1.
Indian Corporate Bond
Market; Merchant
Banking; IPO; Clause 49
– A Perspective
ABHIJEET DESHMUKH

2.
Capital
Requirements
Government
IndividualsCorporates

3.
Corporate Capital Funding Sources
Sources
External
Equity
Debt /
Corporate
Debt
Bank
Borrowings
Project Loans
Syndicated
Loans
Working
Capital
Trade Finance
Bonds
Hybrid
Internal
Accruals
Reserves

4.
Corporate Bonds - Basic Features
u Corporate Bonds are issued to the Public (similar to equity
instruments)
u Listed on Stock Exchanges and traded in Secondary Markets
u are Transferable
u Can be Secured or Non-secured
u possess a Broad Base of Issuers (ranging from small companies to
conglomerates and multinationals) and investors (including retail
participants), and
u are under the additional purview of the Regulators of the Securities
Market other than the Central Bank or other Banking Supervisor.

5.
Corporate Bond Market Ecosystem -
Three Main Pillars
The study of Corporate Bond Market is essentially the study of below three
pillars, their roles, responsibilities and actions in the corporate bond market.
Institutions –
Regulations & Governance
SEBI RBI
Credit Rating
Agencies
Clearing
Houses
Stock
Exchanges
Participants
Investor
(Demand Side)
Issuer
(Supply Side)
Securities
Debentures
(Fixed &
Floating)
Securitized
Instruments
Commercial
Paper
Certificate of
Deposit

6.
Corporate Bond Market - Importance
u Corporate Bond market helps corporates funds at the low cost and take
the benefit of their credit rating without diluting equity.
u the corporate bond market in a country can substitute part of the bank
loan market, and is potentially able to relieve the stressed banking system in
a developing country of unbearable burden.
u When bank lending and corporate debt is more balanced in an economy,
the market gets an opportunity to assert itself, thereby providing a more
effective hedge against systemic / Market / un-diversifiable / volatility risk.
u Derivatives and Swap markets are critical for the development of
corporate bond markets. These tools broaden the investor base and lend
the much needed liquidity to the market. These instruments also play a
pivotal role in reducing costs, enhancing returns and managing risk;
particularly interest rate risk

7.
Corporate Bond – Primary Placement
u Bonds can be places as Public or Privately placed.
u Market is dominated by the Private Placement
u Private Placed Bonds are those where number of investors are not more
than 49, Min Investment is 25 lakhs and multiple of 10 lakhs thereafter.
u Sample Term Sheet
Years Issues Amt (in '000 cr) % of Issue Issues2 Amt (in '000 cr)3 % of Issue2
2010-11 10 9.45 4.1% 1,404 218.79 95.9%
2011-12 20 35.61 12.0% 1,953 261.28 88.0%
2012-13 20 16.98 4.5% 2,489 361.46 95.5%
2013-14 35 42.38 13.3% 1,924 276.05 86.7%
2014-15 25 9.71 2.3% 2,611 404.14 97.7%
2015-(Aug15) 3 0.80 0.4% 1,509 216.11 99.6%
Public Issues Private Placements

8.
Corporate Bond – Valuation/MTM
u As per RBI Master Circular on Valuations -
“All debentures/ bonds should be valued on the YTM basis. Such debentures/
bonds may be of different companies having different ratings. These will be
valued with appropriate mark-up over the YTM rates for Central Government
Securities as put out by PDAI/ FIMMDA periodically. The mark-up will be graded
according to the ratings assigned to the debentures/ bonds by the rating
agencies subject to the following: -(a) The rate used for the YTM for rated
debentures/ bonds should be at least 50 basis points above the rate applicable
to a Government of India loan of equivalent maturity.”
u The premium carried by a corporate bond over G-Secs represents the
Credit Risk or Credit Premium. If the spread shrinks it denote bearish view
on yield / light supply side / higher yield demanded by the investor for
bearing the risk.
Source:
https://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=9027#371
http://www.fimmda.org/modules/bonds/corporate-bonds.aspx?m=btd

