White Paper on IPO This study includes the definition, types, procedures, regulatory aspects and various terms associated with issue of initial public offerings (IPOs) in Indian stock market.

1. WHITE PAPER ON
INITIAL PUBLIC OFFERINGS
A PRODUCT OF RICKY CHOPRA INTERNATIONAL COUNSELS

2. This study includes the definition, types, procedures, regulatory
aspects and the various terms associated with the issue of initial
public offerings (IPOs) in Indian stock market.

3.  An Initial Public Offer (IPO) is the selling of securities to the public. It is the
largest source of funds for the company.
 Initial Public Offer (IPO) is a route for a company to raise capital from
investors to meet the expenses for its projects and to get a global exposure by
listed in the Stock Exchange.
 IPOs are often issued by smaller, younger companies seeking capital to
expand, but can also be done by large privately owned companies looking to
become publicly traded.
 Company raising money through IPO is also called as company ‘going public'.

4. For Funding Needs For Non-funding Needs
Funding Capital Requirements for
Growth
•Expansion through Projects
•Diversification
Retention and incentive for Employees
through stock options
Funding Global Requirements Provide liquidity to the shareholders
Funding Joint Venture and
Collaborations
Funding Infrastructure Requirements,
Marketing Initiatives and Distribution
Channels
Financing Working Capital
Requirements
Repaying debt to strengthen the
Balance Sheet

5. COMPANIES ACT
2013
SECURITIES
CONTRACT
(REGULATION)
ACT 1956
SECURITIES AND
EXCHANGE
BOARD OF INDIA
ACT, 1992
Provisions Relating to
Prospectus.
Provisions on
Minimum
Subscription;
Allotment; Return of
Allotment.
Power to SEBI
relating to Issue &
Transfer of Securities.

6. FUND RAISING OPTIONS
HYBRIDDEBT EQUITY
From Banks &
FIs
Public issue of
Bonds/Debentures
IPO
FPO
Rights Issue
Private
Placement
Various forms
of
Convertibles
OVERSEAS ECB ADR/GDR FCCB &FCEB
INDIA

7. The classification of issues is as illustrated below:
(a) Public issue
(i) Initial Public offer (IPO)
(ii) Further public offer (FPO)
(b) Rights issue
(c) Bonus issue
(d) Private placement

8. PUBLIC ISSUE
Public issue :- When an issue / offer of securities is made to new investors
for becoming part of shareholders’ family of the issuer it is called a public
issue.
Public issue can be further classified into Initial public offer (IPO) and
Further public offer (FPO).
• (i) Initial Public offer (IPO) :-When an unlisted company makes either a
fresh issue of securities or offers its existing securities for sale or both for
the first time to the public, it is called an IPO. This paves way for listing
and trading of the issuer’s securities in the Stock Exchanges.
• (ii) Further public offer (FPO) :-When an already listed company makes
either a fresh issue of securities to the public or an offer for sale to the
public, it is called a follow on offer (FPO).

9. RIGHT ISSUE, BONUS ISSUE AND PRIVATE PLACEMENT
Rights issue (RI): When an issue of securities is made by an issuer to its
shareholders existing as on a particular date fixed by the issuer (i.e.
record date), it is called a rights issue.
Bonus issue: When an issuer makes an issue of securities to its existing
shareholders as on a record date, without any consideration from them, it
is called a bonus issue.
Private placement: When an issuer makes an issue of securities to a
selected group of persons not exceeding 49, and which is neither a rights
issue nor a public issue, it is called a private placement.

