3. Avenues of raising capital in the domestic capital market
Avenues of raising capital in overseas markets
Legal framework and regulatory issues
A comparative of overseas stock exchanges
Factors influencing the capital markets
4. Domestic Stock Exchanges
Initial Public Offering (“IPO”)
Offer for Sale
Public Issue by Listed Companies including Rights
Issue
Qualified Institutions Placement (“QIP”)
Preferential Allotment
6. Companies Act, 1956
Securities and Exchange Board of India Act, 1992
SEBI (Disclosures and Investor Protection) Guidelines , 2000 (“DIP Guidelines”)
Securities Contracts (Regulation)Act, 1956
ListingAgreements with the Stock Exchanges
The DepositoriesAct, 1996
Foreign Exchange Management Act, 1999 (“FEMA”)
7. Eligibility criteria for primary issuance (IPO or
Offer for Sale)
i. Rs. 3 Crores (NetTangible Assets) in last 3 years
ii. Rs. 1 Crore (NetWorth) in last 3 years
iii. Distributable profits for 3 years in last 5 years
iv. In case of change of name, 50% revenues from
activity suggested by new name
v. Aggregate of all issues in one financial year not
to exceed 5 times issuer’s pre issue net worth
8. Book Building Method
50% net offer to QIBs ;OR
‘Project’ has 15% participation from financial
institutions/scheduled commercial banks of which
10% comes from appraisers
AND
10 Crores minimum post issue face value capital;
OR
2 years of compulsory market making post issue
9. Exemptions from eligibility criteria
a banking company
a corresponding new bank
an infrastructure company (conditions apply)
▪ Project must be appraised
▪ Not less than 5% of the project cost must be from
appraisers
rights issue by a listed company
10. Pricing
Free pricing of shares
Issuer company free to fix face value of the shares
offered subject to:
▪ If price of share is Rs. 500 or more, then face value can
be less than 10 but must be more than Re. 1
▪ If price of share is less than Rs. 500 then face value of
share must be Rs. 10
11. FastTrack Method
(Introduced by SEBI in November 2007)
Listed companies making a public offering
Rights Issue
SEBI approval of prospectus not required if:
Issuer company is listed for last three years
Average market cap is greater than Rs 10,000 Crores
95% of investor grievances redressed (till last quarter)
No SEBI proceedings pending
Entire shareholding in dematerialized form
13. Lock in of pre-preferential allotment shareholding Issue of shares or of
convertible securities by a company to a select group of
persons under Section 81(IA) of the Companies Act, 1956.
Conditions of preferential issue (Chapter XIII of DIP Guidelines)
▪ Pricing as per the DIP guidelines
▪ Continuous listing (Minimum public shareholding)
▪ Existing shares of proposed allotted (s) in demat form
▪ No sale and transfer any equity shares for past 6 months
▪ Non-transferability of instruments
▪ Allotment must be completed within 15 days
14. Issue of shares or of convertible securities by a company to Qualified
Institutional Buyers (“QIBs”) (Chapter XIIIA of DIP Guidelines)
Eligibility:
▪ Equity shares listed for one year preceding the date of notice to
shareholders
▪ Minimum public shareholding to be maintained
Note:
▪ No placement to QIB who is promoter or related to promoter
▪ Pricing as per the DIP guidelines
▪ Non applicability of Chapter XIII of DIP guidelines
15. Conditions:
Minimum Number of allottees:
2, where the issue size is less than or equal to Rs. 250
Crores
5, where the issue size is greater than Rs. 250 Crores
No single allottee shall be allotted more than 50% of the
issue size.
Transfer restriction for 1 year (except on a stock exchange)
Minimum 10% allotment to mutual funds
16. Credit rating required
Debenture trustee must be appointed
Debentures not to be issued for acquisition of shares or
providing loan to any company belonging to the same group.
(Not to apply to FCDs converting within 18 months)
Company to create Debenture Redemption Reserve (“DRR”)
Debentures to be redeemed as per offer document
Offer document to specify the assets on which security is
created and ranking of the charge
Premium amount and time of conversion to be determined
by issuer company and disclosed
Interest rate on debentures to be freely determined by issuer
company
17. SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations 1997 (Takeover Code)
SEBI (Prohibition of InsiderTrading) Regulations 1992
SEBI (Bankers to an Issue) Regulations, 1994
SEBI (Merchant Bankers) Regulations, 1992
SEBI (Underwriters) Regulations, 1993
SEBI (Registrars to an Issue and Share Transfer
Agents)Regulations, 1993
SEBI (Prohibition of Fraudulent and Unfair Trade Practices
Relating to Securities Market) Regulations, 2003
18. New exchange for SMEs
21 days gap between closing
and listing to be shortened to
7 days
QIBs to pay 100% upfront for
IPOs
19. Indian Companies can raise capital overseas by issue of:
Note: Indian companies listing overseas must either before
or simultaneously list on the Indian stock exchanges
Global Depository Receipts
(“GDRs”)
American Depository
Receipts (“ADRs”)
Depository
Receipts
Foreign Currency
Convertible Bonds
(“FCCBs”)
Foreign Currency
Exchangeable Bonds
(“FCEBs”)
Euro Bonds
Bonds
20. CompaniesAct, 1956
SEBI DIP Guidelines
Issue of Foreign Currency Convertible Bonds and Ordinary Shares
(Through Depository Receipt Mechanism) Scheme 1993 (“FCCB
Scheme”)
Issue of Foreign Currency Exchangeable Bonds Scheme,2008
Foreign Exchange ManagementAct, 1999 (“FEMA”)
Foreign Exchange Management (Transfer or Issue of any Foreign
Security) Regulations, 2004
External Commercial Borrowing Policy (“ECB Policy”)
Foreign Direct Investment Policy (“FDI Policy”)
21. DRs represent shares of an Indian company trading on a
foreign stock exchange
The DR holders are part of foreign holding in a company but
unlike FDI, investors in DRs do not enjoy voting rights
DRs of most Indian companies experienced a sharp fall due
to market meltdown. However, recently the DRs have
recovered and trading turnovers have improved.
