IPO process - Aug 2003

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By: aayushman (14 month(s) ago)

would require the ppt..business director ..for eval

 

By: agarwalkaushal1389 (14 month(s) ago)

very informative

 

By: auhiuman (15 month(s) ago)

This is a very nice power-point!!

 

By: pranut (15 month(s) ago)

VERY NICE PPT

 

By: dhuvad2004 (16 month(s) ago)

Can you please post a ppt to my email id dhuvad.2004@gmail.com It would be a great help for me and my students to give Real exposure of Bidding Process

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Presentation Transcript

Slide 1: 

Presentation on the IPO Process August 22, 2003

Agenda : 

Agenda Key regulations IPO models IPO timelines Roles of key participants IPO process Prior to SEBI filing After SEBI filing Bidding period Post-bidding Case studies Divi’s Laboratories Maruti Udyog Ltd

Key Regulations: Recent Changes in SEBI Guidelines : 

Key Regulations: Recent Changes in SEBI Guidelines Changes in eligibility norms for unlisted guidelines Introduction of Greenshoe option Amendments in disclosure requirements Changes in guidelines on circulation of research report Amendments in definition of retail investors and QIBs Changes in book building guidelines Amendment in the proportion of offer to various investor categories (QIB – 50%, retail – 25% and wholesale – 25%) Commencement of trading in 6 days from closure of the issue Introduction of brokers as formal participants in book building Introduction of “know your client” concept for brokers even for primary issues Introduction of price band for book built issues No withdrawal of bids by QIBs after closure of the issue Investment grade credit rating mandatory for debt public issues

Key RegulationsEligibility Criteria : 

Key RegulationsEligibility Criteria Net tangible assets of atleast Rs.3 cr in the preceding 3 full years, not more than 50% held in monetary assets Track record of distributable profits in terms of S 205 of Cos. Act (excl extra ordinary items) for 3 of preceding 5 years Option I – NTA, profitability and net worth track record Net worth of at least Rs. 1 crore in each of the preceding 3 full years (a) Issue through book building route with atleast 50% allotted to QIBs (b) Minimum post issue face value of the Company shall be Rs 10 crores Option II – no NTA, profitability and net worth track record “project” has at least 15% participation by FIs / banks, of which 10% comes from appraiser and atleast 10% of issue size allotted to QIBs Compulsory market making for atleast 2 years or + + + or

Key RegulationsEligibility and Listing Criteria : 

Key RegulationsEligibility and Listing Criteria

Key RegulationsMinimum Issue Size and Lock-in Requirements : 

Key RegulationsMinimum Issue Size and Lock-in Requirements

Key Regulations FIPB, RBI and Corporate Governance Guidelines : 

Key Regulations FIPB, RBI and Corporate Governance Guidelines

Key Regulations Key Book Building Guidelines : 

Key Regulations Key Book Building Guidelines

Agenda : 

Agenda Key regulations IPO models IPO timelines Roles of key participants IPO process Prior to SEBI filing After SEBI filing Bidding period Post-bidding Case studies Divi’s Laboratories Maruti Udyog Ltd

IPO ModelsOverview : 

IPO ModelsOverview

Agenda : 

Agenda Key regulations IPO models IPO timelines Roles of key participants IPO process Prior to SEBI filing After SEBI filing Bidding period Post-bidding Case studies Divi’s Laboratories Maruti Udyog Ltd

Indicative Time Schedule100% Book Building : 

Indicative Time Schedule100% Book Building Week 1 Week … Week … Week 10 Week 11 Week 12 Week 13 Week 14 Week 15 Week 16 Week 18 Week 19 Week 20 Week 17 Due Diligence, Prospectus Drafting SEBI Review Period & Stock Exchange Approval File with SEBI & Stock Exchanges Receive & Comply with SEBI Comments Module I : Approvals & Pre Launch Finalise Price band/ Floor Price and file RHP with ROC Module II : Marketing Develop Positioning and marketing plan Pre - Marketing Print and distribute Red Herring Institutional & Retail Road shows Module III : Bidding, Allocation & Listing Bidding Pricing & Allocation Listing & Trading Approvals

Detailed IPO Timeline100:0 Book Building : 

Detailed IPO Timeline100:0 Book Building

Detailed IPO Timeline100:0 Book Building : 

