PRINCIPAL STEPS OF A PUBLIC ISSUE

Day 1

Holding of Board meeting to decide date for AGM/EGM for approval of IPO by
shareholders and appointment of intermediaries. Sending of notices to shareholders
for AGM/EGM.

Day 2 – Day 25

A draft prospectus is prepared giving out details of the Company, promoters

background, Management, terms of the issue, project details, modes of financing,
past financial performance, projected profitability and others as per the SEBI
guidelines. Discussion and Finalization of underwriters, bankers, registrar, broker,
lead manager, co-manager etc.

Day 26

Holding of AGM/EGM for approval of IPO.

(a) Appointment of underwriters: The underwriters are appointed who commit to

shoulder the liability and subscribe to the shortfall in case the issue is under-
subscribed. For this commitment they are entitled to a maximum commission of 2.5
% on the amount underwritten.

(b) Appointment of Bankers: Bankers along with their branch network act as the
collecting agencies and process the funds procured during; the public issue. The
Banks provide temporary loans for the period between the issue date and the date
the issue proceeds becomes available after allotment, which is referred to as a
‘bridge loan’.

(c) Appointment of Registrars: Registrars process the application forms, tabulate the
amounts collected during the issue and initiate the allotment procedures.

(d) Appointment of the brokers to the issue: Recognized members of the Stock
exchanges are appointed as brokers to the issue for marketing the issue. They are
eligible for a maximum brokerage of 1.5%.

Day 27

Filling of Draft prospectus / Draft Red Hearing prospectus with the SEBI for
comments / approval. Additionally a Venture Capital Firm has to file the details of
the terms subject to which funds are to be raised in the proposed issue in a
document called the ‘placement memorandum. The draft offer documents are filed
with SEBI, atleast 21 days prior to the filing of the Offer Document with ROC/ SEs.
Any company making a public issue or a listed company making a rights issue of
value of more than Rs.50 lakhs is required to file a draft offer document with SEBI
for its observations. The company can proceed further on the issue only after
getting observations from SEBI. The validity period of SEBI’s observation letter is
three months only ie. the company has to open its issue within three months period.

Day 28 – Day 49

SEBI may specifies changes, if any, in the draft Offer Document and the issuer or
the Lead Merchant banker shall carry out such changes in the draft offer document
before filing the Offer Document with ROC/ SEs. The Draft Offer document is
available on the SEBI website for public comments for a period of 21 days from the
filing of the Draft Offer Document with SEBI.

SEBI issues press releases every week regarding the draft offer documents received
and observations issued during the period. The draft offer documents are put up on
the website under Reports/Documents section. The final offer documents that are
filed with SEBI/ROC are also put up for information under the same section. Copies
of the draft offer documents in hard copy form may be obtained from the office of
SEBI, Mittal Court, ‘A’ wing, Ground Floor, 224, Nariman Point, Mumbai – 400021 on
a payment of Rs.100 or from SES, LMs etc. The soft copies can be downloaded from
the SEBI website under Reports/Documents section. Some LMs also make it
available on their web sites for download. The final offer documents that are filed
with SEBI/ROC can also be downloaded from the same section of the website.

Day 50

Filing of prospectus with the Registrar of Companies: The draft prospectus along
with the copies of the agreements entered into with the Lead Manager,
Underwriters, Bankers, registrars and Brokers to the issue is filed with the Registrar
of Companies of the state where the registered office of the company is located.

Printing and dispatch of Application forms: The prospectus and application forms
are printed and dispatched to all the merchant bankers, underwriters, brokers to the
issue.

Filing of the initial listing application: A letter is sent to the Stock exchanges where
the issue is proposed to be listed giving the details and stating the intent ;of getting
the shares listed on the Exchange. The initial listing application has to be sent with
a fee of Rs. 7,500/-.
Statutory announcement: An abridged version of the prospectus and ; the Issue
start and close dates are published in major English ;dailies and vernacular
newspapers.

Day 51 – Day 60

Road Show for IPO

Day 61

Opening of Public issue. As per Clause 8.8.1, Subscription list for public issues shall
be kept open for at least 3 working days and not more than 10 working days. In
case of Book built issues, the minimum and maximum period for which bidding will
be open is 3–7 working days extendable by 3 days in case of a revision in the price
band. The public issue made by an infrastructure company, satisfying the
requirements in Clause 2.4.1 (iii) of Chapter II may be kept open for a maximum
period of 21 working days.

Day 66

Processing of applications: After the close of the Public Issue all the application
forms are scrutinized, tabulated and then shares are allotted against these
application.