10. Investors are broadly classified under following
categories-:
(i) Retail Individual Investor (RIIs)
(ii) Non-Institutional Investors (NIIs)
(iii) Qualified Institutional Buyers (QIBs)

11. Investors are broadly classified under following categories-:
“Qualified Institutional Buyer” shall mean:
(a) a public financial institution as defined in section 4A of the Companies Act,
1956;
(b) a scheduled commercial bank;
(c) a mutual fund registered with the Board;
(d) a foreign institutional investor and sub-account registered with SEBI,
(e) a multilateral and bilateral development financial institution;
(f) a venture capital fund registered with SEBI;
(g) a foreign venture capital investor registered with SEBI;
(h) a state industrial development corporation;
(i) an insurance company registered with the Insurance Regulatory and
Development Authority (IRDA);
(j) a provident fund with minimum corpus of ` 25 crores;
(k) a pension fund with minimum corpus of ` 25 crores;

12. Investors are broadly classified under following categories-:
Retail Individual Investor (RIIs) :-
In retail individual investor category, investors can not apply for
more than one lakh (1,00,000) in an IPO.
Non-Institutional Investors (NIIs) :-
Investors who do not fall within the definition of the above two
categories are categorized as “Non-Institutional Investors” .

13. Intermediaries which are registered with SEBI are:-
Merchant Bankers to the issue (known as Book Running Lead
Managers (BRLM) in case of book built public issues).
Registrars to the issue.
Bankers to the issue.
Underwriters.
The addresses, telephone/fax numbers, registration number, and contact person and email
addresses of all the intermediaries are disclosed in the offer documents.

14.  The merchant banker are those financial intermediary involved with the activity
of transferring funds. Merchant banker does the due diligence to prepare the
offer document which contains all the details about the company. They are also
responsible for ensuring compliance with the legal formalities in the entire issue
process and for marketing of the issue.
 The activities of the merchant banking in India is very vast in nature of which
includes the following:
 a) The management of the customers securities.
 b) The management of the portfolio.
 d) The management of underwriting of shares and debentures .
 f) Management of the interest and dividend etc.

15.  Registrars to the Issue: They are involved in finalizing the basis of
allotment in an issue and for sending refunds, allotment etc. The
Registrar finalizes the list of eligible allotters after deleting the
invalid applications and ensures that the corporate action for
crediting of shares to the Demat accounts of the applicants is done
and the dispatch of refund orders to those applicable are sent.
 The Lead Manager coordinates with the Registrar to ensure follow
up so that that the flow of applications from collecting bank
branches, processing of the applications and other matters till the
basis of allotment is finalized, dispatch security certificates and
refund orders completed and securities listed.

16. Bankers to the Issue: “Banker to an issue” means a
scheduled bank carrying on all or any of the following
activities, namely acceptance of application and
application monies, acceptance of allotment or call
monies, refund of application monies and payment of
dividend or interest warrants. The Bankers to the Issue
enable the movement of funds in the issue process and
therefore enable the registrars to finalize the basis of
allotment by making clear funds status available to the
Registrars.

17.  Underwriters: An underwriter is a company or other entity that
administers the public issuance and distribution of securities from
a corporation or other issuing body. An underwriter works closely
with the issuing body to determine the offering price of the
securities buys them from the issuer and sells them to investors via
the underwriter's distribution network.
 Underwriters are intermediaries who undertake to subscribe to the
securities offered by the company in case these are not fully
subscribed by the public, in case of an underwritten issue.
 Underwriters generally receive underwriting fees from their
issuing clients, but they also usually earn profits when selling the
underwritten shares to investors.

18. Source: SEBI

19. Lead Managers
• Overall Co-ordination
• Conduct due diligence and finalize disclosure in Offer Document
• Assist the legal counsel in drafting of Offer Document
• Interface / ensure compliance protocol with SEBI / NSE / BSE
• Legal Due Diligence
• Drafting the offerdocument
• Assistance in complying with requirement for selling in international
geographies
• Co-ordination with the Issuer and Bankers regardingcollections,
reconciliation, refunds etc
• Securing allocation approval from Stock Exchanges
• Post issue co-ordination collation and reconciliation of information
Upfront
Existing
Auditors
4 weeks before
filing DRHP
with SEBI
Upfront
Party KEY RESPONSIBILITY Appointment
Registrars
Auditors
Domestic &
International
Legal Counsels
Reviewing and auditing financials and preparing financial statements for
inclusion in the Offer Document