Detailed IPO Timeline100:0 Book Building

Detailed IPO Timeline100:0 Book Building : 

Detailed IPO Timeline100:0 Book Building

Detailed IPO Timeline100:0 Book Building : 

Detailed IPO Timeline100:0 Book Building

Detailed IPO Timeline100:0 Book Building : 

Detailed IPO Timeline100:0 Book Building

Indicative IPO Time ScheduleFixed Price Issue : 

Indicative IPO Time ScheduleFixed Price Issue

Detailed IPO TimelineFixed Price Issue : 

Detailed IPO TimelineFixed Price Issue

Detailed IPO TimelineFixed Price Issue : 

Detailed IPO TimelineFixed Price Issue

Detailed IPO TimelineFixed Price Issue : 

Detailed IPO TimelineFixed Price Issue

Agenda : 

Agenda Key regulations IPO models IPO timelines Roles of key participants IPO process Prior to SEBI filing After SEBI filing Bidding period Post-bidding Case studies Divi’s Laboratories Maruti Udyog Ltd

Intermediaries and Legal StructureBook Built IPO : 

Intermediaries and Legal StructureBook Built IPO

Role of the CFO : 

Role of the CFO Key member of the IPO team – co-ordinates critical IPO related activities from the Company Presents business plan to the issue management team Articulates the business strategy and financing requirements for presentation in the Prospectus Co-ordinates with Auditors for financial statements required in the Prospectus Responsible for clearances, if any, from existing lenders/ credit rating agencies/ appraising institution Intermediates between the company management and lead management team on issues such as Presentation of business strategy, MD&A, business related risk factors in the Prospectus Receiving various documents and clearances from the Board members Co-ordinates the due diligence exercise on behalf of the Company with the lead management team and lawyers Key member of the road show team

Role of the Company Secretary : 

Role of the Company Secretary Key member of the IPO team – co-ordinates all IPO related activities from the Company Co-ordinates secretarial activities with the lawyers and lead management team Authority for the issue Amendments in Articles of the Company Various Board Resolutions required for the Issue Presentation and clarifications with respect to the Capital Structure Co-ordinate Issue related approvals from FIPB and RBI Co-ordinate compliance with Corporate Governance guidelines and ESOP guidelines, if any Responsible for disclosures with respect to Subsidiaries, Promoter and promoter group companies Litigations Statutory approvals Material contracts

Role of Legal Advisors : 

Role of Legal Advisors Assistance in submitting application to FIPB and RBI Vetting of the MoA & AoA Assistance in drafting various resolutions regarding the Issue Involvement in due diligence and drafting of the Red Herring Advising on book building procedure and interpretation of various regulations Advising on regulatory requirements for marketing the deal in other jurisdictions Drafting of legal agreements including Escrow, Syndicate and Underwriting agreements Provide various opinions and comfort for the Issue and the Red Herring

Role of Auditors : 

Role of Auditors Prepare financial statements in accordance with SEBI and ICAI guidelines Consolidated and recasted accounts for the last 5 years and the stub period Not older than six months from the date of opening of bidding Provide other statements on the financials of the Company for inclusion in the Red Herring as per SEBI guidelines including Key financial ratios Taxation statement Capitalisation statement Basis of Issue price Related party transactions Provide comfort letter on the financial information included in the various versions of Red Herring Prospectus, which are signed off by the Board of Directors of the Company

Agenda : 

Agenda Key regulations IPO models IPO timelines Roles of key participants IPO process Prior to SEBI filing After SEBI filing Bidding period Post-bidding Case studies Divi’s Laboratories Maruti Udyog Ltd

Steps prior to SEBI filing… : 

Steps prior to SEBI filing… Form an IPO team from the Issuer/ Offeror(s) Finalise the capital structure Decide on composition & size of the issue – fresh issue/ offer for sale/ combination/ greenshoe Confirm adequacy of authorized capital Board of Directors of the Company to authorise the Issue Initiate audit proceedings i.e. consolidated and recasted accounts for the past 5 years and stub period along with other auditors’ certificates Indian GAAP accounts on a stand alone basis Indian GAAP accounts on a consolidated basis US GAAP accounts for past 3 years and stub period not mandatory but recommended