Establishing the liability of the underwriter: In case the Issue is not fully subscribed
to, then the liability for the subscription falls on the underwriters who have to
subscribe to the shortfall, incase they have not procured the amount committed by
them as per the Underwriting agreement.

Day 81

The investor is entitled to receive a Confirmatory Allotment Note (CAN) in case he

has been allotted shares within 15 days from the date of closure of a book Built
issue. The registrar has to ensure that the demat credit or refund as applicable is
completed within 15 days of the closure of the book built issue.

Allotment of shares: after the issue is subscribed to the minimum level, the
allotment procedure as prescribed by SEBI is initiated.

Day 86
Listing of the Issue: The shares after having been allotted have to be listed
compulsorily in the regional stock exchange and optionally at the other stock
exchanges. The listing on the stock exchanges is done within 7 days from the
finalization of the issue. Ideally, it would be around 3 weeks after the closure of the
book built issue. In case of fixed price issue, it would be around 37 days after
closure of the issue

Day 96

Refunds of excess application money i.e. for un-allotted shares have to be made
within 30 days of the closure of the Public Issue
Documentary Requirements with respect to the listing of securities on a
recognised stock exchange

a. Memorandum and articles of association

b. Copies of all prospectuses or statements in lieu of prospectuses issued by the
company at any time.
c. Copies of offers for sale and circulars or advertisements offering any securities
for subscription or sale during the last five years.
d. Copies of balance sheets and audited accounts for the last five years, or in the
case of new companies, for such shorter period for which accounts have been
made up.
e. A statement showing-

• Dividends & cash bonuses, if any, paid during the last ten years (or such
shorter period as the company has been in existence, whether as a private or
public company).
• Dividends or interest in arrears, if any.

f. Certified copies of agreements or other documents relating to arrangements

with or between:-

• Vendors and/or promoters,

• Underwriters and sub-underwriters,
• Brokers and sub-brokers.

g. Certified copies of agreements with-

• Managing agents and secretaries and treasurers.

• Selling agents.
• Managing directors and technical directors.
• General manager, sales manager, manager or secretary.

h. Certified copy of every letter, report, balance sheet, valuation contract, court
order or other document, part of which is reproduced or referred to in any
prospectus, offer for sale.
i. Circular or advertisement offering securities for subscription or sale, during the
last five years.
j. A statement containing particulars of the dates of and parties to all material
contracts, agreements (including agreements for technical advice and
collaboration), concessions and similar other documents (except those entered
into in the ordinary course of business carried on or intended to be carried on
 by the company) together with a brief description of the terms, subject-matter
and general nature of the documents.
k. A brief history of the company since its incorporation giving details of its
activities including any re-organisation, reconstruction or amalgamation,
changes in its capital structure (authorised, issued and subscribed) and
debenture borrowings, if any.
l. Particulars of shares and debentures issued

• For consideration other than cash, whether in whole or part,

• At a premium or discount, or
• In pursuance of an option.

m. A statement containing particulars of any commission, brokerage, discount or

other special terms including an option for the issue of any kind of the
securities granted to any person.
n. Certified copies of Agreements, if any, with the Industrial Finance Corporation,
Industrial Credit and Investment Corporation and similar bodies.
o. Particulars of shares forfeited.
p. A list of highest ten holders of each class or kind of securities of the company
as on the date of application along with particulars as to the number of shares
or debentures held by and the address of each such holder.
q. Particulars of shares or debentures for which permission to deal is applied for:
Provided that a recognised stock exchange may either generally by its bye-
laws or in any particular case call for such further particulars or documents as
it deems proper.
General criteria

1) Conditions Precedent to Listing: The Issuer shall have adhered to conditions

precedent to listing as emerging inter-alia from Securities Contracts (Regulations)
Act 1956, Companies Act 1956, Securities and Exchange Board of India Act 1992,
any rules and/or regulations framed under foregoing statutes, as also any circular,
clarifications, guidelines issued by the appropriate authority under foregoing
statutes.

2) The Project/ Activity plan of the applicant must have been appraised by a
financial institution u/s 4A of the Companies Act, 1956 or a state finance corporation
or a scheduled commercial bank with a paid up capital exceeding Rs.50 crores or a
category I Merchant Banker with a net worth of atleast Rs.10 crores or a venture
capital fund with a net worth of atleast Rs. 50 crores. Or

In the case of an existing company the applicant should have been listed on any
other recognised stock exchange for atleast last three years. This clause shall
however not be applicable to listing of securities issued by Government Companies,
Public Sector Undertakings, Financial Institutions, Nationalised Banks, Statutory
Corporations Banking Companies and subsidiaries of scheduled commercial bank
who are otherwise bound to adhere to all the relevant statutes, guidelines, circulars,
clarifications etc. that may be issued by various regulatory authorities from time to
time and in case of an Offer for Sale.