20. • Bulk printing of the Red Herring Prospectus Bid Forms, final
Prospectus, Refund ordersetc.
• Ensure timely dispatch and distribution of stationery to allcenters
Printers
• Preparing and getting published all statutory notices
• Creating all advertisement materials
Advertisers
Escrow Collections
Banks & Bankers
ot the Issue
• Acting as collecting agents
• EscrowAccount & Refund account
Depository
(NSDL,
CDSL)
• TripartiteAgreement
• Dematerialization of Company’sshares
• Demat transfer ofShares
• Credit of Shares toAllottees
After
Appointment of
Registrar
Before Filing
DRHP with SEBI
Before Filing
DRHP with SEBI
Before Filing
RHP with ROC
Self Certified
Syndicate Bank
(SCSB)
• To receive bids and block bid amount in the investor’s bank
account based on applications submitted;
• To provide FC on account transfer/ unblock funds post
finalization of basis of allotment,
• To address investor grievances on account of ASBAbids
Approved by
SEBI
IPO Grading
Agency
• Provides IPO Grading 2 weeksbefore
filing RHP with
ROC

21. Agreements Parties to theAgreement Purpose ofAgreements
Engagement
Letter
BRLM MoU
Company individually with
Investment Bankers, Counsels to
the Company, Auditors, Registrar
and other intermediaries
Company and BRLMs
Engaging the intermediaries for the
Services.
Lays down the roles, responsibilities,
of BRLM and Company
Registrar MoU Company and Registrar Lays down the roles, responsibilities of
the Registrar
Escrow
Agreement
Company, BRLMs, Syndicate
Members, Registrar and Escrow
Bankers tothe Issue
Lays down the process for receipt of
Issue proceeds and release offunds
to the Company

22. Agreements Parties to theAgreement Purpose ofAgreements
Syndicate
Agreement
Company, BRLMs and Syndicate
Members
Lays down the process of marketing
and handling theforms
Underwriting
Agreement
Company and the Underwriters (BRLM
and Syndicate members)
Lays down the terms of Underwriting
and the extent of underwriting
Tripartite
Agreement
with
Depository
Company, NSDL and CDSL Lays down the provisions of NSDL /
CDSL acting as the Depositories of
the Company
Listing
Agreement
Company and Stock Exchanges
Binds the Company to the requirements
of the Listing rules of the Stock
Exchanges

23.  ‘Offer document’ is a document which contains all the relevant information about the
company, the promoters, projects, financial details, objects of raising the money,
terms of the issue etc. and is used for inviting subscription to the issue being made by
the issuer.
 ‘Offer Document’ is called “Prospectus” in case of a public issue or offer for sale and
“Letter of Offer” in case of a rights issue.
 Terms used for offer documents vary depending upon the stage or type of the issue
where the document is used.

24.  Draft offer document: It is an offer document filed with SEBI for specifying
changes, if any, in it, before it is filed with the Registrar of companies (ROCs).
Draft offer document is made available in public domain including SEBI
website, for enabling public to give comments, if any, on the draft offer
document.
 Red herring prospectus: It is an offer document used in case of a book built
public issue. It contains all the relevant details except that of price or number of
shares being offered. It is filed with Registrar of Companies before the issue
opens.
 Prospectus: It is an offer document in case of a public issue, which has all
relevant details including price and number of shares being offered. This
document is registered with Registrar of Companies before the issue opens in
case of a fixed price issue and after the closure of the issue in case of a book
built issue.

