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Ipo Process and Book Building

This document discusses the IPO process and the role of a merchant banker. It outlines the key responsibilities of a merchant banker such as underwriting, due diligence, appointing intermediaries, filing documents, setting price bands, managing the subscription period, allocation and refunds. It also discusses book building and the regulations around issuing securities through this process.

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Riddhi Maheshwari
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13 views16 pages

Ipo Process and Book Building

This document discusses the IPO process and the role of a merchant banker. It outlines the key responsibilities of a merchant banker such as underwriting, due diligence, appointing intermediaries, filing documents, setting price bands, managing the subscription period, allocation and refunds. It also discusses book building and the regulations around issuing securities through this process.

Uploaded by

Riddhi Maheshwari
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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IPO PROCESS and Role of MERCHANT BANKER

SEBI(Merchant Bankers)Regulations,1992 defines ‘merchant Banker ‘ –


person engaged in the business of Issue
management-selling/buying/subscribing to securities or acting as
manager/consultant/advisor with respect to such issue management.

UNDERWRITING
• Issuer to enter into underwriting agreement with lead manager and
syndicate members indicating number of specified securities which
they shall subscribe in the event of under subscription
DUE DILIGENCE(DD)
• Exercise DD and satisfy about all aspects of the issue including adequacy
of disclosure in the draft/ offer document-to make sure framework by
SEBI is complied and implemented SUCH AS
-checking whether issuer is eligible /not to make an IPO(minimum
tangible assets, net worth limit)
-Issuer made all material disclosure in draft offer docs
-min promoter contribution requirement fulfilled
-Mandatory to submit DD certificate to SEBI
APPOINTMENT OF INTERMEDIARIES
• SEBI Issue of Capital and Disclosure Requirements(ICDR) Regulations-
imposes duty on issuer to appoint merchant banker and other
intermediaries with MB consultation (compliance officers, underwriters
etc.)
FILING DRAFT OFFER DOCUMENT ALONGWITH REQUISITE DOCUMENT
• Due diligence certificate(COMPLIANCE with Companies Act, Securities
Contract Regulation Act, SEBI Act, Stock exchange guidelines)
• MoU between issuer and merchant banker
• If more than one merchant banker-then
rights/obligations/responsibilities of each to be demarcated and filed

MAKING PUBLIC THE OFFER DOCUMENT AND ADVERTISEMENT OF


THE ISSUE
• Draft offer to be filed with SEBI and Stock exchange and made public
for comments by hosting on their websites for a period at least 21
days from the date of filing.
MAKING PUBLIC THE OFFER DOCUMENT AND ADVERTISEMENT OF
THE ISSUE
• Draft offer to be filed with SEBI and Stock exchange and made public
for comments by hosting on their websites for a period at least 21
days from the date of filing
• Within 2 days of filing draft offer document , public announcement in
one English newspaper, one hindi , one regional(R.O of co.) disclosing
draft offer document filing and inviting comments
• After expiry of period stipulated ,file details of comments with Board
received by issuer or MB and changes if any
PRICING and PRICE BAND
Valuation of the company and how much is to be diluted
Type of Issue-fixed price or book built issue
In case of fixed price issue-mention the price in offer document
In case of book built issue- floor price or price band
Cap on price band-120% of floor price

OPENING OF THE ISSUE


Issue shall be opened after at least 3 working days from the date of
registering RH prospectus in book built issue and prospectus in case
of fixed price issue with ROC
MINIMUM SUBSCRIPTION
Min subscription shall be atleast 90% of the offer
In the event of non receipt of minimum subscription ,application
money to be refunded within 15 days from the closure of the issue

PERIOD OF SUSCRIPTION
IPO to be kept open for atleast 3 working days and not more that 10
working days
In case of revision in price band – issuer shall extend bidding period
for minimum 3 working days, subject to 10 working days max.
APPLICATION AND MINIMUM APPLICATION VALUE
Issuer to stipulate in offer document minimum application size i.e
number of specified securities falling within the range of Rs 10000/--Rs
15000/-