9.
IRR() for Valuation
Stock IDBI 2015
Coupon 9.35
FV 100.00
Price 102.15
Trans. Chgs 0.30
Maturity 31/12/15
9.35% IDBI 2015
-102.15 1-Jan-10
9.35 31-Dec-10
9.35 31-Dec-11
9.35 31-Dec-12
9.35 31-Dec-13
109.35 31-Dec-14
8.80%
Last IP 1-Jan-10
Acc int 0.000
Quote 102.15
Stock IDBI 2015
Coupon 9.35
FV 100
Price 102.15
Trans. Chgs 0.3
Maturity 42369
0.0935 IDBI 2015
=-(C20+C19) 40179
9.35 40543
=(C13-C12)/365*$B$10*100 40908
9.35 41274
=(C15-C14)/365*$B$10*100 41639
=(C16-
C15)/365*$B$10*100+100 42004
=IRR(B11:B16,0.01)
Last IP 40179
Acc int =(C11-C18)/365*B10*100
Quote 102.15

10.
Credit Rating Scales
u Debt instruments rated 'BBB-' and above are classified as Investment Grade ratings.

11.
Market Timings & Reporting Platforms
u NSE
(http://nseindia.com/products/content/debt/corp_bonds/cbm_reporting_homepa
ge.htm)
u BSE (http://www.bseindia.com/markets/debt/tradereport.aspx?expandable=0)
u FIMMDA – FTrac Information (http://www.fimmda.org/modules/content/?p=1030)
Market Timings & Holidays
u Market Hours are 9.30 AM to 17.30 and reporting hours are 10.00 to 17:30.
u Trades done till 17:30 but couldn’t be reported are required to be reported by 9:30
to 10 next day along with traded done post 17:30
u Either the buyer or the seller can report the trade, but the reporting party has to
enter both sides of the deal.
u The party can use an id of your choice while reporting trades preferably NDS or CCIL
ID. A confirmation email will be sent to both the email ids entered by the party.
(http://www.nseindia.com/products/content/debt/corp_bonds/mrkt_timing_holidays.htm)

12.
International Securities Identification Number (ISIN)
u International securities identification number (ISIN) is a 12 character long
code, first two characters indicates Country Code as per ISO3166 (For
India it is IN).
u Third letter indicates type of security which can be E, A, F, B or 9 (E –
Company, A/0 – Central Government Security, B- State Government
Security, F- Mutual Fund Unit and 9 represents Equity shares having
different rights than those represented by INE number.)
u In the remaining 9 digits last digit is check suffix suing Double Add Double
method to check the validity of the International securities identification
number (ISIN)
u INE002A01018 – ISIN of Reliance Industry
IN – India; E- Company Type; 002A-Company Serial No of Reliance;
01-Equity; 01-Issue Number; 8-Check Suffix

13.
Corporate Bonds Market - Limitations (1/2)
u Economic structure is a determinant of financial structure. Since India is a
predominantly services based economy, the financial structure automatically
prefers equity market liberalization over debt market liberalization.
u the inconsistent, disorganized and overlapping institutional and regulatory
framework has been one of the primary reasons impeding the development of
strong corporate debt markets in India.
u In India, a high level of public debt (Government Bonds) crowds out corporate
borrowing by reducing the appetite of financial institutions. This increases the cost
of borrowing for corporates making bond markets an unviable source of funding
u absence of an adequately sized corporate debt market leads to an oversized
banking system in any economy. It also results in a large portion of the lending
market being excessively regulated, &without being subjected to free market
forces, this becomes the perfect breeding ground for crony capitalism, sloppy
lending by banks and careless investments by corporates.
u The average maturity in the US bond market has lengthened in the recent past
and has been upwards of 12 years since 2007 whereas average age of the bonds
issued by Indian corporations is only 5 to 7 years

14.
Corporate Bonds Market - Limitations (2/2)
u RBI observes that listed corporate debt forms only 5.4 per cent of GDP significantly low
compared to other emerging economies - Malaysia(43.1), Korea (77.5) & China (13).
u the supply side issues hampering the development of corporate debt markets in India
and lists the lack of diversity in instruments & issuers. The large issuers in the corporate debt
market segment are “quasi-government” i.e. banks, public sector oil companies or
government sponsored financial institutions..
u On the equity side, management and controlling shareholders were largely in favour of
equity reforms and consequently allowed for more room for negotiation and agreement.
On the debt side, changes were necessary to bankruptcy laws, labour laws and judicial
enforcement. At the time of liberalization the base of political power in India was support
of labour unions and therefore any changes to labour or bankruptcy laws (allowing quick
dismissal of labour) was not feasible.
u Foreign borrowings have also shown a healthy growth, indicating preference for cheaper
foreign funds over costlier Indian debt markets. However, the recent depreciation in
rupee exchange rate against major currencies has tremendously increased the foreign
obligations of corporate and stressed corporate balance sheets.

