bse ceo conclave 2 dipti an jm financial

8/8/2019 Bse Ceo Conclave 2 Dipti an Jm Financial

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Requirements for a First Time IssuerRequirements for a First Time Issuer

of Securitiesof Securities IPO RequirementsIPO Requirements

October 31, 2008


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Agenda

Fund Raising Options

Fund Raising History India

Why IPO?

Eligibility Criteria under SEBI DIP and BSE Regulations

Minimum Public Shareholding

Minimum Promoters Contribution and Lock-in

Pricing

Issue Structure Book Building

Corporate Governance Requirements

Disclosures in the Offer Document

Special Dispensation to PSUs

Intermediaries involved and their Roles

Process and Timeline


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Options forRaising Funds

Fund Raising Options

HybridDebt Equity

In India

outside India

From Banks & FIs

Public issue of

Bonds/Debentures

ECB ADR/GDR

IPO

FPO

Rights Issue

Pref. Issue

Various forms of

Convertibles

FCCB & FCEB


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Fund Raising History India

Capital Market Issues

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

FY-2004 FY-2005 FY-2006 FY-2007 FY-2008

IPO FPO Righ s Issue QIP

Total Funds

Raised

Rs. 18,812 cr Rs. 24,707 cr Rs. 27,477 cr Rs. 32,950 cr Rs. 104,937 cr


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Why IPO??

For Funding Needs

Funding Capital Requirements for Organic Growth

Expansion through Greenfield or Brownfield or De-bottle Necking Projects

Diversification

Funding Inorganic Growth through Acquisitions

Funding Global Requirements

Funding Joint Venture and Collaborations needs

Funding Infrastructure Requirements, Marketing Initiatives and Distribution Channels

Financing Working Capital Requirements

Funding General Corporate Purposes

Investing in businesses through other companies

Repaying debt to strengthen the Balance Sheet

Meeting Issue Expenses

For Non-funding Needs

Enhancing Corporate Stature

Retention and incentive for Employees through stock options

Providing Investors exit options

Provide liquidity to the shareholders


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IPO Requirements


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Eligibility Criteria forUnlisted Companies - SEBI

Companies with track record Companies without track record

Track record of distributable profits for3 outofthe

immediatelypreceding 5 years

Pre-issue net worthof notless than Rs. 1 Crore in

eachofthe preceding 3 fullyears

Nettangible assets of atleast Rs. 3 Crores foreachof

the preceding 3 fullyears

Notmore than 50% ofthese tobe held in the formof

monetary assets

(Proposed IPO + Previous Issues in the same financial

year) < 5 times the pre-issue net worth

In case the companyhas changed its name within the

lastone year, atleast 50% ofthe revenue forthe

preceding 1 fullyearis earned bythe company fromthe activity suggested bythe new name

Prospective allottees in the IPO should notbe less

than 1000 in number

Primary Criteria

Choice of Route: Fixed Price or

Book Building

Choice of Route: Book

Building

In case ofproject

funding, 15%

participation by Financial

Institutions / Scheduled

CommercialBanks

10% ofthis must come

from appraiser

10% ofissue size to

be allotted to QIBs

50% ofthe netofferto

public being allotted to

QIBs

Minimumpost-issue face

value capitalmustbe Rs.

10 CroresOR

Compulsorymarket

making foratleast 2

years fromthe date of

listing of shares

+ + Minimumpost-issue face

value capitalmustbe Rs.

10 CroresOR

Compulsorymarket

making foratleast 2

years fromthe date of

listing of shares

Choice of Route: Fixed

Price orBook Building

Exemptions

A banking company

including a local area bank

set up underthe Banking

Regulation Act, 1949

A corresponding new bank

set up underthe Banking

Companies Act, 1970

An infrastructure company:

Whose projecthas beenappraised by a public

financialinstitution (PFI)

Notless then 5% ofthe

project costis financed by

anyofthe PFI

Rights issue by a listed

company


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Eligibility Criteria ForIPO Stock Exchange (BSE)

Large Companies Small Companies

The minimumpost-issue paid-up capitalof

the applicant company(hereinafterreferred

to as "the Company") shallbe Rs. 3 crore;and

The minimum issue size shallbe Rs. 10crore; and

The minimummarket capitalization oftheCompany shallbe Rs. 25 crore (market

capitalization shallbe calculated by

multiplying the post-issue paid-up numberofequity shares withthe issue price).