ALLOTMENT quota –
Allotment to Retail individual investor shall not be let than min. bid
lot; remaining available shares be allotted on proportionate basis
Issuer not to make allotment in excess of specified securities offered
through offer document except in case of oversubscription for the
purpose of rounding off.
Quota-(in case of fixed price issue)-Retail Investors-min 50%;balance to
QIB/HNI
Quota-(in case of book built) Retail investors-min 35%;Non institutional
investors-min 15% ,QIB-max.-50%

ALLOTMENT, REFUND AND PAYMENT OF INTEREST


• Issuer and lead manager to ensure specified securities are allotted
and/or application money refunded within period specified by the
Board
• If securities not allotted and application money not refunded/unblocked
,issuer shall pay interest at the rate of 15%pa to investors
BOOK BUILDING
 SEBI Regulations define BB as -process by which 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
 in case of a public issue through the process of book-building, though
the total size of the issue is known, the number of shares is not
known.
 Why? Price at which shares will be allotted is not known, it’s
determined through the process of book-building only
The prospectus only mentions the price band [i.e., the lowest (floor
price) and the highest (maximum price)].
 As per SEBI Regulations, 2009 the maximum price cannot be more
than 20% of the floor price
bids are invited from the prospective investors and final price
determined (that is, the price at which the issue is likely to be fully
subscribed)
By dividing the total issue size by the price so determined, the
number of shares to be issued is arrived at.
Advantages of BOOK BUILDING
PROCESS
demand for security may be created and built-up
quantum of security to be issued may be determined with certain
degree of accuracy.
The price at which the issue is likely to be fully subscribed may be
ascertained
Regulations to be followed if securities issued
through book building process
• Compliance with Schedule XIII of SEBI Regulations,2018
LEAD MANAGERS
• issuer shall appoint one or more merchant banker(s) as lead
manager(s)
• their name(s) shall be disclosed in the draft offer document and the
offer document(s)
Issuer may appoint Syndicate member(s)
UNDERWRITING
 lead manager(s) shall compulsorily underwrite the issue and the
syndicate member(s) shall sub-underwrite with the lead manager(s).
 lead manager(s)/syndicate member(s) shall enter into
underwriting/sub-underwriting agreement on a date prior to filing of
the prospectus.
 details of the final underwriting arrangement indicating actual
numbers of shares underwritten shall be disclosed and printed in the
prospectus before it is registered with the ROC
 UNDERSUBSCRIPTION ---Shortfall to be made good by lead manager
Agreement with Stock exchanges
 Issuer shall enter-agreement with SE with facility of book building
through electronic bidding system.
 Agreement to specify rights, duties ,obligations of issuer ,SE and also
provide Dispute resolution mechanism
Appointment of stockbrokers as bidding/collection centres
 Lead manager/syndicate member to appoint stockbrokers-who are
registered with the Board
 For accepting bids and placing orders
 Paid commission by Issuer, shall not levy service fee on investors
Price not to be disclosed in the draft red herring prospectus
• Shall contain total issue size – expressed in terms of total amount to be
raised OR no. of specific securities to be issued
• Not contain the price of specified securities

Floor Price and price band


• Issuer may mention floor price and price band in RH prospectus
• If issuer opts not to disclose it, shall be disclosed at least 2 working days
before opening of the issue
• Names, editions of newspaper where announcement of FP-PB be made
• website address where announcement available
 In case of a price band-cap of price band should not be higher by
more than 20%
 Price band can be revised during bidding period i.e floor price can
move up/down by 20% of price disclosed in RH prospectus and cap
will be fixed accordingly
 If band revised ,bidding period disclosed in RH prospectus extended –
minimum 3 working days, s.t total bidding period not to exceed 10
working days.

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