DRs have become popular because of two-way fungibility
No prior approval of SEBI, RBI or government is required for
issue of DRs
No restrictions on the use of proceeds except investment in
real estate and the stock markets
22. Foreign currency convertible bonds are debt instruments which are
convertible into equity of the company at a later point of time
Both FDI and ECB policies are applicable
Coupon rate must not exceed 300 basis points over SBI PLR
RBI approval required for companies other than companies who can
access ECB under automatic route and for all companies raising more
than US$ 500 million
Restriction on use of proceeds
US$ 20 million can be raised for rupee expenditure
Proceeds to be parked abroad till required in India
Preferred by companies for raising funds for overseas expansions and
acquisitions
23. FCEB Scheme was notified on February 15, 2008
A security offered by an issuing company and subscribed
to by investors living outside India and exchangeable into
equity shares of another company, which is called the
offered company.
The issuing company must be a part of the promoter
group and must hold the equity shares being offered at
the time of issuing FCEBs. The offered company has to be
a listed company, which is engaged in a sector eligible to
receive FDI and eligible for ECB.
24. RBI is still considering the instrument
No guidelines for FCEBs issued by RBI yet
RBI is unsure how FCEBs would work within existing
framework of ECB Policy
Lack of transparency regarding use of the funds according
to RBI
Issues on monitoring of the FDI cap on companies when
bonds raised by one company gets converted into equity
of another company.
25. Choice of stock exchange depends upon:
NewYork Stock Exchange (NYSE)
▪ NYSE has 11 Indian companies listed on NYSE.
▪ Positive: IFRS accounting norms permitted
▪ Negative: SOX compliance is very costly. Only very large
companies therefore list on NYSE
Depth of the Market
Availability of Funds
Regulatory
Requirements
26. NASDAQ
▪ Listing is expensive
▪ 3 Indian companies listed
London Stock Exchange (LSE) (Main Market)
▪ Caters to large companies
▪ Has been a favorite with large Indian companies
▪ Regulatory requirements are stringent
Alternative Investment Market (AIM)
▪ Constituted in 1995, London’s AIM has been very successful in
attracting overseas companies/funds
▪ lower entry barriers
▪ a lighter touch on regulation and compliance
▪ comparative flexibility
27. Luxembourg Stock Exchange (LuxSE)
▪ Traditional favourite
▪ Listing is expeditious
▪ Cost of raising funds at Luxembourg is lower, compared to NYSE or
NASDAQ
▪ Compliance requirements are less stringent
Singapore Stock Exchange (SGX)
▪ Listing is less expensive
▪ Has large appetite for certain sectors such as shipping
▪ Regional hub
Hong Kong Stock Exchange (HKEx)
▪ Offers world-class listing platform
▪ Costs of listing and compliance are competitive
28. Dubai International Financial Exchange (DIFX)
▪ Set up in September 2005
▪ Fast attracting attention especially of SMEs
▪ Expeditious listing
▪ Closer home and good liquidity
Tokyo Stock Exchange (TSE)
▪ Japan is keen to promote TSE and Japanese Depository Receipts
(“JDRs”) and attract foreign companies
Asia PacificTechnology Exchange (APTEX)
▪ New Australian stock exchange with a focus on technology
▪ Plans to become fully operational by second half of 2008
29. Economy of the Country
Money Supply
Interest Rate
Corporate Results
Global Capital Market Scenario
Foreign Funds Inflow
Strength/Weakness of the Local Currency
30. GDP growth forecast
for India: 2008-09
CMIE
9.5%
IBs
7.0 to
8.4%
IMF
7.9%
GDP growth in India: 2007-08 – 8.7%
Inflation scenario for
India: 2008-09
CMIE
5.5%
RBI
comfort
level
(Feb ‘08)
5%
Trade Deficit has
widened over the
past year
31. Rs. 39,98,887 Crores
Money supply in the economy as on
March 03, 2008
Interest Rates
Representing aY onY
increase of 21%
Bank Lending Rates
(2007-08)
12.75% to 13.25%
Repo Rate: 7.75%
Reverse Repo Rate: 6%
Exchange Rate Rs./$
Year Rs./$
2006-07 45.28
2007-08
Qtr 1 41.25
Qtr 2 40.54
Qtr 3 39.47
Qtr 4 39.83
2008-09 39.95
(Week ending Apr 18)
RBI purchased US$ 75.4
billion from currency market
in 2007-08 till Feb ‘08
Total foreign funds
inflow in 2006-07 :
US$ 29.1 billion
Total foreign funds
inflow is 2007-08
(till Feb ’08) :
US$ 56.4 billion
32. Although there are negative factors like the gloomy global
markets, pressure on the export market due to rupee
appreciation, rising inflation rate on one hand, on the
other hand India has a strong growth story
Lets hope good times are ahead!
