Published on February 25, 2014
Public issue and book building IPO Advantages of ipo 1. access to capital access to most favourable source of corporate funding. 2. Increased employee commitment and recruiting power. An ipo with stock options attracts best talent and ensures commitment of employees. 3. Complements product marketing Ipo’s attract media attention and public 4. Expands business relationships A public limited company’s information is available to everyone .prospective business relations expand. 5. Facilitates mergers and acqusitions Financially a public company is in a better position to expand business through acquisitions. 6. Promotes flexibility As ready market is available ,it provides flexibility to shareholders. Responsibilities of IPO. 1. sharing corporate control and financial gains. IPO result in promoters sharing control on co. and gains of the business. 2. Managing shareholders value. The management is responsible to the shareholders who are aware of the co. 3. Sharing strategic information. Periodic financial reporting is necessary under law these discloses being in loyality and goodwill.
BOOK BUILDING Defination- SEBI guidelines a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for such securities is assessed for the determination of the quantum of such securities to be issued by means of the notice, circular, advertisement, document or offer document. Process of Book Building 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Issuer nominates lead manager as book runner. Issuer specifies number of securities to be issued and price band. Issuer appoints syndicate manager with whom orders are to be placed. Syndicate managers input the orders into an electronic book. This is bidding Books remain open for 5days. Bids to be entered within specified price band. Bids can be revised before book closure. After close of book building, book runner evaluates bids. Book runner and issuer decide final price per share. De-location of securities to successful bidders. MERCHANT BANKING DEFINITION “Any person who is engaged in business of issue management either by making arrangements regarding selling ,buying or subscribing to the securities as manager consultant advisor or rendering corporate advisory service in relation to such management issue.” SERVICES INCLUDED BY MERCHANT BANKS. 1. corporate counseling. It includes project counselling,public issue management etc. 2. project advisory services assists clients in conceptualizing project in the initial stages. Conduct feasibility studies to examine viability of the project. 3. Loan syndication Arrange for tie up loan by undertaking the following steps a. Analyse clients cash flow b. Prepare detailed load memorandum
c. 4. 5. 6. Negotiate terms of lending. Providing venture capital. Management of debt and equity offering. Issue management i. Prepare issue management ii. Post issue management. SEBI guidelines for merchant banking. 1. Authorization 2. Any person or body proposing to be merchant banker need to be SEBI authorized. 3. Authorization criteria i. Capital adequacy ii. Past track record, reputation and fairness iii. Professional competence iv. Personal and their adequacy 4. Terms of authorization i. Authorization initially for 3yrs. ii. Issue management by atleast 1 authorised merchant banker. iii. Should verify prospectus and submit a certificate to SEBI iv. All information to be submitted to SEBI v. Merchant banker to be involved atleast till listing vi. If guideline violated ,authorization can be cancelled Pre issue management 1. 2. 3. 4. 5. 6. 7. 8. Obtain stock exchange approvals to M/A and A/A Taking any action as per SEBI guidelines. Finalizing appointment of various agencies i.e -brokers, underwriters, bankers ,etc. Advice company to appoint auditors, legal advisors and board of directors. Draft prospectus Obtain approval of draft prospectus Approval of prospectus from SEBI Filling of prospectus with registration of companies. GREEN SHOE OPTIONS Green shoe option allows underwriters to sell upto 15% more shares than original set up by issuer. SEBI guidelines 1. Issuer can avail green shoe option 2. One merchant banker to be appointed as stabilizing agent
3. Stabilizing agent enters into agreement with promoters specifying maximum number not more than 15% of issue. 4. Allocation on pro rate basis 5. Special account to be opened with bank 6. Promoters may land shares for GSO 7. Money in special account may be used for buying shares from market during stabilization period 8. Share brought to be returned to promoters immediately 9. Shares returned to promoters subject to lock in period 10. S.A to report to SEBI daily 11. S.A maintains register for 3 years.