15.
Merchant Banking in India
Definition
“Any person who is engaged in the business of issue management either by
making arrangements regarding selling, buying or subscribing to securities as
manager consultant, advisor or rendering corporate advisory services in relation
to such issue management.”

16.
Introduction
u Merchant bank is a financial institution (Large brokers, Mutual Funds,
Venture capital companies and Investment Banks offer Merchant
Banking services.) that primarily deals with commercial banking needs of
international finance, long term loan for companies provides consulting
services and underwriting of stock.
u It also acts as an intermediary between the issuers and the ultimate
purchasers of the securities in the primary market.
u Merchant Banker are those financial intermediary involved with the
activity of transferring capital funds to those borrowers who are
interested in borrowing.
u They guarantee the success of issues by underwriting them. Merchant
Banks are popularly known as “issuing and accepting houses”.
u Their activities are primarily non-fund based (Fee based).
u It has been statutory brought with in the framework of the Securities and
Exchange Board of India (SEBI)

17.
Services provided by Merchant Bank
u The management of the customer’s securities
u The management of projects and counseling as well as appraisal
u The circumvention of the syndication of loans
u Management of the interest and dividend etc
u Management of IPO issue
u The management of underwriting of shares and debentures Portfolio
Management
u Advising on mergers and takeovers
u Offshore finance

18.
History
u Merchant banking started in Italy in late medieval times (from the fifth to
the fifteenth century)
u Reached in France during the seventeenth century
u Italian merchant bankers introduces merchant banking into England in
eighteenth century
u European bankers developed Merchant banking in USA
u In 1972, merchant banking started in South Africa.
History in India
u Foreign bank National Grindlays Bank started merchant banking in 1967
u Then Citibank in 1970 and State Bank of India in 1972 started Merchant
banking
u Later ICICI setup its merchant banking division followed by Bank of India,
Bank of Baroda etc..

19.
Merchant bankers categories
• Issue Management
• Advisor
• Consultant
• Manager
• Underwriter
• Portfolio manager
• Advisor
• Consultant
• Co manager
• Underwriter
• Portfolio Manager
• Advisor
• Consultant
• Underwriter
• Advisor
• Consultant
Category - 1 Category - 2 Category - 3 Category - 4

20.
Capital Adequacy Norms
A merchant bank will be registered by SEBI in different categories on the
basis of capital adequacy norms in terms of its “Net worth”.
Category Minimum amount
Category 1 5,00,00,000
Category 2 50,00,000
Category 3 20,00,000
Category 4 NIL

21.
Appointment of Lead Merchant Banker
Size of Issue No of Merchant Banker
Less than INR 50 Cr Two
INR 50 Cr to INR 100 Cr Three
INR 100 Cr to INR 200 Cr Four
INR 200 Cr to INR 400 Cr Five
> INR 400 Cr As may be agreed by the Board

22.
Registration with SEBI
Application
for grant
certificate
Information
furnishing,
clarification
and
personal
Application
consideration
Granting
the
certificate
Payment of
Registration
fees

23.
Registration Fee
u A ‘MB’ has to pay a fee at the time of original registration
u Category I Rs. 10 Lakhs
u Category II Rs. 5 Lakhs
u Category III Rs. 1 Lakh
u Category IV Rs. 5,000
u The certificate of registration granted under regulations shall be valid
for a period of three years from the date of its issue to the applicant.
u The certificate of renewal granted under regulation 9, shall be valid for a
period of three years from the date of its issue to the applicant.

24.
Methods of Placements
u Underwriting is insurance for the new securities of the public. It is one of the
methods of marketing securities.
u The other methods are: Prospectus method, where the capital is raised by
this method is very prevalent in India. The distribution expenses may be
substantially saved.
u Offer for sale, where the sales are sold largely to the brokers/issue houses.
The issue house/brokers again sell the shares to the public at a fixed price.
This method saves the company the cost and the trouble of selling the
shares to the public. Here a Third party takes over the responsibility.
u Private placement, where the funds are raised in the primary market by
selling the security issue to one investor or a small group of investors without
resorting to underwriting. The cost of the issue is minimal. It is the most
effective way of procuring the long term funds. There is no need to follow
the statutory formalities. The offer is made to select a group of known
persons.

