Options for Raising Funds

Fund Raising Options

Equity In India Debt Hybrid Equity

IPO/FPO/Rights/Bonus From Banks & FIs Bonds /Deb Various forms of Convertibles ADR/GDR

Outside
India

Debt Hybrid

ECB
FCCB & FCEB
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KINDS OF ISSUES
GOVERNED BY DISCLOSURE & INVESTOR PROTECTION SEBI GUIDELINES
Issues

Public Issue
IPO Fresh Issue Offer for Sale

Right Issue
FPO Fresh Issue Offer for Sale

Bonus Issue

Private Placement Preferential Issue

Deposit Receipt Public Issue

Sponsored Issue

QIPs

Composite Issue

INCLUDING RIGHTS
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IPO Process Fixed Price Issue

Decision to go for IPO Appointment of IB and legal counsel

Management gets approval of BOD

Funds transferred to issuer

Listing Issuer Allotment

Due diligence

Drafting of Draft Prospectus Filing with SEBI & Stock Exchanges Preparation / Approvals

SEBI GIVEN UP VETTING OF PROSPECTUS

Issue Closure SEBI Clearance & ROC Filing of Prospectus

Pre-Marketing

Roadshows

Issue Open Launch & Completion

Filing the Prospectus and Marketing

IPO REALITY
n n n n n

BAD ISSUES ARE OVERPRICED GOOD ISSUES ARE UNDERPRICED QUEST FOR HEALTHY IPO MARKET NECESSARY TO FIND MECHANISM FOR PRICE DISCOVERY MARKET TO BE GIVEN PREROGATIVE TO DECIDE RIGHT PRICE FOR PUBLIC ISSUE BOOK BUILDING OPTION TO ASCERTAIN n MKT PERCEPTION ABOUT DEMAND & PRICE OF SHARES SEBI ENCOURAGED THIS METHOD
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FIXED PRICE OFFERING - DISADVANTAGES

Issue priced 60-70 days before opening of issue Issuer having no clear idea about market perception of price determined

Leads to under pricing

BOOK BUILDING WHAT IT IS ????

Book Building is a process used by issuing company to assess optimum price and allot securities based upon investor response through bidding.

It

is called so because it refers to the collection of the bids from investors , which is based on an indicative price range.

(SEBI): 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 a notice, circular, advertisement, document or information memoranda or offer document.
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BOOK BUILDING Vs FIXED PRICE

Book Building

Fixed Price

Issue price not decided

Issue price decided, known in advance

Price range for bidding

Demand known every day during offer period No norms for minimum subscription Can be deferred in case of scant demand Revision of bids possible

Investors cant choose the price

Demand known only when the issue closes Min 90% subs including promoters Cant be deferred in case of scant demand Revision not possible if submitted Payment made only after allocation 7

Payment made at time of subscription

BOOK BUILDING -PROCESS

Decision to go for IPO
Understand Companys revenue model

Issuer

Funds transferred to issuer Trading Commences on Exchange Securities Issued & Listed

Appointment of BRLM, Co BRLM and legal counsel Due diligence Drafting Red Herring

Identify key selling points Build case for valuation

Fiduciary obligations
Make the Company IPO Ready Identify key concerns

RoC filing of Prospectus Good disclosures about business strategy, objectives, management and financial condition

Form syndicate of brokers, arrangers, underwriters, FIs

Emphasize key marketing highlights of the equity story Articulate positioning

Underwriting, Allocation Pricing as weighted av of order recvd

Book building, record of subscribers & their orders

Filing with SEBI & Stock Exchanges Preparation / Approvals

Pre-Marketing, Circulate offer document to syndicate members

SEBI Clearance & ROC Filing

Roadshows

Marketing and Estimation of Price Range

Launch & Completion

1-on-1 meetings arranged with institutional investors Group presentations made for retail investors

Signing of Syndicate Agreement and Escrow Agreement

BOOK BUILDING -BASICS

Red Herring Prospectus:

Offer document for book built IPO. All details except price or number of shares Contains either the floor price or price band

Net Offer to Public

Offer made to Indian public and does not include reservations/ firm allotments/ promoters contribution.

