The document provides an overview of the key requirements for a first time issuer of securities conducting an initial public offering (IPO) in India. It discusses the eligibility criteria set by SEBI, including minimum public shareholding, promoters' contribution and lock-in period, pricing considerations, and issue structure. It also outlines the corporate governance requirements, disclosures required in the offer document, and the roles of various intermediaries involved. Special dispensations provided to public sector undertakings conducting an IPO are also highlighted.

1. Requirements for a First Time
Issuer
of Securities – IPO Requirements
October 31, 2008

2. Agenda
• Fund Raising Options
• Fund Raising History – India
• Why IPO?
• Eligibility Criteria under SEBI DIP and BSE Regulations
• Minimum Public Shareholding
• Minimum Promoters Contribution and Lock-in
• Pricing
• Issue Structure – Book Building
• Corporate Governance Requirements
• Disclosures in the Offer Document
• Special Dispensation to PSUs
• Intermediaries involved and their Roles
• Process and Timeline
2

3. Options for Raising Funds
Fund Raising Options
Debt
Equity
From Banks & FIs
IPO
FPO
In India
Public issue of
Bonds/Debentures
Hybrid
Various forms of
Convertibles
Rights Issue
Pref. Issue
outside India
ECB
ADR/GDR
FCCB & FCEB
3

4. Fund Raising History – India
Capital Market Issues
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
FY-2004
Total Funds
Raised
FY-2005
FY-2006
FY-2007
FY-2008
Rs. 18,812 cr
Rs. 24,707 cr
Rs. 27,477 cr
Rs. 32,950 cr
Rs. 104,937 cr
IPO
FPO
Rights Issue
QIP
4

5. Why IPO??
For Funding Needs
• Funding Capital Requirements for Organic Growth
– Expansion through Greenfield or Brownfield or De-bottle Necking Projects
– Diversification
• Funding Inorganic Growth through Acquisitions
• Funding Global Requirements
• Funding Joint Venture and Collaborations needs
• Funding Infrastructure Requirements, Marketing Initiatives and Distribution Channels
• Financing Working Capital Requirements
• Funding General Corporate Purposes
• Investing in businesses through other companies
• Repaying debt to strengthen the Balance Sheet
• Meeting Issue Expenses
For Non-funding Needs
• Enhancing Corporate Stature
• Retention and incentive for Employees through stock options
• Providing Investors exit options
• Provide liquidity to the shareholders
5

6. IPO Requirements
6

7. Eligibility Criteria for Unlisted Companies - SEBI
Exemptions
• A banking company
including a local area bank
set up under the Banking
Regulation Act, 1949
• A corresponding new bank
set up under the Banking
Companies Act, 1970
• An infrastructure company:
– Whose project has been
appraised by a public
financial institution (PFI)
– Not less then 5% of the
project cost is financed by
any of the PFI
• Rights issue by a listed
company
Primary Criteria
Companies with track record
• Track record of distributable profits for 3 out of the
immediately preceding 5 years
• Pre-issue net worth of not less than Rs. 1 Crore in
each of the preceding 3 full years
Companies without track record
• 50% of the net offer to
public being allotted to
QIBs
• Net tangible assets of atleast Rs. 3 Crores for each of
the preceding 3 full years
– Not more than 50% of these to be held in the form
of monetary assets
• (Proposed IPO + Previous Issues in the same financial
year) < 5 times the pre-issue net worth
• In case the company has changed its name within the
last one year, atleast 50% of the revenue for the
preceding 1 full year is earned by the company from
the activity suggested by the new name
• Prospective allottees in the IPO should not be less
than 1000 in number
Choice of Route: Fixed Price or
Book Building
+
• In case of project
funding, 15%
participation by Financial
Institutions / Scheduled
Commercial Banks
– 10% of this must come
from appraiser
– 10% of issue size to
be allotted to QIBs
+
• Minimum post-issue face
value capital must be Rs.
10 Crores
OR
• Compulsory market
making for at least 2
years from the date of
listing of shares
• Minimum post-issue face
value capital must be Rs.
10 Crores
OR
• Compulsory market
making for at least 2
years from the date of
listing of shares
Choice of Route: Book
Building
Choice of Route: Fixed
Price or Book Building
7