3) The applicant desirous of listing its securities should satisfy the

exchange on the following:

• No Disciplinary action has been taken by other stock exchanges and

regulatory authorities in the past three years: The promoting company (if
any) has not been in default in payment of listing fees to any stock exchange
in the last three years or has not been delisted or suspended in the past and
has not been proceeded against by SEBI or other regulatory authorities in
connection with investor related issues or otherwise.
• Redressal mechanism of Investor grievance: The points of consideration
are: promoting company’s (if any) track record in redressal of investor
grievances promoting company’s arrangements envisaged are in place for
servicing its investor promoting company’s general approach and philosophy
to the issue of investor service and protection
• Distribution of shareholding: The promoting company’s (if any)
shareholding pattern on March 31 of preceding three years separately
showing promoters and other groups’ shareholding pattern should be as per
the regulatory requirements
• Details of Litigation: The promoting company’s (if any) litigation record,
the nature of litigation, status of litigation during the preceding three years
need to be clarified to the exchange.
Eligibility Norms for making these issues

SEBI has laid down eligibility norms for entities accessing the primary market
through public issues. There is no eligibility norm for a listed company making a
rights issue as it is an offer made to the existing shareholders who are expected to
know their company. There are no eligibility norms for a listed company making a
preferential issue.

The main entry norms for companies making a public issue (IPO or FPO) are
summarized as under:

Entry Norm I (EN I):

The company shall meet the following requirements:

(a) Net Tangible Assets of at least Rs. 3 crores for 3 full years.

(b) Distributable profits in at least three years

(c) Net worth of at least Rs. 1 crore in three years

(d) If change in name, at least 50% revenue for preceding 1 year should be from the
new activity.

(e) The issue size does not exceed 5 times the pre- issue net worth

To provide sufficient flexibility and also to ensure that genuine companies do not
suffer on account of rigidity of the parameters, SEBI has provided two other
alternative routes to company not satisfying any of the above conditions, for
accessing the primary Market, as under:

Entry Norm II (EN II):

(a) Issue shall be through book building route, with at least 50% to be mandatory
allotted to the Qualified Institutional Buyers (QIBs).

(b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be
a compulsory market-making for at least 2 years

OR

Entry Norm III (EN III):

(a) The “project” is appraised and participated to the extent of 15% by
FIs/Scheduled Commercial Banks of which at least 10% comes from the
appraiser(s).

(b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be
a compulsory market-making for at least 2 years. In addition to satisfying the
aforesaid eligibility norms, the company shall also satisfy the criteria of having at
least 1000 prospective allotees in its issue

SEBI (DIP) guidelines have provided certain exemptions from the eligibility norms.
The following are eligible for exemption from entry norms.

(a) Private Sector Banks

(b) Public sector banks

(c) An infrastructure company whose project has been appraised by a PFI or IDFC or
IL&FS or a bank which was earlier a PFI and not less than 5% of the project cost is
financed by any of these institutions.

(d) Rights issue by a listed company

Listing fees for National Stock Exchange

AMOUNT
S.NO PARTICULARS
(Rs.)
1. Initial Listing Fees 7,500
2 Annual Listing Fees
a) Companies with paid up Share and /or debenture capital of
4,200
Rs. 1 crore
b) Above Rs. 1 crore and upto Rs.5 crores 8,400
c) Above Rs. 5 crore and upto Rs.10 crores 14,000
d) Above Rs. 10 crore and upto Rs.20 crores 28,000
e) Above Rs. 20 crore and upto Rs.50 crores 42,000
f) Above Rs. 50 crores 70,000

Companies having a paid up capital of more than Rs. 50 crores would pay additional
listing fees of Rs. 1400 for every increase of Rs. 5 crores or part there of in the paid-
up share/debenture capital. In case, of annual listing fee, they will be reduced
by 50% for the companies, which are non–regional for the exchange.

