Procedural Aspects of Public issues, Bought out deals &Book building

1. Procedural Aspects of Public
issues, Bought out deals &Book
building

2. Every Company needs funds for its business. Funds requirement can be for short
term or for long term. To meet short term requirements, the may approach banks,
lenders & may even accept fixed deposits from public/shareholders. To meet its long
term requirements, funds can be raised either through loans from lenders, Banks,
Institutions etc. (which carry financial burden) or through issue of capital. Capital can
be raised through private placement of shares, public issue, right issue etc. Public
issue means raising funds from public. Promoters of the Company may have plans
for the Company, which may require infusion of money. The main purpose of the
public issue, amongst others, is to raise money through public and get its shares
listed at any of the recognized stock exchanges in India.

3. PRIMARY ISSUE
PUBLIC
ISSUE
RIGHT
ISSUE
PRIVATE
ISSUE

4. PUBLIC ISSUE
INITIAL PUBLIC
OFFERING
(IPO)
FOLLOW ON
PUBLIC
OFFERING
(FPO)

5. PRIVATE ISSUE
PRIVATE
PLACEMENT
PREFERENTIAL
ISSUE
QUALIFIED
INSTITUTIONAL
PLACEMENT

6. • IPO is an offering of either a fresh issue of securities or an offer for sale of existing
securities or both by an unlisted company for 1st time to public .
• In case of IPO , the availability of the information regarding past performance of the
company and its track record is generally inadequate and may lack credibility .
• A FPO is an offering of either a fresh issue of securities or an offer for sale to the
public by an already listed company through an offer document .
Investors participating in these offerings take informed decision based on its past
record and performance .

7. APPLICABLE LAWS FOR PUBLIC ISSUE
Provisions of the Companies Act, 1956.
Securities Contracts (Regulations) Act, 1956.
SEBI rules & regulations
Compliance of Listing Agreement with the concerned stock exchanges after
the listing of securities.
RBI regulations in case of foreign/NRI equity participation.

9. Brought out deal is a method of offering securities to the
public through a sponsor (bank ,financial institution or an
individual).
The securities are listed in one or more stock
exchange within a time frame mutually agreed upon by the
company and the sponsor.
This option save the company cost & time involved in public
issue. The cost of holding the share can be reimbursed by the
company or the sponsor can offer the share to the public at as
premium to earn profit terms agreed upon by the company
and the sponsor .

10. A brought out deal is more risky for the investment
bank , because it must then try to sell the securities to
other investors . The investment bank takes all of the
risk that the securities may not be able to be sold or
more commodity , that they may lose value before
they can be sold , resulting net lose.

12. WHAT IS BOOK BUILDING?
Book Building is the process of determining the price at which an Initial Public
Offering will be offered. SEBI guidelines, 1995 defined book-building as “a
process undertaken by which a demand for the securities proposed to be issued
by a body of 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”.
In general, the word “Book building” is a method of marketing the shares of a
company whereby the quantum and the price of the securities to be issued will
be decided on the basis of the „bids‟ received from the prospective shareholders
by the lead merchant bankers. According to this method, share prices are
determined on the basis of real demand for the shares at various price levels in
the market

13. During the IPO or FPO, the company offers its shares to the public either at fixed
price or offers a price range, so that the investors can decide on the right price.
The method of offering shares by providing a price range is called as book
building method.
Types of investors
There are three kinds of investors in a book-building issue.
The retail individual investor (RII),
The non-institutional investor (NII)
The Qualified Institutional Buyers (QIBs)

14. There are two types of Public Issues:
FIXED PRICE ISSUE: - When the issuer at the outset decides the issue
price and mentions it in the offer document, it is commonly known as
fixed price issue.
BOOK BUILT ISSUE:-When the price of an issue is discovered on the
basis of demand received from the prospective investors at various price
levels, it is called as book built issue.

16. TYPES OF BOOK-BUILDING:
The Companies are bound to the SEBI’s guidelines for book building offers in
the following manner:
Ø 75% book building
Ø 100% book building

17. BOOK BUILDING
METHOD
FIXED PRICE
METHOD
75% OF THE PUBLIC ISSUE CAN
BE OFFERED TO INSTITUTIONAL
INVESTORS WHO HAVE
PARTICIPATED IN THE BIDDING
PROESS.
25% OF THE PUBLIC ISSUE CAN
BE OFFERED THROUGH
PROSPECTUS AND SHALL BE
RESERVED FOR ALLOCATION TO
INDIVIDUAL INVESTORS WHO
HAVE NOT PARTICIPATED IN
THE BIDDING PROCESS.
TOTAL PUBLIC ISSUE
(i.e. net offer to the public)
CHART 1