8. Eligibility Criteria For IPO – Stock Exchange (BSE)
BSE Eligibility Criteria
Large Companies
Small Companies
• The minimum post-issue paid-up capital of
the applicant company (hereinafter referred
to as "the Company") shall be Rs. 3 crore;
and
• The minimum post-issue paid-up capital of
the applicant company (hereinafter referred
to as "the Company") shall be Rs. 3 crore;
and
• The minimum issue size shall be Rs. 10
crore; and
• The minimum issue size shall be Rs. 3 crore;
and
• The minimum market capitalization of the
Company shall be Rs. 25 crore (market
capitalization shall be calculated by
multiplying the post-issue paid-up number of
equity shares with the issue price).
• The minimum market capitalization of the
Company shall be Rs. 5 crore (market
capitalization shall be calculated by
multiplying the post-issue paid-up number of
equity shares with the issue price).
• The minimum income/turnover of the
Company shall be Rs. 3 crore in each of the
preceding three 12 – months period; and
• The minimum number of public shareholders
after the issue shall be 1000
• A due diligence study may be conducted by
an independent team of CAs or Merchant
Bankers appointed by BSE.
8

9. Minimum Public Shareholding
‘Promoter’ includes:
• The person or persons who are
in over-all control of the
company;
• The person or persons who are
instrumental in the formulation
of a plan or programme
pursuant to which the securities
are offered to the public;
• The persons or persons named
in the prospectus as
promoters(s).
Promoter Group
• Defined under clause 6.8.3.2 of
SEBI DIP
Public
• Implies all investors other than
Promoter and Promoter Group
In case of PSUs, the
Promoter is Government of
India (represented by
President of India).
SEBI has granted exemption
on issue structure from Rule
19(2)(b) on case to case
basis
Clause 40A of the Listing Agreement
• At least 25% of the post issue paid up capital with the public (ie. other than promoter and promoter group)
Exceptions under Rule 19(2)(b) of SCRR
• As per rule 19(2)(b), a minimum of 25% of each class of security must be offered to the public for subscription
• However, at least 10% can be offered if the following 3 conditions are fulfilled:
– Minimum 2 MM securities (excluding reservations, firm allotment & promoter contribution) to be offered to
the public
– Minimum offer size – Rs. 100 crores
– Issuance through book building with 60% QIB allocation
Continuous fulfillment of minimum shareholding criteria
• Continuous public shareholding needs to be maintained as per Clause 40A of the listing agreement since listing
Exemption
• The aforesaid requirement of maintaining minimum level of public shareholding on a continuous basis will not
be applicable to government companies (as defined under Section 617 of the Companies Act, 1956),
infrastructure companies (as defined under clause 1.2.1(xv) of the SEBI (DIP) Guidelines, 2000) and companies
referred to the Board for Industrial and Financial Reconstruction.
9

10. Government Cos & Infrastructure Cos
Section 617 of the Companies Act, 1956
Government company, means any company in which not less than fifty one per cent of
Government
Companies
the paid-up share capital is held by the Central Government, or by any State Government
or Governments, or partly by the Central Government and partly by one or more State
Governments, and includes a company which is a subsidiary of a Government company
as thus defined.
Clause 1.2.1(xv) of the SEBI (DIP) Guidelines, 2000
Infrastructure
Companies
“Infrastructure Company” means, a company wholly engaged in the business of
developing, maintaining and operating infrastructure facility.
10

11. Minimum Promoters Contribution and Lock-in
•
Promoter’s
Contribution
Minimum of 20% of the post issue capital of the Company for unlisted companies; for listed
companies, either to extent of 20% in issue or to ensure post issue holding of 20%
•
Following shares are ineligible for the computation of Promoter’s contribution
– Issued in last one year at a price lower than issue price, unless topped up
– Issued in last three years out of bonus issue or revaluation reserve for consideration other
than cash
•
For Promoters:
– Lock-in for a period of 3 years from the date of allotment or from the date of commencement
of commercial production, whichever is later
Lock-in period
•
Balance pre-issue capital, other than held by Indian and Foreign Venture Funds (registered with
SEBI) and shares held for at least one year and being offered for sale in the issue
– Must be locked-in for a period of 1 year from the date of allotment
– Shares issued last will be locked-in first
•
Exemption
In case of public issue of securities by a company which has been listed on a stock exchange
for at least 3 years and has a track record of dividend payment for at least 3 immediately
preceding years.
•
In case of companies where no identifiable promoter or promoter group exists.
•
In case of rights issues.
11

12. Pricing
• SEBI allows free pricing of equity shares in an IPO
– Approval of RBI might be required for public issues by banks
• Differential pricing is permissible in a public issue to retail individual investors and retail
individual shareholders
– Retail investors can be offered shares at a discount to the price offered to other investor
categories (Max discount can be 10%)
• Price Band: The cap price can be 20% more than the floor price. Price band can be revised by
20% from the floor price.
• No payment of commission by the promoter or issuer company to the public
• If the issue price is above Rs.500 then the issuer can fix the FV of shares below Rs.10 but a
minimum of Rs.1.
12