The payment can be done through Cheques/ Demand Drafts favouring National
Stock Exchange of India Limited on Mumbai.
Compliance to SEBI guidelines / regulation

The primary issuances are governed by SEBI in terms of SEBI (Disclosures and
Investor protection) guidelines. SEBI framed its DIP guidelines in 1992. Many
amendments have been carried out in the same in line with the market dynamics
and requirements. In 2000, SEBI issued “Securities and Exchange Board of India
(Disclosure and Investor Protection) Guidelines, 2000” which is compilation of all
circulars organized in chapter forms. These guidelines and amendments thereon are
issued by SEBI India under section 11 of the Securities and Exchange Board of India
Act, 1992. SEBI (Disclosure and investor protection) guidelines 2000 are in short
called DIP guidelines. It provides a comprehensive framework for issuances buy the
companies.

The Merchant Banker are the specialized intermediaries who are required to do due
diligence and ensure that all the requirements of DIP are complied with while
submitting the draft offer document to SEBI. Any non compliance on their part,
attract penal action from SEBI, in terms of SEBI (Merchant Bankers) Regulations..
Officials of SEBI at various levels examine the compliance with DIP guidelines and
ensure that all necessary material information is disclosed in the draft offer
documents.
Cost of a Public issue

The cost of a public issue works out between 8% to 12% depending of the issue size
but the maximum has been specified by SEBI as under.

For Equity & Convertible Debentures For Non Convertible debentures

• When the issue size is upto 5 • When the issue size is upto 5
crores =Mandatory costs + 5% crores = Mandatory costs + 2%

• When the issue size is greater than • When the Issue size is greater than
5 crores : Mandatory costs + 2% 5 crores : Mandatory costs + 1%

**Mandatory costs includes underwriting commission, brokerage, fees of the lead

managers of the issue , expenses on statutory announcements, listing fees and
stamp duty.

SEBI Guidelines for IPO's

1. It should be a public company as defined under the Companies Act, 1956

2. Allotment has to be made within 30 days of the closure of the Public Issue
and 42 days in case of a Rights issue.
3. Net Offer to the General Public has to be at least 25% of the Total Issue Size
for listing on a Stock exchange. For listing an IPO on the NSE firstly, firstly,
Paid up capital should be Rs. 20 Crores, secondly the issuer or the promoting
company should have a track record of profitability and thirdly the project
should be appraised by a financial Institution, banks or Category I merchant
bank. For knowledge based companies like IT the paid up capital should be
Rs. 5 Crores, but the market capitalization should be at least Rs. 50 Crores. 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.
4. A Venture Capital Fund shall not be entitled to get its securities listed on any
stock exchange till the expiry of 3 years from the date of issuance of
securities.
5. In an issue of more than Rs. 100 crores the issuer is allowed to place the
whole issue by book building.
6. Minimum of 50% of the Net offer to the Public has to be reserved for
Investors applying for less than 1000 shares.
7. All the listing formalities for a public Issue has to be completed within 70 days
from the date of closure of the subscription list.
8. There should be at-least 5 investors for every 1 lakh of equity offered.
9. Quoting of permanent Account number or GIR No. in application for allotment
of securities is compulsory where monetary value of Investment is
Rs.50,000/- or above.
10. Firm Allotment to permanent and regular employees of the issuer is subject
to a ceiling of 10% of the issue amount.
11. Indian development financial institutions ad Mutual Fund can be allotted
securities upto 75% of the Issue Amount.
12. Allotment to categories of FIP's and NRI's/OCB's is upto ? 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.
13. 10% individual ceiling for each category a) Permanent employees' b)
Shareholding of the promoting companies.
14. Securities issued to the promoter, his group companies by way of firm
allotment and reservation have a lock-in period of 3 years. However shares
allotted to FII's and certain Indian and multilateral development financial
institutions and Indian Mutual Funds are not subject to Lock-in periods.
15. The minimum period for which a public issue has to be kept open is 10
working days. The minimum period for a rights issue is 15 working days and
the maximum 60 working days.
16. A public issue is effected if the issue is able to procure 90% of the Total issue
size within 60 days from the date of earliest 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.
17. A rights issue has to procure 90% subscription in 60 days of the opening of
the issue:
18. Refund orders have to be dispatched within 30 days of the closure of the
Public Issue.
IPO GRADING

1. What is 'IPO Grading'?

IPO (Initial Public Offering) grading is a service aimed at facilitating the assessment
of equity issues offered to investors. The grade assigned to any individual issue
represents a relative assessment of the 'fundamentals' of that issue in relation to
the universe of other listed equity securities in India. Such grading is assigned on a
five-point scale with a higher (5/5) score indicating stronger fundamentals and a
lower score (1/5) indicating poor fundamentals. IPO grading represents an
independent opinion from an agency that is not connected with the placement of
the issue and has an ongoing incentive to maintain its reputation for independence
and analytical rigour.

