Pre-issue Processof Ipo

PRE-ISSUE OF IPO By: Pratik Chandra Subhadip Bagchi

IPO is • An Initial Public Offering of a company’s stock issued to the public • A mechanism for companies to sell ownership stakes to investors who believe in the companies’ futures • Purposes: – Growth – Recapitalization – Original shareholders diversify

BENEFITS of being a Public Company • Expand and diversify equity base: Individuals

Mutual Funds

Management & Venture Capital Funds Other Institutions

Pension Funds

• Public exposure and prestige • Equity-based compensation opportunities for attracting and retaining key management and employees • Creation of ‘Currency’ for acquisitions • Facilitates other financing opportunities: equity, convertible debt, cheaper bank loans, etc.

COSTS of being a Public Company • Disclosure requirements • Scrutiny by and pressure from shareholders and security analysts • Shareholder Relations • Vulnerability to hostile takeovers • Corporate governance • Cultural considerations

Evolution – Capital

Parties Involved - BRLM

- Broker/Sub-Broker

- Co-Managers

- Printer

- Merchant Bankers Agency

- Advertising

- Underwriters’ counsel Solicitors/Advocates - Accountants

-

- Registrars

Preparation for IPO • Understand and fulfill due diligence requirements • Develop budgeting and reporting processes • Develop timely reporting of key metrics • Develop investor relations and communication methods to disclose performance changes • Identify key persons to provide communications to investors

Planning – Capital Issues • Put together Strategic working group • Devise structure of offering • Schedule and assign tasks • Put together Legal Team • Publicity • Make sure Accounting Team has credibility and expertise • Balance between Funds

Structuring the Offering

Selection – Lead • Ability to sell issue to investors • Status and Organizational competence • Providing efficient service • Company should have the confidence in the banker • Should have SEBI authorization • Availability of Infrastructure

Book Building

Steps

involved in Book

IPO MIX

Time 2 month Prior to filing

- Due diligence Valuation -Choose comanagers Documentati on

2 –3 months SEC Review -Prepare for roadshow presentation - Respond to SEC Comments

1 mont Marketing the

Continui ng… Pricing, Trading

-“Red herrings” – print and distribute -Stock Analysts present to underwriters’ sales forces - Target key investors -Create underwriting syndicate -Presentations to sell-side analyst - Roadshow

-Analyze pricing issues and investor feedback -Determine allocation to retail & institution -Begin aftermarket trading

Issue

and Follow-on Support

Pricing Overview

Typical Pricing Pricing Process Last Days of Roadshow Pricing Day ‘Book’ of Demand •Size •Quality •Price Sensitivity •Likely aftermarket External Factors •Recent Developments - Stock Price levels - Market in general - Industry - Comparables - New Issues

Trading begins Analysi s

Agreem ent on Price/Siz e

Allocation s to investors at agreed initial price

Market determin es price

Price Support Activity Green Shoe Option Exercised

Due Diligence Corporate Level Company - History - Mission statement/vision - SWOT (Strength Weaknesses Opportunity Threats) analysis - Objectives and key challenges - Management team/organizational chart - Key investment highlights - Strategic position in the industry - Industry size/growth rates - Market drivers - Major industry trends(spending, commissions, etc.) - Consolidation - Segmentation/target markets

Roadshow Presentation

• The company’s opportunity to sell itself to investors - Domestic roadshow - 8 – 10 days (typical in U.S.) - Approximately 100+ face-to-face meetings - International roadshows usually shorter than domestic • Prior to meeting management investors read prospectus, discuss company with research analysts and securities salespeople • Group and individual meetings • “Makes or Breaks” the deal - Investors will ask everything - Demanding and stressful on top management - Distracts from running the company - Must have a compelling story to tell

•

Roadshow Formats Group Presentations

- company tells its story in detail generally during a meal: can be lunches with hundreds of investors to smaller groups - generally conducted by two teams but sometimes they will combine when necessary • One-on-One Presentations - expected to generate the majority of quality institutional demand - range from meetings with a single portfolio manager/buyside analyst to small group sessions with multiple portfolio managers and buyside analysts - will take place in cities throughout the United States and Europe - will be conducted by the two teams separately with

SEBI • Major amendments made by SEBI on 14-8-2003, in the Disclosure and Investor Protection Guidelines 2000. • Purpose : (a) to enhance the level of investors’ protection (b) to increase the transparency and efficiency of the primary market (c) to strengthen the disclosure and eligibility norms for issuer companies and (d) to rationalize and simplify various

SEBI

Guidelines Processing of draft offer documents 2. Grading of Initial Public offerings (IPOs) – –

Mandatory grading by credit rating agencies required to disclose all the grades in the prospectus, abridged prospectus, issue advertisements and all other places where the issuer is advertising for the IPO.

SEBI Guidelines (contd.)

2. Guidelines on preferential allotment – –

existence of listing history of at least six months in a company proposing a preferential allotment. Companies with listing history of less than six months to raise money through preferential allotment

3. Guidelines on Qualified Institutions Placement (QIP) –

Company is required to have a listing history of at least one year [Sec

SEBI Guidelines (contd.)

4. Eligibility of pledged shares for computation of minimum promoters’ contribution – Securities which have been pledged with banks or financial institutions as collateral security for loans granted by such banks or financial institutions shall not be eligible for computation of minimum promoters’ contribution

Reliance Power IPO Key Highlights: - Till date, India’s largest Public Issue launched in 2008 - Public Issue of 260,000,000 equity shares of Rs 10 each - Of the above 32,000,000 equity shares were promoters’ contribution

Book Running Lead Managers & Co-Lead Managers

Registrar

THANK YOU