25.
Underwriting
u Underwriting is a guarantee given by the underwriters to take up whole
or part of the issue of securities at a given price not subscribed by the
public for a commission.
u The agreement between the issuing company and the financial
intermediary, called the underwriter, where by sale of certain quantum
of securities is guaranteed for the issuing company, is known as
underwriting agreement.
u It facilitates the provision of money during the financial crisis of the
company an alternative to Bank Borrowings.
u The Underwriter helps the new company in its reorganization /
recognition.
u To act as an Underwriter, a certificate of Registration must be obtained
from SEBI, after payment of prescribed fee to SEBI.
u Underwriters are appointed by the issuing companies in consultation
with the Lead Manager or Merchant Banker to the issue and many a
time both Merchant Banker and Underwriter are the same entity.

26.
Underwriting Agreements
u Firm Commitment:
Firm commitment is the most commonly used type of underwriting contract. The underwriter
agrees to buy securities from the issuing corporation and pay the proceeds to the
company. Any losses that occur due to unsold shares are prorated amongst the
participating underwriting firms according to their proportional participation.
u Best Efforts:
Best efforts underwriting allows the firm (or underwriting syndicate) to act as agent for the
issuing corporation and limits the responsibility of that firm to the shares it is able to sell. All
unsold shares are absorbed by the issuer
u All or None:
All or none underwriting allows the issuing corporation to contract for the sale of all shares. If
any shares remain at the end of the underwriting process, the underwriting is cancelled.
Underwriters cannot deceive investors by stating that all of the securities in the underwriting
have been sold if it is not true.
u Standby:
Stand by underwriting allows an underwriting firm (or syndicate) to wait in the wings in an
additional offering for any unused pre-emptive rights that are not executed by the
company’s current shareholders. The underwriter will purchase the unused rights, exercise
them and sell the shares.

27.
Underwriting Commission
u Underwriting commission is payable on the basis by the issuer
corporation on the basis of commission rates prescribed by SEBI
a) Equity shares 2.5% 2.5%
b) Preference,
Convertible and
non convertible
debentures
Up to Rs 5L 2.5% 1.5%
Exceeding Rs 5L 2% 1%
On amounts in
developing the
underwriter
On amounts
Subscribed by the
public

28.
SEBI Guidelines
According to the SEBI guidelines the following factors are to be fulfilled:
u The minimum requirement of 90% subscription is mandatory for each issue
of capital to the public. This clause is applicable for both public and rights
issue.
u If the company is not able to receive the issued amount from the public
subscription and accepted development from the underwriters, then the
company refunds the amount.
u In order to standardize the legal relationship between the issuing
company and the underwriters, the SEBI has formulated the model
underwriting agreement. The underwriting agreement should be filed with
the stock exchanges.
u The registration number of the underwriter is to be quoted in all
correspondence with the SEBI, government authorities and clients.
u The total underwriting obligations under all the agreements should not
exceed twenty times the network of the underwriter

29.
Debt Issue Management - Summary
u Corporates approach Merchant Banker with Amount they wish to raise
u They discuss Business Plan/Project Feasibility/Collateral offered.
u Merchant Bankers appraise Issuer with current market trends / rates /
appetite / psychology of investor, market and competition.
u Merchant Banker prepares a Action Plan including Financial plan
comprising cost of raising and other expenses, Regulator compliance
plan, Procedural Appointment of Intermediary/Underwriter/distributor and
most important the Price of the Issue.
u Prepares the prospectus and submit with SEBI and takes care of all
regulatory requirements
u Based on type of placements, appoints underwriter
u Involved in Security listing, ISIN creation by appoint Registrar and Transfer
agent, Depository (NSDL/CDSL)
u Provide the Amount to Issuer and get the fees/ Underwriting commission

30.
Equity Issue Management - Summary
How does an IPO take place?
u When a company wants to go public, the first thing it does is hire a
financial advisor or an investment bank to manage the public issue.
u The company and the investment bank meet to discuss the amount of
money the company would raise, the type of securities to be issued, and
all details in the underwriting agreement
u The underwriter puts together what is known as the RED HERRING
prospectus. For Ex Throcare Draft Red Hearing Prospectus
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1451886138156.pdf
u This is an initial prospectus containing all the information about the
company except for the offer price and the effective date not known at
that time.
u With the red herring in hand, the underwriter and company attempt to
find the appetite for shares. They go on a road show to tap institutional
investors.