13. Issue Structure – Book Building
Dilution = 25%
Dilution = 10% to 25%
Of the Net Offer to Public
Of the Net Offer to Public
•
Maximum 50% to QIBs
•
At least 60% to QIBs
•
At least 15% to HNIs
•
Maximum 10% to HNIs
•
At least 35% to retail
•
Maximum 30% to retail
Net Offer to Public
• Net offer to the public shall mean the offer made to Indian public and does not include
reservations/ firm allotments/ promoters’ contribution.
Reservations
Reservations / Firm Allotment shall not be made to categories other than:
• ‘Permanent employees of the issuer company and in the case of a new company the permanent
employees of the promoting companies';
• ‘Shareholders of the promoting companies in the case of a new company and shareholders of
group companies in the case of an existing company’ either on a ‘competitive basis’ or on a ‘firm
allotment basis’.
• Persons who, on the date of filing of the draft offer document with the Board, have business
association, as depositors, bondholders and subscribers to services, with the issuer making an
initial public offering,
13

14. Corporate Governance Requirements
Audit
Committee
•
Optimum number of executive and non executive directors with at least 50% being non-executive. If
the chairman, has executive powers then 50% of Board comprises of Independent directors. While if
chairman has non-executive powers then 1/3 of the Board comprises of Independent directors.
•
Composition
of the Board
Mandatory constitution of Audit Committee with minimum three directors and headed by an
Independent director.
All members shall be financially literate (should be able to understand financial statements) and at
least one member should have accounting and financial management expertise.
•
•
Shareholder/Investor Grievances Committee to be formed under the chairmanship of a non executive
director to look into the redressing of shareholder and investor complaints like transfer of shares,
non-receipt of balance sheet, non-receipt of declared dividends
•
Investor
Committee
At least one director on the Board of the holding company shall be a director on the Board of a
material non listed Indian subsidiary Company
- Material non-listed subsidiary means a subsidiary whose turnover or net worth exceeds 20% of
the consolidated turnover or net worth in the preceding accounting year
Audit committee of the listed holding company shall also review the financial statements, in
particular, the investments by the unlisted subsidiary Company
Subsidiary
Company
•
Report on
Corp.
Governance
•
•
A separate section on Corporate Governance to be included in the Annual Reports with disclosures
on compliance of mandatory and non-mandatory requirements
Submission of quarterly compliance report to the stock exchanges
CEO/CFO
Certification
•
CEO/CFO to certify the financial statements and cash flow statements
14

15. Disclosures in the Offer Document
•
•
Securities Premium Account (pre-issue and post-issue)
•
Holding of the promoter and promoter group
•
Disclosure about ESOPs if any
•
Total requirements of funds
•
Capital Structure
Shareholding Pattern (pre-issue and post-issue)
Means of Financing
– Undertaking by the issuer company confirming firm arrangements of finance through
verifiable means towards 75% of the stated means of finance (excluding proposed IPO)
Objects of the
Issue
•
•
Business
Risk Factors
Company
Management
Details about the appraisal of the project
Interim use of funds
•
Description about the Industry in which the Company operates
•
Detailed description about the business of the Company
•
Risks related to the Company
•
External Risk Factors
•
Details about the Board of Directors and various committees
•
Details about key management persons
15

16. Disclosures in the Offer Document (Cont’d)
•
•
MD&A
Litigations and
Defaults
•
•
•
Detailed discussion on performance for the past 3 years
Capital Expenditure
Cash Flow and Liquidity
•
Financial
Disclosures
Auditors Report to have five year restated financials for the
– Issuer Company, and
– All Subsidiaries of the Issuer Company or Consolidated Financials of the Issuer Company
Audited financials presented should not be more than six months old at the time of filing DRHP
with SEBI and must be updated to be not more than six months old on the date of filing the
prospectus with the ROC
All financials should be presented based on Indian GAAP
All pending litigations in which the Company/Promoters / Promoter Group / Directors / Group
companies are involved.
– Both, litigations filed by or against the Company/Promoters / Promoter Group / Directors /
Group companies
Outstanding litigations, defaults, etc., pertaining to matters likely to affect operations and
finances of the company.
The pending proceedings initiated for economic offences against the directors, the promoters,
companies and firms promoted by the promoters indicating their present status.
•
•
•
16