…Steps prior to SEBI filing… : 

…Steps prior to SEBI filing… Research report, if any to be circulated atleast 45 days prior to SEBI filing of the draft Red Herring Prospectus Seek FIPB and RBI approval for issuing/ transferring securities to NRI/ OCBs/ FIIs Memorandum and Articles of Association to be amended for a listed company Vetted by legal advisors for changes in accordance with Companies Act Sent to the Stock Exchanges (where listing is proposed) for comments Approval of the shareholders for amendments in the Articles Conform to Corporate Governance guidelines of SEBI Reconstitution of the Board of Directors Formation of various committees of the Board – audit, remuneration, investor grievance etc Finalize ESOP plan in accordance with SEBI guidelines, if any

…Steps prior to SEBI filing… : 

…Steps prior to SEBI filing… Appointment of intermediaries Book Running Lead Manager (prior to SEBI filing) Registrar (prior to SEBI filing) Legal Advisors (prior to SEBI filing) Deal counsel - domestic Deal counsel - international PR and Advertising agency (prior to SEBI filing) Printers (prior to SEBI filing) Bankers to the issue Syndicate members/ brokers to the issue Tripartite agreement with Company, NSDL & CDSL and Registrar for dematerialization of shares

…Steps prior to SEBI filing : 

…Steps prior to SEBI filing Due diligence on all relevant aspects of the Company, business and management discussion on audited accounts with focus on the time consuming contents of the Red Herring Disclosure on promoter group companies i.e. financials and litigations Outstanding litigations of the Company and Directors Auditor’s reports & Management Discussion & Analysis of financial performance Related party transactions Identify risk factors for appropriate disclosure in Red Herring Incorporate stock exchange comments in the Articles of Association Identify compliance officer for the Company and incorporate in Red Herring Legal Advisor to confirm compliances and disclosures with respect to the Red Herring Ensure compliance with SEBI code on issue advertising File initial listing application with the SEs where listing is proposed

Critical Disclosure Requirements… : 

Critical Disclosure Requirements… Risk Factors Business related risks Factors that could adversely impact revenues or profitability of the Company Dependence on one/ few customers Dependence on key employees Seasonality in business Project related risks, etc. Non-business related risks Material litigations of the company and its group companies, promoters, directors Approvals for the business/ IPO not yet received Loss making group companies, etc. External risks Competition Changes in government policies which impact the company Changes in, economic conditions in India and markets which impact the company’s business Force majeure

…Critical Disclosure Requirements… : 

…Critical Disclosure Requirements… Capital structure Composition of the offer – primary and secondary Build up of capital structure since inception Promoter’s contribution and lock-in Details of top ten shareholders, 2 years prior, 10 days prior and as on SEBI filing date Details of equity transactions by the promoters during the last six months Details of ESOP scheme, if any Terms of the Issue Authority of the issue Rights of the shareholders Category-wise offer size – QIBs, non-institutional and retail investors Trading and market lot Eligible investors in each category Terms, mode and process of payment Allotment mode and process of allotment Bidding process General instructions

…Critical Disclosure Requirements… : 

…Critical Disclosure Requirements… Objects of Issue Project cost and details of appraisal, if any Use of proceeds Means of financing – firms arrangements of finance through verifiable means towards 75% of the stated means of finance, excluding the IPO should have been made Deployment of funds raised in the issue Actual expenditure already made Year-wise break-up of expenditure Investment avenues for funds raised, pending utilisation History of the Company Key events since inception Changes in name, registered office, memorandum and articles of association Objects clause of the company Promoters & Promoter Group In case of individual promoters, profile including age, education qualifications, experience in business, credentials In case of corporate promoters, history of the company, its promoters, financial highlights etc

…Critical Disclosure Requirements… : 

…Critical Disclosure Requirements… Management Board of directors – name, address, occupation, other directorships, independent/ non-independent, brief profile, terms of directorship including remuneration, shareholding in the company, litigations, interest in property etc Key management personnel - name, address, educational qualifications, date of joining the company, previous employment, years of experience, brief profile, remuneration, shareholding in the company, etc Business of the Company Brief overview of the business offerings – products/ services Industry overview Competitor landscape Plant, machinery, technology, process details Approach to marketing Employee details Facilities, technology, property