31.
Equity IPO Process &
Merchant Banker

32.
IPO (Initial Public Offering)
For Funding Needs
u Funding Capital Requirements for Organic Growth
u Expansion through Projects
u Diversification
u Funding Global Requirements
u Funding Joint Venture and Collaborations needs
u Funding Infrastructure Requirements, Marketing Initiatives and Distribution Channels
u Financing Working Capital Requirements
u Funding General Corporate Purposes
u Investing in businesses through other companies
u Repaying debt to strengthen the Balance Sheet
u Meeting Issue Expenses.
For Non-funding Needs
u Enhancing Corporate Stature
u Retention and incentive for Employees through stock options
u Provide liquidity to the shareholders

33.
IPO
Issue Types
u Fixed Price In a 'Fixed Price' shares are sold at a single price/fixed price.
This price is determined by the company in advance, and you (the buyer)
can buy the shares only at that decided price. E.g. If XYZ Industries
Limited decides to make a public issue of 10,00,000 equity shares at a
price of Rs. 65/- you can buy the share at Rs. 65/- and cannot ask for a
price of Rs. 60/-
u Book Building Issue 'Book Building' is a price discovery mechanism used
to determine the price of the security proposed to be issued. 'Book
Building Issue' is generally used when the issuer doesn't want to fix a certain
price on the security. Here, unlike the 'Fixed Price Issue', you (the bidder)
have the facility to bid for the shares within the given range/price band.
E.g. If XYZ Industries Limited decides to make a public issue of 10,00,000
equity shares, it will, instead of a fixed price, announce the price band of
Rs. 60/- to Rs. 70/-. You (the bidder) can then place your bids for the shares
between this price band/range.

34.
Book Building Process:
u The Issuer who is planning an offer nominates lead merchant banker(s) as 'book
runners'.
u The Issuer specifies the number of securities to be issued and the price band for the
bids.
u The Issuer also appoints syndicate members with whom orders are to be placed by the
investors.
u The syndicate members input the orders into an 'electronic book'. This process is called
'bidding' and is similar to open auction.
u The book normally remains open for a period of 5 days.
u Bids have to be entered within the specified price band.
u Bids can be revised by the bidders before the book closes.
u On the close of the book building period, the book runners evaluate the bids on the
basis of the demand at various price levels.
u The book runners and the Issuer decide the final price at which the securities shall be
issued.
u Generally, the number of shares are fixed, the issue size gets frozen based on the final
price per share.
u Allocation of securities is made to the successful bidders. The rest get refund orders.

35.
IPO
Types of Applicants
u Retail Individual Investor:- means an investor who applies or bids for
securities of value not more than Rs. 2,00,000/-
u Non-Qualified Institutional Buyer: means an investor who bids for an
amount above Rs. 2,00,000/- and does not fall in the QIB category e.g. HNI
investors.
u Qualified Institutional Buyer(QIB) means:
u Public financial institution as defined in section 4A of the Companies Act, 1956
u Scheduled commercial banks
u Mutual funds/venture funds/insurance companies/provident funds
u Foreign Institutional Investor registered with SEBI

36.
IPO
Ways of Applying for an IPO
u You can invest in IPOs only through ASBA.
u Using ASBA, you can invest in public issues by authorizing the bank to block
an amount equivalent to the application amount in the linked bank
account.
u The application amount is not debited from the account but remains
blocked till the completion of allotment process.
u On allotment, amount required will be debited from the bank account
whereas in case of partial or no allotment, the amount unutilized due to
non-allotment will be released.
Note
u SEBI ASBA FAQ

37.
Detail IPO Process
u The IPO process in India consists of the following steps: -
u Appointment of merchant banker and other intermediaries
u Registration of offer document
u Marketing of the issue
u Post- issue activities

