सुशील गिरधर का नया हिंदी ब्लाग

Many times we come across some blog, information or news about new IPO and urging people to go for it. A number of investors, especially, beginners do not know What is an IPO at all? what are the benefits or demerits of going for IPOs. What are the term used? They want to know about listing process, book building process etc. Here we tried to put all this information in questions and answers form. Hope it comes out to be useful for all.

1 What is an IPO?
An IPO is defined as an exercise when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public.The exercise refers the issue of shares to the public by the promoters of the company. The shares are made available to the investors at the face value of the share or with a premium as per the perceived market value of the share by the promoters.The IPO can be in the form of a fixed price portion or in the form of a book building portion. The IPO paves way for listing and trading of the issuer’s securities.

2 What are primary/secondary market transactions?
Primary market transaction is usually referred to the purchase of shares in an IPO. The purchases are made through applications for the shares on a prescribed form. Once the shares are allotted, the share transactions are carried out in secondary market or stock exchanges.Secondary market transactions refer to those transactions under which an investor purchases shares from another investor at the prevailing market price or at whatever price the buyer and seller agrees upon.The primary and secondary markets are governed by a regulatory authority Security and Exchange Board of India (SEBI).

3 What are eligibility norms for making an IPO?

SEBI has laid down eligibility norms for entities planning to enter the primary market through public issues. An unlisted company needs to satisfy following criteria to be eligible for making a public issue: • Net tangible assets of at least Rs 3 crore for three full years
• Distributable profits in at least three years
• Net worth of at least Rs 1 crore in three years
• If change in name, at least 50 per cent of revenue for preceding one year should be from the new activity
• The issue size should not exceed five times the pre-issue net worth SEBI also provides alternate routes to the companies not satisfying any of the above parameters, for accessing the primary market.The alternative conditions are as follows: • Issue shall be made through book-building route, with at least 50 per cent to be mandatory allotted to the QIBs
.• The minimum post-issue face value capital shall be Rs 10 crore or there shall be a compulsory market-making for at least two years.

4 How can one apply for an IPO?

An investor needs to first obtain an IPO application form through a share broker, an investment consultant or from the collecting banks. The investors are required to fill up the form and remit the amount after calculating the number of shares applied for in the bank, which has been designated as a collecting centre for the particular IPO.An investor holding a demat account can either apply for the shares directly through the account or can opt for physical delivery of share certificates. There are certain IPOs, which offer only demat form of shares, while others offer both the demat and regular shares. Application forms can be rejected due to incomplete details.Every week SEBI issues press releases for information of the public, details of offer documents filed with SEBI and observations issued. The required details can be obtained from the ‘Primary Market’ section of the SEBI website. The draft offer document can also be purchased from the SEBI office. The draft offer document/letter of offer remains posted on SEBI website for a period of 21 days from the date of filing the same to SEBI and can also be downloaded from there.Application forms can also be obtained from the lead manager and brokers to the issue. The application forms are also generally available at collecting bankers. Name and addresses of the lead manager are available in the prospectus/letter of offer.

5 What is book-building process?
SEBI guidelines defines book building as “a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for the securities is assessed on the basis of the bids obtained for the quantum of securities offered for subscription by the issuer”.This process provides an opportunity to the market to discover price for the securities on offer. In common words, book building is a method for public offer of equity shares of a company. The process is named so because it refers to collection of bids from investors, which is based on a price range. The issue price is fixed after the closing date of the bid.A company planning an IPO appoints a merchant bank as a book runner. Then the company issues a prospectus that does not mention the price, but provides other details related to the issue size, the company’s operating area and business, the promoters and future plans among other disclosures.A particular time frame is also fixed as the bidding period. Then the book runner builds an order book that collates bids from various investors. Potential investors are allowed to revise their bids at any time during the bidding period.At the end of bidding period the order book is closed and consequently the quantum of shares ordered and the respective prices offered are known. The calculation of final price is based on demand at various prices and also involves negotiations between those involved in the issue.The book runner and the company finalise the pricing and allocation to each syndicate member. 6 What is the main difference between a book-building route and the normal public issue?
Unlike the book-building route, the price is known in advance to investors in case of offer of shares through normal public issue. On the other hand, the demand can be known everyday as the book is built in case of book building, which demand is not known until the close of the issue in case of the normal public issue. ....

Rest read in next Part................

Tell a friend About This Article