25.  Letter of offer: It is an offer document in case of a Rights issue and is filed with
Stock exchanges before the issue opens.
 Abridged prospectus: It is an abridged version of offer document in public issue
and is issued along with the application form of a public issue. It contains all the
salient features of a prospectus. Abridged letter of offer is an abridged version of
the letter of offer. It is sent to all the shareholders along with the application
form.
 Shelf prospectus: It is a prospectus which enables an issuer to make a series of
issues within a period of 1 year without the need of filing a fresh prospectus
every time. This facility is available to public sector banks /Public Financial
Institutions.

26. (a) Cover Page: Under this head full contact details of the Issuer Company, lead
managers and registrars, the nature, number, price and amount of instruments
offered and issue size, and the particulars regarding listing are mentioned.
(b) Risk Factors: Under this head the management of the issuer company gives its
view on the internal and external risks envisaged by the company and the
proposals, if any, to address such risks.
(c) Introduction: Under this head a summary of the industry in which the issuer
company operates, the business of Company, offering details in brief, summary
of financial statements and other data relating to general information about the
company, the merchant bankers ,brokers/syndicate members to the Issue, credit
rating, book building process in brief.
(d) About us: Under this head a review of the details of business of the company,
business strategy, competitive strengths, corporate structure, main objects,
subsidiary details, management and board of directors, compensation, corporate
governance, related party transactions, exchange rates, currency of presentation
and dividend policy are given.

27. (e) Financial Statements: Under this head financial statement and differences between any
other accounting policies and the Indian Accounting Policies (if the Company has
presented its Financial Statements also as per either US GAAP/IFRS) are presented.
(f) Legal and other information: Under this head outstanding litigations, litigations involving
the company, the promoters of the company, its subsidiaries, and group companies are
disclosed. Also material developments since the last balance sheet date, government
approvals/licensing arrangements, investment approvals (FIPB/RBI etc.), technical
approvals, and indebtedness, etc. are disclosed.
(g) Other regulatory and statutory disclosures: Under this head, authority for the Issue,
prohibition by SEBI, eligibility of the company to enter the capital market, disclaimer
statement by the issuer and the lead manager, disclaimer in respect of jurisdiction,
distribution of information to investors, disclaimer clause of the stock exchanges, listing,
impersonation, minimum subscription, letters of allotment or refund orders, expert
opinion, changes in the auditors in the last three years, expenses of the issue, fees
payable to the intermediaries involved in the issue process, details of all the previous
issues.

28. (h)Offering information: Under this head Terms of the Issue, mode of payment of
dividend, face value and issue price, rights of the equity shareholder, issue procedure,
book building procedure in details along with the process of making an application,
signing of underwriting agreement and filing of prospectus with SEBI/ROC, basis of
allotment or allocation, method of proportionate allotment, dispatch of refund orders,
are disclosed.
(i) Other Information: This covers description of equity shares and terms of the Articles of
Association, documents for inspection, declaration, definitions and abbreviations, etc.

29. Companies with track record Companies without track record
Primary Criteria
• 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
• Net tangible assets of atleast Rs. 3 Crores for each of the
preceding 3 fullyears.
• (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
• 50% of the net offer
to public being
allotted to QIBs
• At least 15% of the project
cost is contributed by
scheduled commercial banks
and at least 10% of the net
offer to public is allotted to
QIBs
Choice of Route:Book
Building
• 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: Fixed Price or
Book Building
+
+
Book built route mandatory with 50% QIB participation if all issues during the same financial year (including proposed IPO) >
5X pre-issue net worth

30.  SEBI does not play any role in price fixation. The issuer in consultation with the
merchant banker on the basis of market demand decides the price.
 The offer document contains full disclosures of the parameters which are taken in to
account by merchant Banker and the issuer for deciding the price. The parameters
include EPS, return on net worth and comparison of these parameters with peer
group companies.
 On the basis of pricing, an issue can be further classified into fixed price issue or
book building issue. In case of a fixed price issue the issuer at the outset decides the
issue price and mentions it in the Offer Document, whereas in case on a book built
issue the price of an issue is discovered on the basis of demand received from the
prospective investors at various price levels.
 Globally, the book building method is favoured for its mutually beneficial nature:
investors get the shares at a fair price that typically has potential upside, and the
issuing company receives fair compensation.