Price Band:
Band within which investors bid quoting the price & quantity of bid Decided by BRLM in consultation with issuer Spread between the floor & price band not more than 20% (e.g. Rs 80-100)
Rs 80 floor price (Min Price), Rs 100 cap price (Max Price), Price subsequently discovered Cut off price

Can be revised. If revised bidding period can be extended

BOOK BUILDING- BASICS

BRLM (Lead Merchant Banker)/Co BRLM

BRLM, CO BRLM & Syndicate members can act as underwriters

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BOOK BUILDING- BASICS

Syndicate Members

BRLM appoints syndicate members (registered with SEBI) to underwrite the issue to the extent of net offer to public Investors give bid through syndicated members mentioning price & quantity they are willing to buy Syndicate members input orders into electronic books. This is called bidding and is similar to open auction

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BOOK BUILDING- BASICS

BRLM maintain daily record of price at which institutional buyer or underwriter is willing to subscribe to securities under the placement portion. One day prior to the opening of the issue to the public, BRLM collects from institutional buyers the application forms along with moneys to the extent of the securities subscribed by them.

On the close of the book building period, BRLM evaluate the bids on the basis of the demand at various price levels.
BRLM & Issuer decide final price at which the securities shall be issued. 12

BOOK BUILDING -BASICS

Bid

Offer made to investor to acquire equity share of company at price at or above floor price including all revisions & modifications thereto Definite period is fixed as bid period (7 days normally) SYNDICATE MEMBERS MAY DEMAND PAYMENT OF BID PRICE AT TIME OF BIDDING. WHERE BIDDER HAS BEEN ALLOCATED LESSER SHARE, EXCESS AMT PAID ON BIDDING WILL BE REFUNDED

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BOOK BUILDING -BASICS

Changing/Revising/ Cancelling Bid

Allowed by filling form within the date of closure of issue

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BOOK BUILDING -BASICS

Cut-Off Price
Subscribing securities at any price discovered within the price band Option to retail investors (applying shares worth Rs 100,000) Always remain valid for purpose of allotment

Bid Price No. of Shares % to Cumulative Cumulative (Rs. Per Total Shares % Share) 501 200 0.00% 200 0.00% 400 900 0.00% 2,200 0.00% 250 3,400 0.00% 10,000 0.00% 200 30,500 0.00% 56,600 0.01% 150 3,63,000 0.04% 6,64,000 0.07% 140 6,46,200 0.07% 15,02,300 0.15% 135 22,86,400 0.23% 40,51,000 0.41% 130 3,10,63,400 3.17% 3,59,80,600 3.67% 125* 67,08,89,600 68.42% 71,74,58,300 73.17% 120 15,28,68,000 15.59% 90,24,25,700 92.04% 115 73,78,35,000 7.53% 98,05,27,200 100.00% *Includes Bids received at Cut-off price

BIDDERS RENEDERING BID AT OR ABOVE CUT OFF PRICE BECOME ELIGIBLE FOR ALLOTMENT

ALL

SUBSCRIBERS

PAY

THIS

AMNT

THOUGH THEY MAY HAVE BID THE HIGHER PRICE

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BOOK BUILDING -BASICS

GREEN SHOE OPTION For stabilising post listing price of its shares Option of allocating excess shares Board must authorise Helps reducing price volatility post listing of security

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BOOK BUILDING PROMOTERs CONTRIBUTION

Minimum 20% of post issue capital Book built issue Fixed price offering Public issue by unlisted, listed company, composite issue, fast track issue To be brought in full at least one day before public issue opens Lock in period for 3 years. Can be pledged with banks or DFIs as collateral security for loans

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BOOK BUILDING -WHO CAN INVEST

The Retail Individual Investor (RII)

To apply or bid for stock not more than Rs 1,00,000 Can apply at cut off rate instead of writing the specific bid prices Proportionate allotment within 15 days

Qualified Institutional Buyers (QIBs)