…Critical Disclosure Requirements… : 

…Critical Disclosure Requirements… Auditors Report – 5 years and the stub period (not older than six months as on date of Issue opening) Financial accounts for five years and stub period – balance sheet, P&L, notes to accounts, significant accounting policies, cash flow statement, previous year adjustments, if any Indian GAAP accounts on a stand alone basis Indian GAAP accounts on a consolidated basis US GAAP accounts for past 3 years and stub period , if available Dividend policy, taxation and capitalisation statements Loans and advances Related party transactions Key financial ratios Basis of issue price Comfort letter from the auditors on all financial information in the Red Herring

…Critical Disclosure Requirements… : 

…Critical Disclosure Requirements… Management Discussion & Analysis on Performance Summary of past financial results based on Indian accounts Reasons for change in significant items of income and expenditure Management discussion on Unusual or infrequent events Significant economic changes that are material Known trends or uncertainties that may adversely impact sales, revenues or income Future changes in relationship between costs and revenues Total turnover of each major industry segment in which the company operates Status of publicly announced new products/ business segments Extend to which is business is seasonal Dependence on a single or few suppliers or customers Competitive conditions

…Critical Disclosure Requirements… : 

…Critical Disclosure Requirements… Previous or current credit ratings Details of borrowings by the company Financials of group companies In case of listed group companies, details of the previous issue; stock market data Litigations against the company, promoters, directors, group companies Statutory information as per Companies Act Details on previous issues Expenses of the issue Consents, expert advise Purchase of property Main provisions of the Articles of Association Material contracts and documents Declaration and sign-off by the Board, CEO and CFO of the Company on the SEBI and ROC filed Red Herrings

Agenda : 

Agenda Key regulations IPO models IPO timelines Roles of key participants IPO process Prior to SEBI filing After SEBI filing Bidding period Post-bidding Case studies Divi’s Laboratories Maruti Udyog Ltd

Steps after SEBI filing… : 

Steps after SEBI filing… File Red Herring with SEBI and all SEs where shares are listed Prepare drafts and commence discussions on various agreements like Escrow, Syndicate and Underwriting agreements Discuss the marketing plan including public relations plan corporate ads (can be issued without risk factors during this period) advertising campaign, ad budget, ad media conferences plan i.e. press & broker conferences, analysts stationery distribution schedule (forms & prospectus) direct marketing to shareholders/ stakeholders

…Steps after SEBI filing… : 

…Steps after SEBI filing… Sign tripartite agreement with NSDL/ CDSL Receive FIPB and RBI permission for issue/ transfer of shares to NRIs/ OCBs/ FIIs Finalise the arrangements with Escrow bankers Receive all relevant clarifications/ exemptions from various regulators Obtain initial listing permission from the SEs* Obtain comments from SEs* on Red Herring (within 15 days from filing) SE should be designated stock exchanges where the securities of the company are proposed to be listed and which the Company choses for purposes of the issue, which have nationwide trading terminals

Key IPO ConsiderationsElements of Marketing Strategy : 

Key IPO ConsiderationsElements of Marketing Strategy Mgmt. Meetings and HNI Targeting NRIs in India and abroad Non-Institutional Top Broker/ Press Site Visit Retail Broker Meets Press Meets Retail Elements of Marketing Strategy Management Interviews in Press & Electronic Media Institutional / Retail Analyst Meet Institutional Advertisements Press Meets Retail A wide spectrum of marketing tools will be used to achieve significant over subscription from institutional as well as retail investor segments

Illustrative Marketing Strategy : 

Illustrative Marketing Strategy

Illustrative Marketing Strategy : 

Illustrative Marketing Strategy

Steps before Bid opening… : 

Steps before Bid opening… Receive SEBI observations (expected after 21 days of filing), valid up to 3 months for issue opening Incorporate changes in the Red Herring as per comments from SEBI and SEs Discuss with SEBI clarifications/ deviations on their observations and inform them of material changes Send reply to the SEBI observations – based on discussions with them and obtain written/ verbal concurrence on the same All corporate advertisements whilst conforming to SEBI guidelines must contain risk factors Product advertisements can continue as usual without risk factors

…Steps before Bid opening : 

