Fund Raising

Through

Book Building

Pavan Kumar VijayManaging Director

About Public Issues

IPO FPO PromotersStrategic Investors

Initial Public Offer

An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be made through the:

Fixed price method

Book Building method

OROR ORORCombination

of both

Eligibility Norms

Net tangible assets of at least Rs.3 crore in each of the preceding 3 full years of which

not less than 50% is held in monetary assets.

Track Record of Distributable Profit For at least 3 out of Immediately Preceding 5

Years

Pre issue Net Worth of not less than Rs 1 Crore in each of the preceding 3 full years.

In case of change in name, at least 50% of the revenue for the preceding 1 year is earned

by the new activity.

Size of the proposed issue + all Previous issues < 5 times its pre issue net worth.

Number of prospective allottees >1000 in numbers.

Fixed Price Method-IPO

Fixed Price Method-FPO

Eligibility Norms

In case of change in name, at least 50% of the revenue for the

preceding 1 year is earned by the new activity.

Size of the proposed issue + all Previous issues ≤ 5 times its pre issue net

worth.

Pricing Norms

No conditions are prescribed

Company is free to determine the price of its securities

Advantages

• Issue of shares at a predetermined price.

• Accessibility to a wider investor base.

• Broad based shareholding will improve liquidity and trading depth.

• Retail holding would lead to stability in share prices.

Disadvantages

• Number of Investors are large.

• Does not involve investor’s participation in price finding.

• Risk of over pricing or under pricing exists.

Fixed Price Method

“Book building as an option can be used when Fixed price is not possible “

(a)(i) Issue is made through Book building process with 50% of net offer

to public being allotted to QIBs. OR

(a)(ii) Project has at least 15% participation by FIs/ Scheduled

Commercial Banks of which 10% comes from appraiser(s) and at least

10% of the issue size shall be allotted to QIBs.

AND

(b)(i)Minimum post issue face value capital = Rs.10 crores. OR

(b)(ii) Compulsory market making for at least 2 years.

In other words, the company shall comply with:

a(i) and b(i) or b(ii) OR a(ii) and b(i) or b(ii)

Qualified Institutional Buyers ?? (QIBs)

a) Public financial institution; (Section 4A of the Companies Act, 1956)b) Scheduled Commercial Banks;c) Mutual fundsd) Foreign Institutional Investor registered with SEBI;e) Multilateral and bilateral development financial institutions;f) Venture Capital Funds registered with SEBI;g) Foreign Venture Capital Investors registered with SEBI;h) State Industrial Development Corporations;i) Insurance Companies registered with IRDA;j) Provident Funds with Minimum Corpus of Rs.25 crores;k) Pension Funds with Minimum Corpus of Rs.25 crores;l) National Investment Fund.

Book Building Process

RIIIssue Price

Final Issue Price

Net Offer to Public

Minimum 25% of the post issue capital

Exception

Conditions to be fulfilled where net offer to public is 10%.

• Minimum 20 lacs securities were offered to the public;

• Size of the offer to the public was minimum Rs. 100 crores; &

• Through book building method with allocation of 60% of the issue size

to the QIBs.

In case of issue through the 100% Book Building Process & Minimum Public shareholding is 25%.

10%** 5%** 10%** 50%* 15%* 35%*

*% With respect to the Net offer to the public** %With respect to the proposed issue

Issue Size:100 shares

55 shares

27.5 shares 8.25 shares 19.25 shares

20 shares25 shares

10 shares 5 shares 10 shares

In case of issue through the 100% Book Building Process & Minimum Public shareholding is 10%

10%** 5%** 10%** 60%* 10%* 30%*

*% With respect to the Net offer to the public** %With respect to the proposed issue

Issue Size:100 shares

55 shares20 shares25 shares

33 shares 5.5 shares 16.5 shares10 shares 5 shares 10 shares

Advantages

• Price discovery mechanism based on demand analysis.

• Transparency in pricing.

• Investor participation in the price finding mechanism.

• Reflects the investor perception and inherent value of the Company.

• Shareholders Number low.

Disadvantages

• Restrictive target audience & small investor shy away.

• Liquidity in stock could remain low.

Book Building - Analysis

Book Building-ProcessStep-1:Appointment of lead merchant banker(s) as 'book runners'.

Step-2:Appointment of syndicate members with whom orders are to be placed

by the investors.

Step-3: Issue of Red Herring Prospectus specifying the number of securities to

be issued and the price band for the bids.

Step-4:The syndicate members input the orders into an 'electronic book‘ called

bidding.

Step-5:The book normally remains open for a period of 5 days

Step-6:On the close of the book building period, the book runners evaluate the

bids on the basis of the demand at various price levels.

Step-7:Determination of final price by the Book runner and Issuer

Step-8:Allocation of securities is made to the successful bidders. The rest get

refund orders.