31.  Book building is a process of price discovery. The issuer discloses a price band or floor price
before opening of the issue of the securities offered. On the basis of the demands received at
various price levels within the price band specified by the issuer, Book Running Lead Manager
(BRLM) in close consultation with the issuer arrives at a price at which the security offered by
the issuer, can be issued.
 The price band is a band of price within which investors can bid.
 The spread between the floor and the cap of the price band cannot be more than 20 percent. The
price band can be revised.
For Example:-In this method, the company doesn't fix up a particular price for the shares, but
instead gives a price range, e.g. Rs 80-100.
When bidding for the shares, investors have to decide at which price they would like to bid for the
shares, for e.g. Rs 80, Rs 90 or Rs 100. They can bid for the shares at any price within this range.
Based on the demand and supply of the shares, the final price is fixed. The lowest price (Rs 80) is
known as the floor price and the highest price (Rs 100) is known as cap price.

32. Features Fixed Price process Book Building process
Pricing
Price at which the securities
are offered/allotted is known
in advance to the investor.
Price at which securities will
be offered/allotted is not
known in advance to the
investor. Only an indicative
price range is known.
Demand
Demand for the securities
offered is known only after
the closure of the issue.
Demand for the securities
offered can be known
everyday as the book is built.
Payment
Payment if made at the time
of subscription wherein
refund is given after
allocation.
Payment only after
allocation
Source: BSE

34.  Every listed company shall maintain public shareholding of
at least 25%. If the public shareholding in a listed company
falls below 25% at any time, such company shall bring the
public shareholding to 25% within a maximum period of 12
months from the date of such fall.

35. Reg. 4 provides for following general eligibility conditions for the issue
• Issuer, its promoter group or directors or persons in control of the issuer
should not be debarred from accessing capital market.
• Promoters, directors or persons in control of the issuer should not be a
promoter, director or person in control of any other company which is
debarred from accessing capital market.
• Issuer to make application to one or more recognized stock exchanges for
listing of shares.
• Issuer to enter into agreement with a depository for demat of specified
securities.
• All partly-paid up equity shares have been made fully paid-up.

36. Reg32-40 – deals with Minimum Promoter’s Contribution,
Lock-in
• Minimum of 20% of the post issue capital of the Company.
• 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 islater
• 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 theissue
– Must be locked-in for a period of 1 year from the date of allotment
• 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.
Promoter’s
Contribution
Lock-in period
Exemption

37. Board
Members
• Optimum number of executive and non executive directors with at least
50% being non- executive.
Audit
Committee
• Mandatory constitution of Audit Committee.
• All members shall be financially literate.
Investor
Committee
• Investor Grievances Committee to be formed under the chairmanship of a
non executive director to look into the redressing of investor complaints.
• At least one director on the Board of the holding company shall be a director
on the Board of a non listed Indian subsidiary Company.
• A separate section on Corporate Governance to be included in the Annual Reports.
• Submission of quarterly compliance report to the stock exchanges.
Report on
Corporate
Governance
CEO/CFO
Certification • CEO/CFO to certify the financial statements and cash flow statements.
Subsidiary
company

38. IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI,
to the initial public offering (IPO) of equity shares or other convertible securities.
The grade represents a relative assessment of the fundamentals of that issue in
relation to the other listed equity securities in India. Such grading is generally
assigned on a five-point point scale with a higher score indicating stronger
fundamentals and vice versa as below.
IPO grade 1: Poor fundamentals
IPO grade 2: Below-average fundamentals
IPO grade 3: Average fundamentals
IPO grade 4: Above-average fundamentals
IPO grade 5: Strong fundamentals

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

40. Presented By:
Prepared By
Prachi Sharma
Counsel
Ricky Chopra Intea
lwww.rickychopra.co