2. Is IPO grading a recommendation to invest?

No, IPO grading is not a recommendation to invest in the graded instrument. It does
not a comment on the price of the graded security or its suitability for a particular
investor. It does not comment on issue price, likely price on listing or movement in
price post lisitng.

3. How is IPO grading different from an investment recommendation?

Investment recommendations are expressed as 'buy', 'hold' or 'sell' and are based
on a security specific comparison of its assessed 'fundamentals factors' (business
prospects, financial position) and 'market factors' (liquidity, demand supply) to its
price. On the other hand, IPO grading is expressed on a five-point scale and is a
relative comparison of the assessed fundamentals of the graded issue to other
listed equity securities in India.

As the IPO grading does not take cognizance of the price of the security, it is not an
investment recommendation. Rather, it is one of the inputs to the investor to
facilitate his decision making process.

All other things remaining equal, a security with stronger fundamentals would
command a higher market price.

4. Is IPO Grading done anywhere else in the world ?

Equity markets all over the world have felt the need for independent research.
Market regulators have been trying various methods to achieve this. CRISIL believes
that IPO Grading is a good way to provide independent research to equity investors.
 5. What is the validity of the IPO Grading?

IPO Grading is a one-time exercise. It does not have an ongoing validity.

6. How is IPO grading useful in the absence of an opinion on valuation?

IPO grading seeks to introduce a new paradigm with respect to research availability
in the equity market. Until now, research has been available to equity investors only
in the form of investment advice ('buy/sell/hold' recommendations). IPO grading,
which is an assessment of fundamentals, seeks to singly and comprehensively
assess one of the key components that goes into any investment decision.

The approach to IPO grading is very similar to the research architecture that is
available to bond markets in the form of credit ratings. A credit rating is a relative
assessment of the fundamentals of the bond security. Likewise, IPO grading is a
relative assessment of the fundamentals of the equity security.

CRISIL believes that, over time, IPO grading will emerge to be a useful valuation tool
for equity shares just as credit ratings are used for the valuation of 'buy/sell/hold'
recommendations of bonds. It is important to note that as a AAA rated bond at a
zero coupon might be a bad investment, a 5/5 graded IPO at a very high valuation
too would not be an attractive investment opportunity.

7. Is IPO Grading useful to institutional investors ?

IPO Grading is value adding to the investment process of institutional investors due
to the independent and focused information on relative fundamentals that is
contained in the IPO Grading rationale. Moreover, the expression of the independent
opinion on relative fundamentals as a single unambiguous symbol creates the
possibility of discovering meaningful relationships between fundamentals and
pricing. It may be noted that institutional investors extensively use credit ratings in
the market for privately placed bonds where credit ratings are not mandatory.

8. How does IPO grading differ from a credit rating?

Though the basic elements of the analysis that goes into credit rating and IPO
grading are the same - business prospects, financial prospects, management quality
and corporate governance - the orientation of the analysis and therefore outcomes
are very different as the assessment is done for very distinct objectives.

A credit rating assesses these factors from a debt-holders' perspective, which is

very distinct and sometimes opposite to an equity-holders' perspective. For
instance, some companies that raise far more equity than they need in an IPO and
hence suffer a depressed ROE are likely to be assessed unfavourably in the IPO
grading exercise. However, they are likely to be assessed more favourably in a
credit rating exercise, as equity cushions debt repayment.

This distinction of objectives also means that the relative emphasis on the elements
is very different in IPO grading and credit rating. For instance, the assessment of
corporate governance while evaluating an IPO grading would tend to assume a
much more pervasive character than credit rating where the emphasis of
assessment is on estimating cash protection available to pay debt.

It is for this reason that CRISIL issues IPO grading outside of its credit rating division.

9. Who pays for IPO Grading?

The issuing company pays for the IPO Grading.

10. If the issuer pays the grading agency, how is its opinion independent?

Experience from the bond market, where the issuer pays for the credit rating,
indicates that the existence of this conflict does not by itself lead to lax standards
by the grading agency. This is because the reputation of the grading agency would
play a crucial role in the perceived value of its grading. Although the company
would pay for the grading, the investor would use it. Like any other product or
service, the value of the grade would depend entirely on the perceptions of the
investor. Consequently, investors would buy only those gradings that they find
objective, independent and analytically rigorous. Thus, even though the company
would pay for the grading exercise, grading agencies would have a strong incentive
to maintain their independence due to the reputation risk arising out of lax
standards.