…Steps before Bid opening Pre-marketing to investors to receive guidance on Floor Price/ Price Band Analysis of pre-marketing feedback Demand assessment Price Band/ Floor price discussion Identify issues that need to be addressed during road-shows Tie-up of NSE/ BSE for the book building software Finalise Floor Price/ Price Band and file Red Herring with RoC along with material contracts and documents In case of a price band, it should be a 20% band, from the floor Price band can be revised during the bidding period, limited to 20% from the floor and cap, but issue to be open for an additional 3 days, s.t. to maximum issue period of 13 days Give strike order for Red Herring & Bid Forms and commence distribution Commence management Road shows– Retail and QIB Finalise the Syndicate & Escrow agreements and file the same with SEBI

Agenda : 

Agenda Key regulations IPO models IPO timelines Roles of key participants IPO process Prior to SEBI filing After SEBI filing Bidding period Post-bidding Case studies Divi’s Laboratories Maruti Udyog Ltd

Steps during the Bidding period : 

Steps during the Bidding period Finalise the Underwriting agreement Deposit 1% of the issue with RSE, at least 1 day before bid opening Commence bidding Analyze demand and built-up of the book on an on-going basis Announce movements in the price band, if any Co-ordinate with the Registrars on a daily basis For collection of bid forms from syndicate members Complete management road-shows Co-ordinate with the Bankers for collection and clearance of instruments Complete bidding

SEBI Guidelines: Bidding Procedure : 

SEBI Guidelines: Bidding Procedure Minimum bidding period of 5 days, maximum 13 days Bidding permitted only on an electronically linked platform, linking all bidding centers BSE/ NSE platform is used Investors to place bids through brokers/ syndicate only Brokers/ syndicate can vet the bids However, they cannot reject technically valid bids accompanied by appropriate payment Bidding Form Should be serially numbered Should bear brokers’/ syndicates’ stamp and date and time of bidding Accompanied with the Revision Form and Form 2A Graphical display of price and demand mandatory on terminals

SEBI Guidelines: Bidding Procedure : 

SEBI Guidelines: Bidding Procedure Floor price to be decided before RoC filing of the red herring Bidding at “cut off” price is allowed for retail individual investors, who for for up to Rs 50,000 However, implications in terms of collection of bid amount Mandatory to offer bid revision facility to bidders Revision can be of price or of quantity Revision can be at any time prior to bid closure only Revision can be done with brokers/ syndicate where the bid was originally registered

Bidding process : 

Bidding process

Typical Book Building - Illustrative : 

Typical Book Building - Illustrative Illustrative Bids Say Floor Price Rs. 250 per share Typical optional bids What it means Illustrative Book Total Issue of say, 100,000 shares Floor Price say, Rs. 250 per share Pricing at or below Rs. 270 Bids at or above issue price are valid bids

SEBI Guidelines: Mandatory Bidding Centers : 

SEBI Guidelines: Mandatory Bidding Centers Minimum centers stipulated for bidding in Book Built Portion Four Metros: Delhi, Mumbai, Kolkata, Chennai Plus all other SE centers North: Jaipur, Ludhiana, Kanpur East: Guwahati, Patna, Bhubaneswar West: Pune, Rajkot, Ahmedabad, Vadodara, Indore South: Hyderabad, Bangalore, Coimbatore, Cochin, Mangalore Implication: Brokers/ syndicate should have presence in all the mandatory collection centers

Receipts by the Bidder – 2 concepts : 

Receipts by the Bidder – 2 concepts Transaction Registration Slip (TRS) Issued by brokers/ syndicate to bidders after registering the bid on the electronic bidding system Proof of registration of bid on electronic bidding system Indicates the date and time of bid registration Indicates name of brokers/ syndicate through whom the Bid was registered Confirmation of Allocation note (CAN) Issued by the issuer company to bidders after allocating them equity shares Intimates allocation of shares to bidders Shows amount paid and balance payable, if any, with due date

Regulations and practice governing payment : 

Regulations and practice governing payment Companies Act: Equity shares cannot be allotted unless payment is collected in a designated account Payment cannot be collected prior to offer document registration Therefore, escrow mechanism devised to collect payments at the time of bidding SEBI guidelines: Margins collected at the time of bidding should be uniform for each category of bidders QIBs normally pay after allocation, therefore margins normally zero Brokers/ syndicate decides margins for other investor categories Balance payments taken after allocation of shares, but before allotment of shares Excess payment, in cases of oversubscription, to be refunded

