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Fund Raising Through Book Building

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Fund Raising Through Book Building

  1. 1. <ul><ul><li>Fund Raising </li></ul></ul>Through Book Building Pavan Kumar Vijay Managing Director
  2. 2. About Public Issues IPO FPO Promoters Strategic Investors
  3. 3. Initial Public Offer <ul><li>An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be made through the: </li></ul>Fixed price method Book Building method OR OR Combination of both
  4. 4. <ul><li>Eligibility Norms </li></ul><ul><li>Net tangible assets of at least Rs.3 crore in each of the preceding 3 full years of which not less than 50% is held in monetary assets . </li></ul><ul><li>Track Record of Distributable Profit For at least 3 out of Immediately Preceding 5 Years </li></ul><ul><li>Pre issue Net Worth of not less than Rs 1 Crore in each of the preceding 3 full years. </li></ul><ul><li>In case of change in name , at least 50% of the revenue for the preceding 1 year is earned by the new activity . </li></ul><ul><li>Size of the proposed issue + all Previous issues < 5 times its pre issue net worth. </li></ul><ul><li>Number of prospective allottees >1000 in numbers. </li></ul>Fixed Price Method-IPO
  5. 5. Fixed Price Method-FPO <ul><li>Eligibility Norms </li></ul><ul><li>In case of change in name , at least 50% of the revenue for the preceding 1 year is earned by the new activity . </li></ul><ul><li>Size of the proposed issue + all Previous issues ≤ 5 times its pre issue net worth. </li></ul>
  6. 6. Pricing Norms <ul><li>No conditions are prescribed </li></ul><ul><li>Company is free to determine the price of its securities </li></ul>
  7. 7. <ul><li>Advantages </li></ul><ul><li>Issue of shares at a predetermined price. </li></ul><ul><li>Accessibility to a wider investor base. </li></ul><ul><li>Broad based shareholding will improve liquidity and trading depth. </li></ul><ul><li>Retail holding would lead to stability in share prices. </li></ul><ul><li>Disadvantages </li></ul><ul><li>Number of Investors are large. </li></ul><ul><li>Does not involve investor’s participation in price finding. </li></ul><ul><li>Risk of over pricing or under pricing exists. </li></ul>Fixed Price Method
  8. 8. “ Book building as an option can be used when Fixed price is not possible “ <ul><li>(a)(i) Issue is made through Book building process with 50% of net offer to public being allotted to QIBs. OR </li></ul><ul><li>(a)(ii) Project has at least 15% participation by FIs/ Scheduled Commercial Banks of which 10% comes from appraiser(s) and at least 10% of the issue size shall be allotted to QIBs. </li></ul><ul><li>AND </li></ul><ul><li>(b)(i)Minimum post issue face value capital = Rs.10 crores. OR </li></ul><ul><li>(b)(ii) Compulsory market making for at least 2 years. </li></ul><ul><li>In other words, the company shall comply with: </li></ul><ul><li>a(i) and b(i) or b(ii) OR a(ii) and b(i) or b(ii) </li></ul>
  9. 9. Qualified Institutional Buyers ?? (QIBs) <ul><li>Public financial institution; (Section 4A of the Companies Act, 1956) </li></ul><ul><li>Scheduled Commercial Banks; </li></ul><ul><li>Mutual funds </li></ul><ul><li>Foreign Institutional Investor registered with SEBI; </li></ul><ul><li>Multilateral and bilateral development financial institutions; </li></ul><ul><li>Venture Capital Funds registered with SEBI; </li></ul><ul><li>Foreign Venture Capital Investors registered with SEBI; </li></ul><ul><li>State Industrial Development Corporations; </li></ul><ul><li>Insurance Companies registered with IRDA; </li></ul><ul><li>Provident Funds with Minimum Corpus of Rs.25 crores; </li></ul><ul><li>Pension Funds with Minimum Corpus of Rs.25 crores; </li></ul><ul><li>National Investment Fund. </li></ul>
  10. 10. Book Building Process RII Issue Price Final Issue Price
  11. 11. Net Offer to Public <ul><li>Minimum 25% of the post issue capital </li></ul><ul><li>Exception </li></ul><ul><li>Conditions to be fulfilled where net offer to public is 10%. </li></ul><ul><li>Minimum 20 lacs securities were offered to the public; </li></ul><ul><li>Size of the offer to the public was minimum Rs. 100 crores ; & </li></ul><ul><li>Through book building method with allocation of 60% of the issue size to the QIBs. </li></ul>