BSE Eligibility Criteria

The minimumpost-issue paid-up capitalof

the applicant company(hereinafterreferred

to as "the Company") shallbe Rs. 3 crore;and

The minimum issue size shallbe Rs. 3 crore;and

The minimummarket capitalization oftheCompany shallbe Rs. 5 crore (market

capitalization shallbe calculated by

multiplying the post-issue paid-up numberofequity shares withthe issue price).

The minimum income/turnoveroftheCompany shallbe Rs. 3 crore in eachofthepreceding three 12 months period; and

The minimum numberofpublic shareholders

afterthe issue shallbe 1000

A due diligence studymaybe conducted by

an independentteamof CAs orMerchant

Bankers appointed byBSE.


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Minimum Public ShareholdingPromoter includes:

The person orpersons who are

in over-all controlofthe

company;

The person orpersons who are

instrumentalin the formulation

of a plan orprogramme

pursuantto whichthe securities

are offered tothe public;

The persons orpersons named

in the prospectus as

promoters(s).

Promoter Group

Defined underclause 6.8.3.2 ofSEBI DIP

Public

Implies allinvestors otherthan

Promoterand PromoterGroup

In case of PSUs, the

Promoter is Government of

India (represented byPresident of India).

SEBI has granted exemption

on issue structure from Rule

19(2)(b) on case to case

basis

Clause 40A of the Listing Agreement

At least 25% of the post issue paid up capital with the public (ie. other than promoter and promoter group)

Exceptions under Rule 19(2)(b) of SCRR

As per rule 19(2)(b), a minimum of 25% of each class of security must be offered to the public for subscription

However, at least 10% can be offered if the following 3 conditions are fulfilled:

Minimum 2 MM securities (excluding reservations, firm allotment & promoter contribution) to be offered to

the public

Minimum offer size Rs. 100 crores

Issuance through book building with 60% QIB allocation

Continuous fulfillment of minimum shareholding criteria

Continuous public shareholding needs to be maintained as per Clause 40A of the listing agreement since listing

Exemption

The aforesaid requirement of maintaining minimum level of public shareholding on a continuous basis will not

be applicable to government companies (as defined under Section 617 of the Companies Act, 1956),

infrastructure companies (as defined under clause 1.2.1(xv) of the SEBI (DIP) Guidelines, 2000) and companies

referred to the Board for Industrial and Financial Reconstruction.


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Government Cos & Infrastructure Cos

Government

Companies

Section 617 of the Companies Act, 1956

Government company,means any companyin which notless than fiftyone percentofthe

paid-up share capitalis held bythe Central Government,orby anyState Governmentor

Governments,orpartlybyt

he Centra

lGovernment and part

lybyone ormore State

Governments, and includes a company whichis a subsidiaryof a Government company

as thus defined.

InfrastructureCompanies

Clause 1.2.1(xv) of the SEBI (DIP) Guidelines, 2000

Infrastructure Companymeans, a company wholly engaged in the business of

developing,maintaining and operating infrastructure facility.


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Minimum Promoters Contribution and Lock-in

Promoters

Contribution

Minimumof 20% ofthe postissue capitalofthe Company forunlisted companies; forlisted

companies, eitherto extentof 20% in issue orto ensure postissue holding of 20%

Following shares are ineligible forthe computation of Promoters contribution

Issued in lastone yearat a price lowerthan issue price, unless topped up

Issued in lastthree years outofbonus issue orrevaluation reserve forconsideration other

than cas

h

Lock-in period

ForPromoters:

Lock-in fora period of 3 years fromthe date of allotmentorfromthe date of commencement

of commercialproduction, whicheveris later

Balance pre-issue capital,otherthan held by Indian and Foreign Venture Funds (registered

withSEBI) and shares held foratleastone yearand being offered forsale in the issue

Mustbe locked-in for a period of 1 yearfromthe date of allotment

Shares issued

last wi

llbe

locked-in first

Exemption

In case ofpublic issue of securities by a company whichhas been listed on a stock exchange

foratleast 3 years and has a track record of dividend payment foratleast 3 immediately

preceding years.

In case of companies where noidentifiable promoterorpromotergroup exists.

In case ofrights issues.


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Pricing

SEBI allows free pricing of equity shares in an IPO

Approval of RBI might be required for public issues by banks

Differential pricing is permissible in a public issue to retail individual investors and retail

individual shareholders

Retail investors can be offered shares at a discount to the price offered to other investorcategories (Max discount can be 10%)

Price Band: The cap price can be 20% more than the floor price. Price band can be revised by

20% from the floor price.

No payment of commission by the promoter or issuer company to the public

If the issue price is above Rs.500 then the issuer can fix the FV of shares below Rs.10 but a

minimum of Rs.1.