Steps after Bid closing… : 

Steps after Bid closing… Finalize Issue Price Complete QIB allocation Update information in the red herring like stock market data, audited results, etc. as applicable Organize Board/ Committee meeting to accept letters of underwriting approve, sign and authorize filing of prospectus with ROC note the listing application made with SEs authorize opening of accounts with the bankers File the Prospectus with ROC, after pricing, along with material contracts and documents

Agenda : 

Agenda Key regulations IPO models IPO timelines Roles of key participants IPO process Prior to SEBI filing After SEBI filing Bidding period Post-bidding Case studies Divi’s Laboratories Maruti Udyog Ltd

Illustrative Pricing and Allocation Strategy : 

Illustrative Pricing and Allocation Strategy

Allotment and listing process : 

Allotment and listing process

Post-issue activities : 

Post-issue activities Receive provisional collection certificate from Bankers and file 3-day report to SEBI Obtain approval of the basis of allotment from designated SE Obtain Board/ committee approval for allotment and other post-issue formalities (preferably within 2-3 days of issue closure) Ensure printing of allotment letters and refund orders Despatch security certificates, allotment letters and refund orders Advertise the basis of allotment and despatch details for the public issue Upload shares in the respective demat accounts of the successful bidders Apply for listing and trading permission Obtain listing and trading approvals (within 6 days of issue closing) Obtain permission to utilize the proceeds of the issue from Designated Stock Exchange Submit the “78 day report” to SEBI

Greenshoe option : 

Greenshoe option Price stabilisation mechanism whereby one of the lead managers acts as a stabilising agent (SA) Over-allocation option of up to 15% of the Offer size Over-allocation achieved by borrowing shares from the promoters If exercised, over-allocation done on a proportionate basis to all applicants Proceeds received from over-allocation transferred to special account Funds in the special account are used by the SA to purchase shares from the secondary market, for a period of up to 30 days Help stabilise post-listing price Difference between shares borrowed from the promoters and shares actually purchased by the SA made up by fresh issue of shares by the issuer The total shares purchased by the SA and issued by the Company are returned to the promoters Profits, if any, made in the stabilisation process to be transferred to the Investor Protection Funds

Agenda : 

Agenda Key regulations IPO models IPO timelines Roles of key participants IPO process Prior to SEBI filing After SEBI filing Bidding period Post-bidding Case studies Divi’s Laboratories Maruti Udyog Ltd

Case Study: Divi’s Laboratories Ltd.… : 

Case Study: Divi’s Laboratories Ltd.…

…Case Study: Divi’s Laboratories Ltd. : 

…Case Study: Divi’s Laboratories Ltd. The Divi’s IPO generated the highest over subscription among all book-built IPOs in the last 30 months Overall demand: 14.4X QIB demand: 8.8X Wholesale demand: 47.7X Retail demand: 7.9X Despite challenging market conditions, the issue achieved premium pricing From the time of the roadshows to the time of pricing, the BSE Healthcare Index fell by 1.3%, even then the issue was priced above the floor price by about 7.7%

Agenda : 

Agenda Key regulations IPO models IPO timelines Roles of key participants IPO process Prior to SEBI filing After SEBI filing Bidding period Post-bidding Case studies Divi’s Laboratories Maruti Udyog Ltd

Case Study: Maruti Udyog Ltd… : 

Case Study: Maruti Udyog Ltd…

…Case Study: Maruti Udyog Ltd… : 

…Case Study: Maruti Udyog Ltd… Maruti’s IPO of Rs. 9.93 bn generated unprecedented demand of nearly Rs. 90 bn The largest ever book built IPO Widest Institutional and Non-Institutional distribution achieved in any IPO The largest ever number of applications received for any IPO The fastest ever subscription in any IPO in our history - subscribed within 3 hours of opening The largest IPO that has been priced above the floor price The demand generated exceeds demand for any Indian ADR offering of all times

…Case Study: Maruti Udyog Ltd… : 

…Case Study: Maruti Udyog Ltd… Largest offering by any Indian company in recent years Highest demand in any Indian offering in recent years