1. 1 Nelson Jacob

2. What are IPOs????  When private companies, invite the public to subscribe to their shares, this issue of shares is called an Initial Public Offering (IPO).  The shares issued could be in the form of fresh equity and/or the promoters sell a portion of their equity to the public.  These shares are then listed on a stock exchange where they can be bought and sold by investors.  IPOs are a very popular way of investing in the stock market as they allow investors a simple entry route to buying stocks. 9/14/20152IPO

3. Companies come out with IPO’s  Expand its existing facilities E.g. Reliance Petroleum Ltd, Power Grid Corporation  Undertake a new project E.g. GMR Infrastructure  Repay a high cost loan  Augment its working capital 9/14/2015IPO3

4. Follow on Public Offer ( FPO)  When an already listed company makes either an offer for sale to the public or a fresh issue of shares, this issue of shares is called Follow on Public Offer (FPO). ICICI Bank, Motilal Oswal Securities Ltd 9/14/2015IPO4

5. Intermediaries in an IPO procedure  Merchant Banker or Book Running Lead Managers (BRLM) to the issue  Syndicate Members  Underwriters to issue  Registrars to issue  Bankers to issue  Auditors 9/14/2015IPO5

6. Role of BRLM / Merchant Bankers Performs all the pre and post issue activities. Pre-issue activities : involves due diligence of company’s Operations/ Legal / Management / Business plans etc designing & drafting Offer Document, Prospectus, memorandum for salient features of Prospectus and statutory advertisements. 9/14/2015IPO6

7. Ensuring to comply with stipulated requirement and formalities in prescribed formats with SEBI, Stock Exchanges, Registrar of Companies (ROC). They also have market the issue and appoint other intermediaries like Advertising Agency, Registrar, Bankers and Printers. 9/14/2015IPO7

8. Post-issue Activities  Activities like managing escrow accounts  Allocation to non-institutional  Intimation of allocation  Dispatch of refunds to bidders  Necessary follow ups like  Finalization of trading  Dealing of instruments  Dispatch certificates  Demat of delivery of shares 9/14/2015IPO8

9. Coordinating with Registrar and Escrow Bankers to ensure follow up for proper flow of applications from bank branches to registrar Processing of these applications and other works till the Basis of Allotment is finalized Arranging necessary agreements and documents between these agencies and the Company Ensuring that these agencies fulfil their functions and discharge responsibilities according to the agreements 9/14/20159IPO

10. Role of a Registrar  Finalizes the list of eligible bidders after rejecting invalid applications  Ensures credit of allotted shares to Demat accounts of respective bidder by taking the corporate action and dispatch refund orders & Confirmatory Allotment Note to those applicable E.g.: Karvy Computershare 9/14/2015IPO10

11. Role of Bankers to issue  Collecting funds in the escrow accounts  Inform Issuers, Registrar and Lead Manager about the figures collected. 9/14/2015IPO11

12. How is the issue price decided on??? There are two ways in which the price of an IPO can be determined –  The company could fix a price.  The price could be arrived at through the process of book building. 9/14/2015IPO12

13. IPO Pricing  Fixed price IPOs In this case, the company, together with the lead managers, decides at what price they would like to issue the shares. The share prices of competitor companies’ equities and others in the same league are also taken into consideration when the IPO price is fixed. 9/14/2015IPO13

14. Book Built IPO’s  In the book building approach to price setting, the price of an IPO is demand driven  The issuing company sets a base price and a band within which an investor is allowed to bid for shares. Then the company, through its lead managers, invites price bids from investors 9/14/2015IPO14

15.  One of the lead managers, who is called the ‘book runner’, maintains an order book in which the investors demand and price bids are registered  Once the issue period is over, the book runner demarcates a cut off price  All bids that are below the cut off price are ignored and investors who have bid at the cut off price or above can purchase shares that have been allotted to them at the cut- off price 9/14/2015IPO15

16. IPO Quotas A company that is coming out with an IPO can reserve a part of its issue as “allotment on firm basis” 9/14/201516IPO

17. Firm Allotment  For certain categories such as Indian mutual funds, FIIs, permanent/regular employees of the company, scheduled banks, merchant bankers, etc  Guidelines that indicate the maximum percentage of shares that can be reserved for firm allotment for each category E.g. The total of reservations and firm allotment for employees cannot exceed 10 per cent of the issue size 9/14/2015IPO17

18. Quotas for Specific investors For allotment purposes, investors in a book building issue are divided into three categories :– Retail Individual Investors (RIIs) Non Institutional Investors (NIIs) Qualified Institutional Buyers (QIBs) 9/14/201518IPO

19. Retail Individual Investor  A retail investor is one whose application for shares does not exceed Rs 1 lakh in value. 9/14/2015IPO19

20. Non Institutional Investors (NIIs)  NIIs are investors whose bid values amount to over Rs 1 lakh each E.g. High Net worth Individuals 9/14/2015IPO20

21. Qualified Institutional Buyers (QIBs)  QIBs consist of Mutual funds – E.g. Pru ICICI Mutual fund Financial institutions–E.g. Reliance Capital Scheduled Commercial banks - Axis Bank Insurance companies - LIC Provident funds, State industrial development corporations, etc 9/14/2015IPO21

22. SEBI guidelines  Each of these categories must be allocated a certain percentage of the total issue  The total amount allotted to RII must be at least 35% of the total issue  At least 15% must be given to NII  QIB must be allotted no more than 50% cent of the issue  In QIB 5% is reserved for mutual funds companies 9/14/2015IPO22