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Issue Structure Book Building

Of the Net Offer to Public

Maximum 50% to QIBs

Atleast 15% to HNIs

Atleast 35% toretail

Dilution = 25% Dilution = 10% to 25%

Of the Net Offer to Public

Atleast 60% to QIBs

Maximum 10% to HNIs

Maximum 30% toretail

Netoffertothe public shallmean the offermade to Indian public and does notinclude

reservations/ firm allotments/ promoters contribution.

Net Offer to Public

Reservations / Firm Allotment shall notbe made to categories otherthan:

Permanent employees ofthe issuercompany and in the case of a new companythe permanentemployees ofthe promoting companies';

Shareholders ofthe promoting companies in the case of a new company and shareholders of

group companies in the case of an existing company eitheron a competitive basisoron a firm

allotmentbasis.

Persons who,on the date of filing ofthe draftofferdocument withthe Board,have business

association, as depositors,bondholders and subscribers to services, withthe issuermaking an

initialpublic offering,

Reservations


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Corporate Governance Requirements

Composition

of the Board

Optimum numberof executive and non executive directors with atleast 50% being non-executive. If

the chairman,has executive powers then 50% ofBoard comprises of Independent directors. While if

chairman has non-executive powers then 1/3 ofthe Board comprises of Independent directors.

Audit

Committee

Mandatory constitution of Audit Committee withminimumthree directors and headed by an

Independent director.

Allmembers shallbe financiallyliterate (should be able to understand financial statements) and at

leastone membershould have accounting and financialmanagement expertise.

Investor

Committee

Shareholder/InvestorGrievances Committee tobe formed underthe chairmanshipof a non

executive directortolook intothe redressing of shareholderand investorcomplaints like transferof

shares, non-receiptofbalance sheet, non-receiptof declared dividends

Atleastone directoron the Board ofthe holding company shallbe a directoron the Board of a

material non listed Indian subsidiary Company

- Material non-listed subsidiarymeans a subsidiary whose turnoverornet worth exceeds 20% of

the consolidated turnoverornet worthin the preceding accounting year

Audit committee ofthe listed holding company shall alsoreview the financial statements,in

particular,the investments bythe unlisted subsidiary Company

A separate section on Corporate Governance tobe included in the Annual Reports with disclosures

on compliance ofmandatory and non-mandatoryrequirements

Submission of quarterly compliance reporttothe stock exchanges

CEO/CFOto certifythe financial statements and cash flow statements

Subsidiary

Company

Report on

Corp.

Governance

CEO/CFO

Certification


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Disclosures in the OfferDocument

Capital Structure

Shareholding Pattern (pre-issue and post-issue)

Securities Premium Account(pre-issue and post-issue)

Holding ofthe promoterand promotergroup

Disclosure aboutESOPs if any

Objects of the

Issue

Total

requirements of funds Means of Financing

Undertaking bythe issuercompany confirming firm arrangements of finance through

verifiable means towards 75% ofthe stated means of finance (excluding proposed IPO)

Details aboutthe appraisalofthe project

Interim use of funds

Business Description aboutthe Industryin whichthe Companyoperates

Detailed description aboutthe business ofthe Company

Risks related tothe Company

External Risk Factors

Details aboutthe Board ofDirectors and various committees

Details about keymanagementpersons

Risk Factors

Company

Management


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Disclosures in the OfferDocument(Contd)

Financial

Disclosures

Auditors Reporttohave five yearrestated financials forthe

IssuerCompany, and

AllSubsidiaries ofthe IssuerCompany or Consolidated Financials ofthe IssuerCompany

Audited financials presented should notbe more than sixmonths old atthe time of filing DRHP

withSEBI and mustbe updated tobe notmore than sixmonths old on the date of filing the

prospectus withthe ROC

All financials should be presented based on Indian GAAP

MD&A

Detailed discussion on performance forthe past 3 years

CapitalExpenditure

Cash Flow and Liquidity

Litigations andDefaults

Allpending litigations in whichthe Company/Promoters / PromoterGroup / Directors / Group

companies are involved.

Both,litigations filed byoragainstthe Company/Promoters / PromoterGroup / Directors /

Group companies

Outstanding litigations, defaults, etc.,pertaining tomatters likelyto affectoperations andfinances ofthe company.

The pending proceedings initiated foreconomic offences againstthe directors,the promoters,

companies and firms promoted bythe promoters indicating theirpresent status.