  12. 12. In case of issue through the 100% Book Building Process & Minimum Public shareholding is 25%. 10%** 5%** 10%** 50%* 15%* 35%* *% With respect to the Net offer to the public ** %With respect to the proposed issue Issue Size:100 shares 55 shares 27.5 shares 8.25 shares 19.25 shares 20 shares 25 shares 10 shares 5 shares 10 shares
  13. 13. In case of issue through the 100% Book Building Process & Minimum Public shareholding is 10% 10%** 5%** 10%** 60%* 10%* 30%* *% With respect to the Net offer to the public ** %With respect to the proposed issue Issue Size:100 shares 55 shares 20 shares 25 shares 33 shares 5.5 shares 16.5 shares 10 shares 5 shares 10 shares
  14. 14. <ul><li>Advantages </li></ul><ul><li>Price discovery mechanism based on demand analysis. </li></ul><ul><li>Transparency in pricing. </li></ul><ul><li>Investor participation in the price finding mechanism. </li></ul><ul><li>Reflects the investor perception and inherent value of the Company. </li></ul><ul><li>Shareholders Number low. </li></ul><ul><li>Disadvantages </li></ul><ul><li>Restrictive target audience & small investor shy away. </li></ul><ul><li>Liquidity in stock could remain low. </li></ul>Book Building - Analysis
  15. 15. Book Building-Process <ul><li>Step-1: Appointment of lead merchant banker(s) as 'book runners'. </li></ul><ul><li>Step-2: Appointment of syndicate members with whom orders are to be placed by the investors. </li></ul><ul><li>Step-3: Issue of Red Herring Prospectus specifying the number of securities to be issued and the price band for the bids. </li></ul><ul><li>Step-4: The syndicate members input the orders into an 'electronic book‘ called bidding. </li></ul><ul><li>Step-5: The book normally remains open for a period of 5 days </li></ul><ul><li>Step-6: On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels. </li></ul><ul><li>Step-7: Determination of final price by the Book runner and Issuer </li></ul><ul><li>Step-8: Allocation of securities is made to the successful bidders. The rest get refund orders. </li></ul>
  16. 16. Book-building v/s Fixed Price Heading Book Building Fixed Price Primary objective Highest market price Widespread distribution Focus Institutional Investors Retail Investors Primary Beneficiary Institutional Investors Retail Public Secondary Market Buyer Retail Investor (Low Appetite) Institutional Investor (Large appetite) Price Determination Demand-based Corporate performance based Pricing Discovered, complicated Fixed, Attractive for Retail Investor Strategic Acquisition Easy (From large Investors) Difficult (from Distributed Investors) Reservation for Retail Investors 35% 50%
  17. 17. In a Book Built issue Declines Improves Stock Profile In a Retail Fixed Price Offering Sell To Sell To Retail Institutions Institutions Retail
  18. 18. Content Of Offer Document <ul><li>General Corporate Information; </li></ul><ul><li>Industry overview; </li></ul><ul><li>Projects, objects to the issue; </li></ul><ul><li>Operations, Branches, offices; </li></ul><ul><li>Future Prospects; </li></ul><ul><li>Sustainability of the business; </li></ul><ul><li>Capital Structure, its Evolution and Shareholding Details; </li></ul><ul><li>Promoters & Promoter Group; </li></ul><ul><li>Management of Company; </li></ul><ul><li>Board Committees; </li></ul><ul><li>Key Managerial Personnel and Other Officers; </li></ul><ul><li>Holding, Subsidiary and Group Companies; </li></ul><ul><li>Material Contracts & Commitments; </li></ul><ul><li>Assets and Immovable Property; </li></ul><ul><li>Financials; </li></ul><ul><li>Outstanding Litigations and Claims; </li></ul><ul><li>Intellectual Property Rights (&quot;IPR&quot;); </li></ul><ul><li>Legal Compliances; </li></ul><ul><li>Insurance and Risk Management; </li></ul><ul><li>Human resource/ Employees; </li></ul><ul><li>Management’s Discussion and Analysis; </li></ul>