38.
Step -1- Appointment of Merchant Banker
u Appointment of Merchant Banker and Other Intermediaries
u One of the crucial steps for successful implementation of the IPO is the
appointment of a merchant banker. A merchant banker should have a
valid SEBI registration to be eligible for appointment.
u A merchant banker can be any of the following – lead manager, co-
manager, underwriter or advisor to the issue.
u Certain guidelines are laid down in Section 30 of the SEBI Act, 1992 on
the maximum limits of intermediaries associated with the issue:
Size of the Issue No. Of lead Managers
50 cr. 2
50 – 100 cr. 3
100 – 200 cr. 4
200 - 400 cr. 5
Above 400 cr. 5 or more as agreed by the board

39.
Step -1- Appointment of Merchant Banker
u Certain guidelines are laid down in Section 30 of the SEBI Act, 1992 on the
maximum limits of intermediaries associated with the issue:
u The number of co- managers should not exceed the number of lead
managers.
u There can only be one advisor/consultant to the issue.
u There is no limit on the number of underwriters.
u Other Intermediaries
u Registrar to the Issue: Registration with SEBI is mandatory to take on
responsibilities as a registrar and share transfer agent. The registrar
provides administrative support to the issue process. The registrar of the
issue assists in everything from helping the lead manager in the
selection of Bankers to the Issue and the Collection Centers to
preparing the allotment and application forms, collection of
application and allotment money, reconciliation of bank accounts
with application money, listing of issues and grievance handling.
u

40.
Step -1- Appointment of Other Intermediaries
u Bankers to the Issue: Any scheduled bank registered with SEBI can be appointed as
the banker to the issue. There are no restrictions on the number of bankers to the
issue. The main functions of bankers involve collection of application forms with
money, maintaining a daily report , transferring the proceeds to the share
application money account maintained by the controlling branch, and forwarding
the money collectedwith the application forms to the registrar.
u Broker To the Issue: Any member of a recognized stock exchange can become a
broker to the issue. A broker offers marketing support, underwriting support,
disseminates information to investors about the issue and distributes issue stationery
at retail investor level.
u Underwriters to the Issue: Underwriting involves a commitment from the underwriter
to subscribe to the shares of a particular company to the extent it is under
subscribed by the public or existing shareholders of the corporate.
u An underwriter should have a minimum net worth of 20 lakhs, and his total
obligation at any time should not exceed 20 times the underwriter’s net worth. A
commission is paid to the underwriters on the issue price for undertaking the risk of
under subscription.

41.
*BRLM – Book Running Lead Manager

42.
*BRLM – Book Running Lead Manager

43.
Step 2 - Registration Of The Offer Document
u For registration,10 copies of the draft prospectus should be filed with SEBI. The
draft prospectus filed is treated as a public document.
u The lead manger also files the document with all listed stock exchanges.
Similarly, SEBI uploads the document on its website www.sebi.com. Any
amendments to be made in the prospectus should be done within 21days of
filing the offer document. Thereafter the offer document is deemed to have
been cleared by SEBI.
u Promoters Contribution: In the public issue of an unlisted company, the
promoters shall contribute not less than 20% of the post issue capital as given in
Chapter- IV of the SEBI Act, 1992.The entire contribution should have been
made before the opening of the issue.
u Lock-in Requirement: The minimum promoters contribution will be locked in for
a period of 3 years. The lock-in period commences from the date of allotment
or from the date of commencement of commercial production, whichever is
earlier.

44.
Step 3 – Marketing/Timing of the Issue
u An appropriate decision regarding the timing of the IPO should be made,
keeping in mind the general sentiments prevailing in the investor market.
For example, if recession is prevailing in the economy (the investors are
pessimistic in their approach), then the firm will not be able to get a good
pricing for its IPO, as investors may not be willing to put their money in
stocks.
u Retail distribution: Retail distribution is the process through which an
attempt is made to increase the subscription. Normally, a network of
brokers undertakes retail distribution. The issuer company organizes road
shows in which conferences are held, which are attended by high net
worth investors, brokers and sub-brokers. The company makes
presentations and solves queries raised by participants. This is one of the
best ways to raise subscription.
u Reservation in the Issue: Sometimes reservations are tailored to a specific
class of investors. This reduces the amount to be issued to the general
public