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Special dispensation to PSU - Precedents

* Obtained relaxation from SEBI and issue structure is 50% to QIB, 15% to HNI and 35% Retail# Based on DRHP filed with SEBI

REC PFC Power Grid OIL India#

Promo

er

Government of India, represented

by the President of India disclosed

as promoterwith noadditional

details

Yes Yes Yes Yes

Promotergroup

companies

Nopromotergroupcompanies

disclosed However,the

disclosuresw r.tSubsidiariesneed

tobemade

No No No No

Corporate

governanceClause49ofthelistingagreement Yes Yes Yes Yes

IssuestructureCompliancewith rule19(2)(b)of

SCRRYes No* No* Yes

DisclosuresRemarksParticulars

OnlyrestatedAudited

FinancialStatementsneedstobedisclosedin

theDRHP.However,SEBI

hasgrantedexemptionon

casetocasebasistoPSUBankswhereby,evenlimitedreviewfigures

weredisclosedinDRHP,

soastocomplywith thecriteriaoffinancialstatementsbeingnot

morethansixmonthsold.


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Special dispensation to PSU

Has 2689 branches + subsidiaries in India (BOB Caps,BOB

Cards,BOB AMC) + foreign subsidiaries

Limited Review forJune 2005 numbers allowed. Limited Review

done foronly select(around 20 branches)by auditors and rest

were relied on by auditors. Limited review of foreign subsidiary for

June 2005 allowed.

Bank of

Baroda

NTPC

Promoteris presidentof India

Relaxation in disclosure ofpromoterand promotergroupin

offerdocument

SEBI guidelines do not

allow limited review or

unaudited numbers in

prospectus

Limited review allowed

Disclosure ofpromoter

and promotergroup

Need to comply with

Corporate governance

norms

Promoters contribution

and lock-in


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Intermediaries Involved


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Intermediaries and theirRoles

Lead Managers

Overall Co-ordination

Conduct due diligence and finalize disclosure in OfferDocument

Assistthe legal counselin drafting ofOfferDocument

Interface / ensure compliance protocol withSEBI / NSE / BSE

Domestic &International Legal

Counsels

LegalDue Diligence

Drafting the offerdocument

Guidance on anyotherincidentallegalmatters

Assistance in complying withrequirement forselling in internationalgeographies

Bankers Acting as collecting agents

Escrow Account & Refund account

Co-ordination withthe Issuerand Bankers regarding collections,reconciliation,refunds etc

Securing allocation approval fromStock Exchanges

Postissue co-ordination collation and reconciliation ofinformation

Reviewing and auditing financials and preparing financial statements forinclusion in the OfferDocument

Verify/audit various financial and otherdata used in the Offerdocument and provide Comfort Letter

Bulk printing ofthe Red Herring Prospectus Bid Forms, final Prospectus, CAN, Refund orders etc.

Ensure timely dispatch and distribution of stationeryto all centers

Registrars

Auditors

Printers

Preparing and getting published all statutory notices

Creating all advertisementmaterialsAdvertisers

Self Certified Syndicate

Bank (SCSB)

Acting as collecting agents forASBA (Application Supported byBlock Amount)process


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IPO Process Fixed Price Issue

Due diligence

Appointment of

BRLM and legal

counsel

Drafting of Draft

Prospectus

Filing with SEBI &

Stock Exchanges

SEBI Clearance

& ROC Filing of

the Prospectus

Pre-Marketing

Decision to go for

IPO

Roadshows

Issuer

Issue Open

Allotment

Issue Closure

Listing

Funds transferred

to issuer

Preparation / Approvals Filing the Prospectus and Marketing Launch & Completion


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IPO Process Book Built Issue

Due diligence

Appointment of

BRLM and legal

counsel

Drafting of Draft

Red Herring

Filing with SEBI &

Stock Exchanges

SEBI Clearance

& ROC FilingPre-Marketing

Decision to go for

IPO

Roadshows

Issuer

Book building

RoC filing of final

Prospectus

Pricing & Allocation

Listing

Funds transferred

to issuer

Preparation / Approvals Marketing and Estimation of Price Range Launch & Completion


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Execution Process Timeline

Activity

PreparatioPhase

DueDilience

Filingof

Draft

Document

week

Sebi Observation

Finalization & filingofofferDocument

IssuePerio

Min. 3

Days

PostIssue Activities 2 - 3 weeks

IPO Process - 23 weeks

2 weeks

4 - 5 weeks

4 - 8 weeks

2 - 3 weeks


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Thank You

bse ceo conclave 2 dipti an jm financial

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