  19. 19. Offer Document <ul><li>Red Herring Prospectus </li></ul><ul><li>&quot;Red Herring Prospectus&quot; is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. </li></ul><ul><li>OR </li></ul><ul><li>Prospectus Excluding Price/number of securities/ amount of issue </li></ul><ul><li>Final Prospectus </li></ul><ul><li>On the completion of bidding process, a final offer document is submitted before opening of Subscription List. </li></ul><ul><li>Prospectus </li></ul><ul><li>A legal document offering securities which includes the terms, issuer objectives or planned use of the money, historical financial statements and other information that could help an individual in deciding whether the investment is appropriate for him/her is called prospectus. </li></ul>In case of Book Building In case of Fixed Price
  20. 20. Exemptions from the Eligibility norms <ul><li>The following entities are exempted from complying with the eligibility norms mentioned earlier: </li></ul><ul><li>a banking company (As per section 5(c ) of the Banking regulation Act, 1949); </li></ul><ul><li>a bank set up under : </li></ul><ul><li>Banking Companies ( Acquisition and Transfer of Undertaking) Act, 1970 </li></ul><ul><li>Banking Companies (Acquisition and Transfer of Undertaking) Act, 1980, </li></ul><ul><li>State Bank of India Act 1955 and State Bank of India (Subsidiary Banks) Act,1959; </li></ul><ul><li>c) an infrastructure company </li></ul><ul><li>whose project has been appraised by PFI, IDFC, IL&FS or bank(earlier a PFI) and </li></ul><ul><li>Not less than 5% of the project cost is financed by the above institution; </li></ul><ul><li>d) rights issue by a listed company. </li></ul>
  21. 21. Promoters Contribution ** Rights issue component of the composite issue shall be excluded while calculating the post-issue capital. Event Promoters contribution Public Issue by Unlisted Companies Not less than 20% of the post-issue capital Offers for Sale Not less than 20% of the post-issue capital Public Issues by Listed Companies Either to the extent of 20% of the proposed issue or post-issue shareholding to the extent of 20% of the post-issue capital. Composite Issues Either 20% of the proposed public issue or 20% of the post-issue capital**
  22. 22. Exemption from Promoters Contribution No requirement of Promoter Contribution in case: Where Company is listed for at least 3 years and has a track record of dividend payment for at least 3 immediately Preceding year. Where no identifiable promoter or promoter group exists. Right Issue OR OR
  23. 23. Lock-In Requirements
  24. 24. Intermediaries
  25. 25. Other Mandatory Conditions <ul><li>IPO Grading </li></ul><ul><li>Grading from at least one credit rating agency; </li></ul><ul><li>Disclosure of all grades in the Prospectus or Red Herring Prospectus; and </li></ul><ul><li>Expenses for obtaining the grading- to be borne by the company . </li></ul><ul><li>Dematerialization of securities </li></ul><ul><li>Agreement with a depository for dematerialization of securities; and </li></ul><ul><li>Option to subscribers to receive the Certificates or hold securities in Demat. </li></ul>
  26. 26. <ul><ul><li>Some Case Studies </li></ul></ul>
  27. 27. Case Study I: OnMobile Global Ltd. 24/01/2008 - 29/01/2008 Issue size : 10900545 shares Price Band: Rs. 425.00 - 450.00 Issue Price : Rs. 440.00 Listed Date: February 19, 2008 Book Running Lead Manager : ICICI Securities Limited
  28. 28. Case Study II: Aishwarya Telecom Limited 15/04/2008 -17/04/2008 Issue size : 4000000 Equity shares Price Band: Rs. 32.00 - 35.00 Issue Price : Rs. 35.00 Listed Date: May 07, 2008 Book Running Lead Manager : Srei Capital Markets Limited & Sobhagya Capital Options Limited
  29. 29. Case Study III :Archidply Industries Limited 11/06/2008 – 17/06/2008 Issue size : 6615720 Equity shares Price Band: Rs. 70.00 - 80.00 Issue Price : Rs. 74.00 Listed Date: July 04, 2008 Book Running Lead Manager : Motilal Oswal Investment Advisors Private Limited
  30. 30. Case Study IV: Abhishek Mills Limited 20/02/2007 – 01/03/2007 Issue size : 4100000 Equity shares Price Band: Rs. 90.00 - 100.00 Issue Price : Rs. 100.00 Listed Date: March 19, 2007 Book Running Lead Manager : UTI Bank Limited
  31. 31. E-IPO <ul><li>Issue of securities through online system of stock exchange </li></ul>
  32. 32. Thank You …

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