raising capital - wordpress.com · 16/08/2017 · raising capital instruments investors processes...
TRANSCRIPT
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Raising CapitalBalkrishna [email protected]
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Raising Capital
What do we
offer the fund-
providers?
Who will
provide funds?
How do we
actually get the
funds?
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Raising Capital
InstrumentsInvestors Processes
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Investors
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An investor is an individual or any
entity allocates capital with the
expectation of a future financial
return.
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Raising
CapitalInstruments
Investors
Processes
Angel
Investors
Venture Capital
Investors
Private Equity
Funds
Institutional
Investors
Public
Investors
Mutual Funds
Endowments
Banks
Insurance
Companies
Pension Funds
Hedge Funds
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Non-
Availability of
Information
Needs Large
CapitalIlliquidity
Restricted
Access
Difficulties of Investing in
Unlisted Companies
High Risks
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Pension Plans
Insurance
Companies
Endowments
High Net Worth
Individuals
Investors
in Private
Equity
Funds
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Control and Involvement
in Management
Professional
Management
Easier Monitoring
of Investments
Greater Diversification
Long Term Returns
Motivations
for Private
Equity
Investments
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Exit Routes
for Private
Equity
Investments
Trade Sale
Secondary
Buyout
Leveraged
Recapitalisation
Initial Public
Offerings
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Instruments
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A financial instrument is a contract
between the investors and issuers
(companies)
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Raising
CapitalInstruments
Investors
Processes
Ownership
Instruments
Debt
Instruments
Hybrid
Instruments
Equity Shares
DVR Shares
Bonds
Debentures
Preference
Shares
Share Warrants
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Processes
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Capital raising processes are steps
through which companies obtain
funds from the investors and issue
financial instruments
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Raising
CapitalInstruments
Investors
Processes
Private Placement
Qualified Institutional
Placement
Rights Offer
Vendor Placement
Public Offers
IPOs
FPOs
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Private Placements
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Private placement is a method of raising capital, where
the company offers its securities directly to a small
number of investors without the use of any general
advertising or solicitation.
Private Placement
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Investor EntrepreneurInvestment Bank
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Private placement means any offer of securities or
invitation to subscribe securities to a select group of
persons by a company (other than by way of public
offer) through issue of a private placement offer letter
and which satisfies certain conditions
Private Placement
Explanation II (ii) to Section 42 of the Companies Act, 2013
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The Case that Influenced the Law on Private Placement
Sahara India Real Estate Corporation Limited
v. SEBI, (2012) 10 SCC 603
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1
Sahara
Companies
Collect
Subscriptions
from Investors
for OFCD
Millions of
Investors
Pay
Rs. 17566
Crores
2
3
SEBI Orders
Refund of
Money as
Regulations
were not
Complied
Sahara’s
Appeals to
Securities
Appellate
Tribunal is
Rejected
4
5
Supreme
Court Rejects
the Appeal of
Sahara and
Orders Refund
of Money
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Private Placement Law
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1
2
3
4
5
6
7
8
9
Busi
ness
Pla
nEnga
ge
Merc
han
t
Ban
k
Dra
ft P
riva
te
Pla
cem
ent
Lett
er
Mai
nta
in
Reco
rds
Boar
d
Meeting
AG
M
Open E
scro
w
Acc
ount
The Process of Private Placement
10
11
12
13
Allo
t Secu
rities
14
Dis
pat
ch O
ffer
Lett
ers
File
Retu
rn o
f
Allo
tment
Rece
ive
Applic
atio
n
Money
Tra
nsf
er
Funds
from
Esc
row
Acc
ount
Identify
Inve
stors
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Role of Merchant Banks in Private Placement
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Benefits of Private Placement
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Initial Public Offers
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An IPO is a defining moment in
the life of a companyAn IPO is a defining moment in the life of a company
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Palmer, Company Law Precedents XVII Edition, Part I, Page 58
A public offer signifies an offer made by an
advertisement or circular to the general public or
section thereof, as distinguished from an offer made
privately, that is, to a select and small circle of friends,
customers or connections.
PUBLIC OFFER
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Section 67 of the Companies Act, 1956.
An offer shall be treated as public if the offer or
invitation is calculated to result, directly or indirectly,
in the shares or debentures becoming available for
subscription by persons other than those receiving
the offer or invitation.