23. Other Possibilities  In case an issue is over-subscribed, the company could decide to use the green shoe option - an option to retain a portion of the oversubscription amount by allotting more shares than initially offered  The excess shares are allotted on a pro-rata basis across different categories of investors  If there is any under-subscription in any of the categories, any over-subscription in another category can be allotted shares from the under-subscribed category  The method of allotment is at the discretion of the company and its lead managers 9/14/201523IPO

24. Final Criteria for listing  The company must get a minimum subscription of 90% of the issue amount in order to be eligible to list its shares  If it does not, the company will have to return all the money and cancel the IPO 9/14/201524IPO

25. IPO Procedure  Finding out about IPOs that are available  From SEBI’s weekly press releases and monthly bulletins  Draft and final offer documents are put up on SEBI’s website under the ‘Reports/Documents’ section  Hard copies of the draft offer documents can be obtained from SEBI’s office by paying a small fee or from the lead managers 9/14/2015IPO25

26.  Some lead managers also post these documents on their websites  Through their advertisements in popular English, Hindi and regional daily newspapers 9/14/2015IPO26

27. Number of days for which IPOs are open  Public issues are kept open for at least 3 and not more than 10 working days  In the case of book built issues, the minimum and maximum period for which bidding is open is 3–7 working days and can be extended by 3 days, in case the price band is revised  Public issue of some infrastructure companies can be kept open for a maximum period of 21 working days 9/14/2015IPO27

28. Obtaining and submitting your form  The form for applying/bidding for IPO shares is available with all the issue managers, specified collection centres and brokers and bankers to the issue  The form elicits personal information like your name and address, your demat and bank account details, income tax PAN (in case your application is above a certain value), the number of shares that you are applying for and your bid price, in the case of book built issues  Also required to sign the form  You can submit your form to the agency from which you acquired it 9/14/2015IPO28

29. Revising bids in case of book built IPOs  Must enter the revised quantity or price (in the case of book built issues) on a special form that is available along with the application form  However, you must make sure that you complete the entire process of revising your bid within the date of closure of the issue 9/14/2015IPO29

30. Receiving allotment and refund  Public issues with a value in excess of Rs 10 crore are compulsorily in the demat mode  Fixed price issues, are intimated through a Confirmatory Allotment Note (CAN) or a refund order, within 30 days of the closure of the issue  In the case of book built issues, the registrar ensures that investors receive a CAN in case they have been allotted shares and the demat credit or a refund, as applicable, within 15 days of the closure of the issue  The stock is listed on the stock exchange within 7 days from the finalization of the issue 9/14/2015IPO30

31. IPO listing  The equity shares allotted in the IPO are listed on the stock exchanges within 7 days from the finalization of the IPO  Total processing time between the closure of a book built issue and listing is around 3 weeks  Fixed price issue, 37 days after closure of the issue 9/14/2015IPO31

32. Applying for an IPO online  IPO online, from the comforts of your home or office or anywhere else  Registered with an online broking house, which offers the facility to apply for IPOs online  Log on to the broking houses’ website page which lists the IPOs that are currently available and fill in the application form online  In the form, you will have to mention the number of shares that you wish to apply for and the bid price  The broking house will, fill in and sign the physical IPO application form and draw a cheque  Will receive an email from the broking house regarding your application status 9/14/2015IPO32

33. IPO Funding  loan from banks and finance companies  They provide finance for subscribing to shares in the public / rights issues of reputed companies that are/will be listed as per the listing requirements of NSE / BSE  Interest Charged  Processing Fee  50% of the total value of your application bid  Balance – Margin Money 9/14/2015IPO33

34. Benefits and Pitfalls of IPO funding  Access to a higher amount  Chances of being allotted a larger number of shares  Rate of interest on such loans is steeper than most other loans in the market  If the stock doesn't lists at a sufficient premium to the issue price, investor could end up with losses over and above the interest payable 9/14/2015IPO34

35. IPO funding procedure  Choosing financer (the lending bank) according to your loan requirements  Savings and a demat account with the bank  Bank will apply for shares in the IPO 9/14/2015IPO35

36. Dutch Auction Method of IPO Allocation  Bill Hambrecht, an American investment banker and chairman of W. R. HAMBRECHT & CO., devised the Dutch auction method of share allocation and pricing, and is known as "Open IPO" Model  Company reveals the maximum amount of shares being sold and sometimes a potential price for those shares  Investors then bid for the number of shares they want and the price they are willing to pay  Once a minimum clearing price is determined, investors who bid at least that price are awarded shares 9/14/2015IPO36

37. Co XYZ wants to let 100 shares in market 9/14/2015IPO37 Investor No. of Shares Applied forBid Price Per Share (Rs.) A 15500 B30480 C25470 D35465 E20462

38. Benefits  Minimization in "Spike" or "Pop“  Small investor participation  Role of investment banks 9/14/2015IPO38

39. Shortcomings  Lack of information to small investors  Mispricing  Minimum Price Spike E.g. Google Inc 9/14/2015IPO39

40. IPO Listings on Private Exchange  Oaktree Capital Management LLC, which raised $ 800 million by selling a 15% stake through GS TRuE  American companies raised $ 221 billion last year by listing on private exchanges  This segment of securities market has touched $ 1 trillion 9/14/2015IPO40

41.  Individual or retail investors  Goldman Sachs exchange is open only to institutional investors with assets of more than $ 100 million 9/14/2015IPO41

42. Why Private Exchanges????  Stocks of companies that trade in public exchanges need to be registered with Securities and Exchange Commission (SEC)  Numerous Disclosures 9/14/2015IPO42

43. 9/14/2015IPO43

44. 9/14/2015IPO44

45. NELSON JACOB 07D 1836 BBM A