45.
Step 3 - Marketing of the Issue
u The following are the classes of investors for whom reservations are made:
u Mutual Funds
u Banks and Financial Institutions; Non-resident Indians (NRI) and
Overseas Corporate Bodies (OCB) The total reservation for NRI/OCB
should not exceed 10% of the post-issue capital, and individually it
should not exceed 5% of the post issue capital.
u Foreign Institutional Investors (FII): The total reservation for FII cannot
exceed 10% of the post-issue capital, and individually it should not
exceed 5% of the post issue capital.
u Employees: Reservation under this category should not exceed 10% of
the post issue capital.
u Group Shareholders: Reservation in this category should not exceed
10% of the post issue capital.
The net offer made to the public should not be less then the 25% of the total
issue at any point of time

46.
Step 4 - Post-Issue Activities
u Principles of Allotment: After the closure of the subscription list, the
merchant banker should inform, within 3 days of the closure, whether 90% of
the amount has been subscribed or not. If it is not subscribed up to 90%,
then the underwriters should bring the shortfall amount within 60 days.
u In case of over subscription, the shares should be allotted on a pro-rata
basis, and the excess amount should be refunded with interest to the shares
holders within 30 days from the date of closure.
u Formalities Associated With Listing: The SEBI lists certain rules and regulations
to be followed by the issuing company. These rules and regulations are laid
down to protect the interests of investors. The issuing company should
disclose to the public its profit and loss account, balance sheet, information
relating to bonus and rights issue and any other relevant

47.
Clause 49
u The term ‘Clause 49’ refers to clause number 49 of the Listing Agreement between a
company and the stock exchanges on which it is listed and it comes into effect from 31
December 2005. It has been formulated for the improvement of corporate
governance in all listed companies.
u Corporate Governance may be defined as “A set of systems, processes and principles
which ensure that a company is governed in the best interest of all stakeholders.”
u Corporate Governance is about promoting corporate fairness, transparency and
accountability. Good Corporate Governance is simply Good Business.
u as made major changes in the definition of independent directors, strengthening the
responsibilities of audit committees, improving quality of financial disclosures, including
those relating to related party transactions and proceeds from public/ rights/
preferential issues, requiring Boards to adopt formal code of conduct,
requiring CEO/CFO certification of financial statements and for improving disclosures to
shareholders. Certain non-mandatory clauses like whistle blower policy and restriction of
the term of independent directors have also been included
u http://www.sebi.gov.in/commreport/clause49.html

48.
New Product – Masala Bonds
Mortgage lender Housing Development Finance Corp (HDFC) has raised Rs 3,000
crore by issuing masala bonds; the first company to do so since the RBI green-flagged
it in September last year.
u What exactly are masala bonds? These are rupee-denominated borrowings by
Indian entities in overseas markets. Usually, while borrowing in overseas markets,
the currency is a globally accepted one like dollar, euro or yen.
u What is the advantage of borrowing abroad in rupees? Companies issuing masala
bonds do not have to worry about rupee depreciation, which is usually a big worry
while raising money in overseas markets.
u Is that a big enough advantage? Of course. Quite a few Indian companies that
had raised money abroad in 2007 by issuing Foreign Currency Convertible Bonds
found themselves in a soup when the rupee depreciated sharply following the
global financial crisis.
u What is in it for the buyer of the bond? The buyer will earn a higher yield (coupon
rate) to compensate for the risk of currency depreciation.

49.
New Product: Masala Bonds
u What is the tenor and coupon rate on the HDFC Masala bonds? The bond bears a
fixed semi-annual coupon of 7.875 percent per annum and has a tenor of 3 years
and 1 month. The bonds have been issued at a price of 99.24% of the par value
and will be redeemed at par. The all-in annualized yield to the investors is 8.33
percent per annum.
u Will the bonds be traded? Yes, but on the London Stock Exchange, not in India.
u Will there be more such bond issuances by other companies? According to Utpal
Oza, MD and Head of Investment Banking, Nomura India —the banker to the HDFC
issue — post Brexit, both Asian and European investors are hunting for yield and
masala bonds seem to be offering them an attractive yield pickup. He says many
public and private corporates are in the fray to issue masala bonds in the coming
months, due to the hitherto untapped, deep alternate investor base that they give
access to at marginally higher cost of financing.
Source: http://www.moneycontrol.com/news/bonds-news/explained-whatmasala-
bondshow-do-indian-cos-benefit_7043101.html?utm_source=ref_article

50.
Thank You