PUBLIC OFFER
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Benefits of Raising Capital through IPOs
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Active
Companies
In India
1,088,780
Companies
have made
An IPO
6796
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A mere 0.62% of the companies have raised
money through IPOs
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Drawbacks of Raising Capital through IPOs
Balkrishna Parab (c) 2017 | [email protected] | 9833528351
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Assess IPO-Readiness
Reviewing
and
improving its
internal
control
systems and
procedures
Reinforcing
its corporate
governance
system
Instituting
legal and
regulatory
compliance
systems and
procedures
Recruit
Professionals
and
independents
on its board
of directors
Strengthenin
g the
financial
reporting
system
Corporate
Performance
Capital and
Assets
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General Conditions for IPO
Firm
Arrangements
of finance
Towards 75%
of the Stated
Means of
Finance
Company and
Promoters
Not Debarred
from
Capital Market
Agreement
with
Depositories
Listing
Application
Calling Up all
Partly
Paid Shares
Promoters or
directors are
not
wilful
defaulters
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Issue size does
not exceed
Five Times its
Pre-Issue Net
Worth
Net Tangible
Assets > 3 Cr
in last 3 Years
Minimum
Average
NOPAT of Rs.
15 Cr in 3 out
of last 5 Years
Net Worth of
One Crore in
Last 3 Years
Primary Eligibility Criteria
Revenue from
Change in
Name
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An issuer may determine the price of specified
securities in consultation with the lead merchant
banker or through the book building process.
PRICING
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IPO Grading is
Optional
At Least 1000
Prospective
Allottees
No
Outstanding
Convertible
Securities
OFS of Share
Held for at
least One Year
Conditions
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Section 2 (70) of the Companies Act, 2013
Prospectus means any document described or issued
as a prospectus and includes a red herring prospectus
or shelf prospectus or any notice, circular,
advertisement or other document inviting offers from
the public for the subscription or purchase of any
securities of a body corporate
PROSPECTUS
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Offer Documents
Shelf
Prospectus
Deemed
Prospectus
Abridged
Prospectus
Red
Herring
Prospectus
Prospectus
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Explanation to Section 32 of the Companies Act, 2013
Red herring prospectus means a prospectus which
does not include complete particulars of the quantum
or price of the securities included therein.
RED HERRING PROSPECTUS
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Explanation to Section 31 of the Companies Act, 2013
Shelf prospectus means a prospectus in respect of
which the securities are issued for subscription in one
or more issues over a certain period without the
issue of a further prospectus.
SHELF PROSPECTUS
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Section 2 (1) of the Companies Act, 2013
Abridged prospectus means a memorandum
containing such salient features of a prospectus as may
be specified by the SEBI.
ABRIDGED PROSPECTUS
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Section 25 (1) of the Companies Act, 2013
Where a company allots or agrees to allot any securities of the
company with a view to all or any of those securities being
offered for sale to the public, any document by which the offer
for sale to the public is made shall, for all purposes, be deemed
to be a prospectus issued by the company;
DEEMED PROSPECTUS
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New Brunswick and Canada Railway and Land Company V. Muggeridge (1867)
Everything must be stated with strict and scrupulous
accuracy. Nothing should be stated as a fact which is not
so, and no fact should be omitted the existence of which
might in any degree affect the nature and quality of the
privileges and advantages which the prospectus holds out
as inducement to take shares…
GOLDEN RULE OF DRAFTING PROSPECTUS
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Promoters’ Contribution
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Promoter
The person or persons who are in
control of the issuer
The person or persons who are
instrumental in the formulation of a plan
or programme pursuant to which
specified securities are offered to public
The person or persons named in the
offer document as promoters
Regulation 2 (za) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009,
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Promoters’
Contribution
Quantum20% of the Post Issue
Capital
Lock-In 3 Years
Eligible
Securities
Securities Obtained at
Fair Price
ExemptionNo Identifiable
Promoter
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Regulation 14 (1) of the SEBI (ICDR) Regulations, 2009
Minimum Subscription is the minimum number of
applications that the issuer is required to receive. At
present, the minimum is 90% of the issue size.
Where a company does not received the minimum
subscription with the specified time, the entire
application money received needs to be refunded.
MINIMUM SUBSCRIPTION
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Regulation 16 (1) of the SEBI (ICDR) Regulations, 2009
Where the issue size exceeds Rs. 500 CR, the issuer is required
to make arrangements for the use of proceeds of the issue to be
monitored by a public financial institution or by one of the
scheduled commercial banks named in the offer document as
bankers of the issuer. The monitoring agency is required to
submit its report to the issuer on a half yearly basis, till the
proceeds of the issue have been fully utilised.
MONITORING AGENCY
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Post-IPO Governance and Compliances
Meetings of the
Board and its
Committees
Advertisement
and Publicity
Shareholder
Communi-
cations
Secretarial
Department
Expenses
Listing
Compliance
Secretarial
Audit
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Balkrishna Parab taches law, accounting and finance at the
Jamnalal Bajaj Institute of Management Studies
164, DN House, HT Parekh Marg, Backbay Reclamation.
Mumbai 400 020, India
Cell: 9833528351
eMail: balkrishnaparab@jbims,edu
BALKRISHNA PARAB