a brief introduction to ipo in finance market.

2.  Definition:
 A company’s first equity issue made
available to the public.
 This issue occurs when a privately held
company decides to go public
 Also called an “unseasoned new issue.”
 An "initial public offering" is a company's first
sale of stock to the public. This is why it is
also referred to as "going public". When a
company that has already issued stock issues
more stock it is called a "secondary offering".

3.  New capital
◦ Almost all companies go public primarily because they need
money to expand the business
 Future capital
◦ Once public, firms have greater and easier access to capital
in the future
 Mergers and acquisitions
◦ Its easier for other companies to notice and evaluate a
public firm for potential synergies
◦ IPOs are often used to finance acquisitions

4. Governing Laws –
 Before 1992, Public issues were governed by Chief
Controller of Capital Issues (CCCI).
 In 1992, CCCI has been abolished and SEBI has been
formed.
Dutch East India company was the 1st company in the world to issue
stock and bonds IPO
 Now IPO is governed by Followings:
1. The Companies Act 1956
2. SEBI (Disclosure & Investor Protection) Guidelines, 2000
3. Securities Contracts (Regulation) Act, 1956
4. Listing norms/Guidelines of NSE/BSE

5. REASONS FOR LISTING
 When a company lists its securities on a public exchange,
the money paid by investors for the newly issued shares
goes directly to the company
 An IPO, therefore, allows a company to tap a wide pool of
investors to provide itself with capital for future growth,
repayment of debt and working capital.
 A company selling common shares is never required to
repay the capital to investors.
 Once a company is listed, it is able to issue additional
common shares via a secondary offering. This ability to
quickly raise large amounts of capital from the market is a
key reason many companies seek to go public.

6.  Diversifying equity base
 Enabling access to capital
 Exposure, prestige and public image
 Attracting and retaining better management
and employees through liquid equity
participation
 Facilitating acquisitions
 Creating multiple financing opportunities:
equity, convertible debt, cheaper bank loans,
etc.

7.  Significant legal, accounting and
marketing costs
 Disclosure of financial and business
information
 Meaningful time, effort and attention
of management
 Risk related to funding
 Regulations
 Dilution of control

8. Select an underwriter
Register IPO with SEC
Print prospectus
Present road show
Price the securities
Sell the securities

9. PRICING
Globally IPO have been underpriced.
 Generate additional interest.
 Significant gains.
Overpricing of IPO.
 Underwriters may have trouble in making commitments.
 If stock falls, it lose its marketability
“LOW ENOUGH TO STIMULATE INTEREST IN THE
STOCK, BUT HIGH ENOUGH TO RAISE AN ADEQUATE
AMOUNT OF CAPITAL FOR THE COMPANY”.

10. theglobe.com IPO
1990’s Internet era
Bear Stearns- underwriter
$9 $63
Raised upto $97
TOTAL AMOUNT RAISED $30
MILLIONS

11.  Agricultural Bank of China US$22.1 billion
(2010)
 Industrial and Commercial Bank of China
US$21.9 billion (2006)
 American International Assurance US$20.5
billion (2010)
 Visa Inc. US$19.7 billion (2008)
 General Motors US$18.15 billion (2010)
 Facebook, Inc. US$16 billion (2012)

12.  US last topped the IPO league tables in
2008
 overtook with China raising $73
billion
 almost double the amount of money
raised on the New York Stock
Exchange and Nasdaq combined up to
the end of November 2011.

13. SEBI GUIDELINES FOR IPO
 IPOs of small companies
Public issue of less than five crores has to be through
OTCEI and separate guidelines apply for floating
 Size of the Public Issue
Issue of shares to general public cannot be less than 25
of the total issue, incase of information technology,
media and telecommunication sectors this stipulation is
reduced subject to the conditions that:
Offer to the public is not less than 10% of the securities
issued.
A minimum number of 20 lakh securities is offered to
the public and
Size of the net offer to the public is not less than Rs. 30
crores.

14. Promoter Contribution
Promoters should bring in their contribution including
premium fully before the issue
Minimum Promoters contribution is 20-25% of the public
issue.
Minimum Lock in period for promoters contribution is five
years
Minimum lock in period for firm allotments is three years.
Collection centers for receiving applications
There should be at least 30 mandatory collection centers,
which should include invariably the places where stock
exchanges have been established.
For issues not exceeding Rs.10 crores (including premium, if
any), the collection centres shall be situated at:-
the four metropolitan centres viz. Bombay, Delhi, Calcutta,
Madras; and
at all such centres where stock exchanges are located in the
region

15. Regarding allotment of shares
 Net Offer to the General Public has to be at least 25%
of the Total Issue Size for listing on a Stock exchange.
 It is mandatory for a company to get its shares listed
at the regional stock exchange where the registered
office of the issuer is located.
 Minimum of 50% of the Net offer to the Public has to
be reserved for Investors applying for less than 1000
shares.
 Indian development financial institutions and Mutual
Fund can be allotted securities upto 75% of the Issue
Amount.
 Allotment to categories of FIIs and NRIs is upto a
maximum of 24%, which can be further extended to
30% by an application to the RBI - supported by a
resolution passed in the General Meeting.

16.  IPO GRADING
Graded from at least one CRA
Registered with SEBI like
 -CRISIL
 -FITCH
 -ICRA
 -CARE

17. TIMEFRAMES FOR THE ISSUE AND POST- ISSUE FORMALITIES
 The min. period = 3 working days
max.= 10 working days.
 Allotment has to be made within 30 days
of the closure of the Public Issue
 In case of over-subscription the
company may have the right to retain the
excess application money and allot
shares more than the proposed issue,
which is referred to as the green-shoe
option.

18. RESTRICTIONS ON OTHER
ALLOTMENTS:
 Firm allotments to mutual funds, FIIs and
employees not subject to any lock-in period.
 Within 12 months of the public no bonus issue
should be made.
 For Employees
 I ) Maximum % of shares = 5%

19.  ABRIDGED prospectus must be attached
 Risk factor
 Objective of issue& cost of project
 Company’s past/ present business must be
disclosed

20.  NET TANGIBLE ASSET ≥ 3 CRORES
 NET WORTH ≥ 1 CRORE
 In case of name change 50% of revenue
should be under new name

21.  The new guidelines of Applications Supported
by Blocked Amount (ASBA) allows investors to
apply for an IPO, keeping the application
money in their bank accounts till the
finalization of the allotment.
 All scrip will have a circuit limit from the day
of listing on exchanges based on a one-hour
pre-open trade
 The normal trading would start after the pre-
open session of call auction on BSE and NSE

22.  In the pre-auction trade, for issues less than
Rs 250 crore the margin money of 100 per
cent of the order value would have to be paid
for placing bids.
 issue size up to Rs 250 crore, the applicable
price bands for the first day would be 5 per
cent of the equilibrium price discovered
during the pre-open session and for IPOs
above Rs 250 crore it will be 20 per cent.
 equilibrium price is not discovered during the
call auction, the price band would be fixed on
the issue price at the above percentage.