Anchor Investors

Non-institutional investor (NII)

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BOOK BUILDING -WHO CAN INVEST

Qualified Institutional Buyers (QIBs)

DFI, Banks, MFs, FIIs, VCFs, FVCFs, SIDCs, Insurance Cos, Provident & Pension Funds , National Investment Funds 50% to Max 50% allotment of net offer to public The mandatory allotment ofinformed, QIBs ensures that knowledgeable investors are assuming of this 5% reserved to MFs the risk inherent in the companies Up to 30% may be allocated to Anchor Investors QIBs with min app of 10 cr Will pay margin of min 25% on app & balance within 2 days of closure Bidding for then open one day before the issue opens Lock in 30 days from date of allotment in public issue Allocation on discretionary basis subject to min Rs 250 cr to 2 investors & more than 250 cr for 5 investors
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BOOK BUILDING -WHO CAN INVEST

Qualified Institutional Buyers (QIBs)

Proportionate Allotment to QIBs is at the discretion of the BRLM.

20 x 95/495 = 3.84

40/200 x 5 = 1 (40 1) x 95/495 = 7.48

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BOOK BUILDING -WHO CAN INVEST

Non-Institutional investor (NII)

Investors other than QIBs & retail individual investors min 15% allotment in net offer to public Proportionate allotment High net worth individuals Applies stock over & above Rs 1,00,000 Cant apply at cut off rate

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BOOK BUILDING TYPE

75% book building Offer to public through book building 100% of net offer to public through 100% book building 75% of net offer to public through book building & 25% at price determined through book building

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75% OF BOOK BUILDING PROCESS

Net offer to the public shall mean the offer made to Indian public and does not include reservations/ firm allotments/ promoters contribution. Known as placement portion, underwriting mandatory

Issue price for both should be same Date of allotment for both same

Mandatory underwriting for public portion

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OFFER TO PUBLIC THROUGH BOOK BUILDING PROCESS

100% of net offer to public through 100% book building

E.g. Maruti Issue, Bharati Tele Ventures

Min 35% as per latest Min 15% guidelines

Max 50%. Out of this 5% to be allocated proportionately to mutual funds & maximum 30% to Anchor Investors

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OFFER TO PUBLIC THROUGH BOOK BUILDING PROCESS

75% of net offer to public through book building & 25% at price determined through book building

E.g. Hughes software, HCL Technologies

Out of this 5% to be allocated proportionately to mutual funds & maximum 30% to Anchor Investors

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BOOK BUILDING BASIC ADVANTAGE

REDUCES TRANSACTION COST FACILITATES PRICE DISCOVERY Market driven pricing of securities

DEMAND PATTERN IS KNOWN

PROTECTION OF SMALL SHAREHOLDERS

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Red Hiring Prospectus of TV Today

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REVERSE BOOK BUILDING

Voluntary delisting by promoter or acquirer

Aim to determine optimum exit price for cos share

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REVERSE BOOK BUILDING

Similar process as that of book building

Acquirer determines av price of 26 weeks before the date of announcement of public announcement

No cap or maximum price

Cut off/Final offer price determined at price at which max no. of shares have been offered The promoter/acquirer has option to accept the price. If accepted all sh holders bidding at or below discovered price receive the discovered price for their holding If rejected shares returned to share holders
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Trading member appointed for placing bids on online electronic system

Sh holders tender shares with trading members prior to placement of order at/above the floor price

Utilizes trading system network of SE

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BOOK BUILDING Vs REVERSE BOOK BUILDING

Book Building
To raise capital for company Price range for bidding

Reverse book Building

To buy shares from market Floor price set

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BOOK BUILDING PROCESS

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BOOK BUILDING PROCESS

ISSUE OFFERED IN 75 CITIES & 150 CENTRES

DAY 1ST DAY (12TH JUNE)

OVERSUBSCRIPTION 1.46 TIMES

2ND DAY (13TH JUNE) 2.72 TIMES 4TH DAY (15TH JUNE) 4.88 TIMES 36