17. Special dispensation to PSU - Precedents
Only restated Audited
Financial Statements
needs to be disclosed in
the DRHP. However,
SEBI has granted
exemption on case to
case basis to PSU Banks
whereby, even limited
review figures were
disclosed in DRHP, so as
to comply with the criteria
of financial statements
being not more than six
months old.
REC
Disclosures
PFC
Power Grid
Promoter
Government of India, represented
by the President of India disclosed
as promoter with no additional
details
Yes
Yes
Yes
Yes
Promoter group
companies
No promoter group companies
disclosed. However, the
disclosures w.r.t Subsidiaries need
to be made
No
No
No
No
Corporate
governance
Clause 49 of the listing agreement
Yes
Yes
Yes
Yes
Issue structure
Compliance with rule 19(2)(b) of
SCRR
Yes
No*
No*
Yes
Particulars
Remarks
OIL India#
* Obtained relaxation from SEBI and issue structure is 50% to QIB, 15% to HNI and 35% Retail
# Based on DRHP filed with SEBI
17

18. Special dispensation to PSU
• SEBI guidelines do not
allow limited review or
unaudited numbers in
prospectus
– Limited review allowed
– Disclosure of promoter
and promoter group
Bank of
Baroda
• Has 2689 branches + subsidiaries in India (BOB Caps, BOB Cards,
BOB AMC) + foreign subsidiaries
• Limited Review for June 2005 numbers allowed. Limited Review
done for only select (around 20 branches) by auditors and rest
were relied on by auditors. Limited review of foreign subsidiary for
June 2005 allowed.
NTPC
• Promoter is president of India
• Relaxation in disclosure of promoter and promoter group in
offer document
• Need to comply with
– Corporate governance
norms
– Promoter’s contribution
and lock-in
18

19. Intermediaries Involved
19

20. Intermediaries and their Roles
•
Self Certified Syndicate
Bank (SCSB)
Registrars
Auditors
Printers
Advertisers
•
Assist the legal counsel in drafting of Offer Document
Interface / ensure compliance protocol with SEBI / NSE / BSE
•
Legal Due Diligence
•
Drafting the offer document
•
Guidance on any other incidental legal matters
•
Assistance in complying with requirement for selling in international geographies
•
Acting as collecting agents
•
Escrow Account & Refund account
•
Acting as collecting agents for ASBA (Application Supported by Block Amount) process
Co-ordination with the Issuer and Bankers regarding collections, reconciliation, refunds etc
•
Securing allocation approval from Stock Exchanges
•
Bankers
Conduct due diligence and finalize disclosure in Offer Document
•
Domestic &
International
Legal
Counsels
•
•
Lead Managers
Overall Co-ordination
Post issue co-ordination collation and reconciliation of information
•
Reviewing and auditing financials and preparing financial statements for inclusion in the Offer Document
•
Verify/audit various financial and other data used in the Offer document and provide Comfort Letter
•
Bulk printing of the Red Herring Prospectus Bid Forms, final Prospectus, CAN, Refund orders etc.
•
Ensure timely dispatch and distribution of stationery to all centers
•
Preparing and getting published all statutory notices
•
Creating all advertisement materials
20

21. Process & Timeline
21

22. IPO Process – Fixed Price Issue
Decision to go for
IPO
Funds transferred to
issuer
Appointment of
BRLM and legal
counsel
Listing
Issuer
Due diligence
Allotment
Drafting of Draft
Prospectus
Issue Closure
Filing with SEBI &
Stock Exchanges
Preparation / Approvals
Pre-Marketing
SEBI Clearance
& ROC Filing of
the Prospectus
Roadshows
Filing the Prospectus and Marketing
Issue Open
Launch & Completion
22

23. IPO Process – Book Built Issue
Decision to go for
IPO
Funds transferred to
issuer
Appointment of
BRLM and legal
counsel
Listing
Issuer
Due diligence
RoC filing of final
Prospectus
Drafting of Draft Red
Herring
Pricing & Allocation
Filing with SEBI &
Stock Exchanges
Preparation / Approvals
Pre-Marketing
SEBI Clearance
& ROC Filing
Roadshows
Marketing and Estimation of Price Range
Book building
Launch & Completion
23

24. Execution Process Timeline
IPO Process - 23 weeks
Activity
Preparation Phase
Due Diligence
Filing of Draft Document
Sebi Observation
Finalization & filing of offer Document
2 weeks
4 - 5 weeks
1
week
4 - 8 weeks
2 - 3 weeks
Min. 3
Days
Issue Period
2 - 3 weeks
Post Issue Activities
24

25. Thank You
25