ISSUER MUST BE MORE THAN INR ONE CRORE IN EACH PREVIOUS THREE YEARS
2. THE MINIMUM NET TANGIBLE ASSETS OF THE ISSUER MUST BE MORE THAN INR 3 OF THESE ASSETS MUST BE HELD IN THE FORM OF MONETARY ASSETS IN THE PREVIOUS THREE YEARS
3.  
4. THE MINIMUM AVERAGE OPERATING PROFIT BEFORE TAX OF THE COMPANY MUST BE MORE THAN 15 CRORES IN AT LEAST THREE OUT OF FIVE PREVIOUS YEARS
5. THE ISSUE SIZE MUST BE NOT MORE THAN FIVE TIMES THE PRE ISSUE NET WORTH
6. IF THE  COMPANY HAS CHANGED ITS NAME THEN A MINIMUM OF 50% OF THE RECEIVED FROM ACTIVITIES DONE UNDER NEW NAME.

•     ALTERNATIVE ROUTES

•   ENTRY NORMS II

•   QIB ROUTE ENTRY NORM II

1. COMPANIES REQUIRE A LARGE CAPITAL BASE FOR THEIR OPERATION BUT ARE UNABLE TO FULFILL THE CONDITIONS LAID DOWN UNDER PROFITABILITY ROUTE CAN CHOOSE THE QIB ROUTE TO MAKE THE PUBLIC OFFER
2. COMPANY CAN ACCESS THE PUBLIC INTEREST VIA THE BOOK BUILDING PROCESS
3. QIB ENTRY NORM II
4. UNDER THIS PROCESS 75% OF THE COMPANY’S NET OFFER TO PUBLIC MUST BE ALLOTTED COMPULSORILY TO QIB
5. IF UNABLE TO ACHIEVE THE MINIMUM SUBSCRIPTION THEN REFUND THE SUBSCRIPTION FEES

•     APPRAISAL ROUTE ENTRY NORMS III

i.            UNDER THE APPRAISAL ROUTE, THE PROJECT OR THE PUBLIC OFFER IS APPRAISED AND PARTICIPATED TO THE EXTENT OF 15% BY FINANCIAL INSTITUTIONS OR SCHEDULED COMMERCIAL BANKS OF WHICH A MINIMUM OF 10% COMES FROM APPRAISERS

ii.            MINIMUM POST ISSUE FACE VALUE CAPITAL MUST BE INR 10 CRORES OR A MANDATORY MARKET MAKING FOR AT LEAST TWO YEARS

iii.            MINIMUM OF 1000 PROSPECTIVE ALLOTTEE  IN THE ISSUER COMPANY’S PUBLIC ISSUE

 

•     SEBI GUIDELINES FOR PUBLIC ISSUE OF LISTED COMPANY ( FPO)

i.            IF THE COMPANY HAS CHANGED ITS NAME DURING THE LAST ONE YEAR AT LEAST 50% OF ITS REVENUE FOR THE PREVIOUS ONE YEAR MUST BE FROM THE ACTIVITIES PERFORMED BY THE COMPANY UNDER ITS NEW NAME

ii.            THE SIZE OF THE ISSUE MUST NOT BE MORE THAN FIVE TIMES THE PRE ISSUE NET WORTH PER THE COMPANY’S AUDITED BALANCE SHEET OF THE LAST FINANCIAL YEAR

•     EXEMPTED ENTITIES UNDER THE SEBI GUIDELINES FOR IP0

i.            PRIVATE AND PUBLIC SECTOR BANKS

ii.            INFRASTRUCTURE COMPANY WHICH HAS PROJECT APPRASED BY A PUBLIC FINANCIAL INSTITUTION OR IDFC, OR IL&FS OR A BANK WHICH WAS PREVIOUSLY A PFI AND AT LEAST 5% OF THE PROJECT COST IS FUNDED BY ANY OF THESE INSTITUTIONS

 

 

•     MINIMUM PROMOTER’S CONTRIBUTION AND LOCK IN

i.            UNLISTED COMPANY MAKES A PUBLIC ISSUE : THE PROMOTERS AT LEAST CONTRIBUTE AT LEAST 20% OF THE POST ISSUE CAPITAL. LOCK IN PERIOD FOR AT LEAST THREE YEARS

ii.            LISTED COMPANY MAKES  A PUBLIC ISSUE IN THE FORM OF FPO : 20% OF THE POST ISSUE CAPITAL OR 20% OF  TOTAL ISSUE SIZE

•     ICDR GENERAL GUIDELINES

1. THE PROMOTERS, DIRECTORS OR ANY OTHER PERSONS IN CONTROL OF THE ISSUING COMPANY SHOULD NOT HAVE DEBARRED FROM ACCESSING THE CAPITAL MARKET
2. THE PEERS OF THE COMPANY LIKE PROMOTERS, DIRECTORS ETC SHOULD NOT BE PLAYING SIMILAR ROLE  IN ANY OTHER COMPANY
3. ALL PARTLY PAID UP EQUITY SHARES SHOULD BE FULLY PAID UP
4. ISSUING COMPANY HAS TO ENTER INTO AGREEMENTS WITH A DEPOSITORY FOR DEMATERIALIZATION OF SPECIFIED SECURITIES

 

 

 

5. EVERY LISTED COMPANY SHOULD MAINTAIN A  MINIMUM 25% AND IF FALLS BELOW THAT PERCENT AT ANY TIME, IT  FALLS BELOW THE PERCENT AT ANY TIME UP TO 25% WITH IN ONE YEAR
6. EXCLUDING THE AMOUNT PU UP FOR THE NEW ISSUE THE COMPANY HAS TO MAKE ARRANGEMENT OF FINANCE FROM VERIFIABLE SOURCES FOR ALL OTHER FINANCIAL REQUIREMENTS
7. HALF OF THE MEMBERS OF BOARD OF THE DIRECTORS OF THE COMPANY SHOULD BE INDEPENDENT DIRECTORS 

8. THE PROCESS OF AN INITIAL PUBLIC OFFER OF MORE THAN INR 50 LACS MUST STRAT WITH THE COMPANY FILING A DRAFT OFFER IN THE FORM OF DRAFT RED HERRING PROSPECTUS WITH THE SEBI AND THE COMPANY CAN PROCEED FURTHER ONLY AFTER GETTING OBSERVATION FROM THE SEBI
9. THE COMPANY HAS TO OPEN THE ISSUE WITH IN THREE MONTH FROM THE DATE OF OBSERVATION LETTER
10. NO DIRECTOR OR PROMOTER OF THE COMPANY MUST BE GUILTY OF AN ECONOMIC OFFENCE
11. IF THE COMPANY WANTS TO GO FOR A PUBLIC ISSUE OF MORE THAN 100 CRORES IT MUST SUBMIT A DRAFT OFFER DOCUMENT WITH THE REGIONAL OFFICE OF SEBI

 LINK FOR IPO  : MEANING AND BASIC TERMS

https://www.gargshashi.com/2020/08/INITIAL%20-PUBLIC%20-OFFER.html