Book-building v/s Fixed Price

Heading Book Building Fixed Price

Primary objective Highest market price Widespread distribution

Focus Institutional Investors Retail Investors

Primary Beneficiary Institutional Investors Retail Public

Secondary Market Buyer Retail Investor (Low Appetite) Institutional Investor (Large appetite)

Price Determination Demand-based Corporate performance based

Pricing Discovered, complicated Fixed, Attractive for Retail Investor

Strategic Acquisition Easy (From large Investors) Difficult (from Distributed Investors)

Reservation for Retail Investors 35% 50%

In a Book Built issue

Declines

Improves

Stock Profile

In a Retail Fixed Price Offering

Sell To

Sell To

Retail Institutions

InstitutionsRetail

Content Of Offer Document

General Corporate Information; Industry overview; Projects, objects to the issue; Operations, Branches, offices; Future Prospects; Sustainability of the business; Capital Structure, its Evolution

and Shareholding Details; Promoters & Promoter Group; Management of Company; Board Committees; Key Managerial Personnel and

Other Officers;

Holding, Subsidiary and Group Companies;

Material Contracts & Commitments;

Assets and Immovable Property; Financials; Outstanding Litigations and

Claims; Intellectual Property Rights

("IPR"); Legal Compliances; Insurance and Risk Management; Human resource/ Employees; Management’s Discussion and

Analysis;

Offer Document

Red Herring Prospectus"Red Herring Prospectus" is a

prospectus which does not have details of either price or number of shares being offered or the amount of issue.

ORProspectus Excluding Price/number

of securities/ amount of issue

Final ProspectusOn the completion of bidding

process, a final offer document is submitted before opening of Subscription List.

In case of Book Building

Prospectus

A legal document offering securities which includes the terms, issuer objectives or planned use of the money, historical financial statements and other information that could help an individual in deciding whether the investment is appropriate for him/her is called prospectus.

In case of Fixed Price

Exemptions from the Eligibility norms

The following entities are exempted from complying with the eligibility norms mentioned earlier:

a) a banking company(As per section 5(c ) of the Banking regulation Act, 1949);

b) a bank set up under:• Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 • Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980,• State Bank of India Act 1955 and State Bank of India (Subsidiary Banks)

Act,1959; c) an infrastructure company • whose project has been appraised by PFI, IDFC, IL&FS or bank(earlier a PFI)

and• Not less than 5% of the project cost is financed by the above institution;d) rights issue by a listed company.

Promoters Contribution

Event Promoters contribution

Public Issue by Unlisted Companies Not less than 20% of the post-issue capital

Offers for Sale Not less than 20% of the post-issue capital

Public Issues by Listed Companies Either to the extent of 20% of the proposed issue or post-issue shareholding to the extent of 20% of the post-issue capital.

Composite Issues Either 20% of the proposed public issue or 20% of the post-issue capital**

** Rights issue component of the composite issue shall be excluded while calculating the post-issue capital.

Exemption from Promoters Contribution

No requirement of Promoter Contribution in case:

Where Company is listed for at least 3 years

and has a track record of dividend

payment for at least 3

immediatelyPreceding year.

Where no identifiable promoter or

promoter group exists.

Right Issue

OROR

Lock-In Requirements

Intermediaries

Other Mandatory Conditions

IPO Grading

Grading from at least one credit rating agency; Disclosure of all grades in the Prospectus or Red Herring Prospectus; and Expenses for obtaining the grading- to be borne by the company.

Dematerialization of securities Agreement with a depository for dematerialization of securities; and Option to subscribers to receive the Certificates or hold securities in

Demat.

Some Case Studies

Case Study I: OnMobile Global Ltd.

24/01/2008 - 29/01/2008

Issue size : 10900545 shares

Price Band: Rs. 425.00 - 450.00

Issue Price : Rs. 440.00

Listed Date: February 19, 2008

Book Running Lead Manager :ICICI Securities Limited

Case Study II: Aishwarya Telecom Limited

15/04/2008 -17/04/2008

Issue size : 4000000 Equity shares

Price Band: Rs. 32.00 - 35.00

Issue Price : Rs. 35.00

Listed Date: May 07, 2008

Book Running Lead Manager :Srei Capital Markets Limited &

Sobhagya Capital Options Limited

Case Study III :Archidply Industries Limited

11/06/2008 – 17/06/2008

Issue size : 6615720 Equity shares

Price Band: Rs. 70.00 - 80.00

Issue Price : Rs. 74.00

Listed Date: July 04, 2008

Book Running Lead Manager :Motilal Oswal Investment Advisors

Private Limited

Case Study IV: Abhishek Mills Limited

20/02/2007 – 01/03/2007

Issue size : 4100000 Equity shares

Price Band: Rs. 90.00 - 100.00

Issue Price : Rs. 100.00

Listed Date: March 19, 2007

Book Running Lead Manager :UTI Bank Limited

E-IPO

Issue of securities through online system of stock exchange

Thank You …