Equity share public issues

A share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company or can be purchased from the stock market. By owning a share you can earn a portion and selling shares you get capital gain. So, your return is the dividend plus the capital gain. However, you also run a risk of making a capital loss if you have sold the share at a price below your buying price.

A company's stock price reflects what investors think about the stock, not necessarily what the company is "worth." For example, companies that are growing quickly often trade at a higher price than the company might currently be "worth." Stock prices are also affected by all forms of company and market news. Publicly traded companies are required to report quarterly on their financial status and earnings. Market forces and general investor opinions can also affect share price.

There are 2 types of public issues namely:

1) IPO Initial Public Offering Public issues can be classified into Initial Public offerings and further public offerings. In a public offering, the issuer makes an offer for new investors to enter its shareholding family. The issuer company makes detailed disclosures as per the DIP guidelines in its offer document and offers it for subscription. Initial Public Offering (IPO ) is 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. This paves way for listing and trading of the issuers securities. IPO is New shares Offered to the public in the Primary Market .The first time the company is traded on the stock exchange. A prospectus is issued to read about its risk before investing. IPO is A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to

accept very large risks for the possibility of large gains. Sometimes, Just before the IPO is launched, Existing share Holders get a very liberal bonus issues as a reward for their faith in risking money when the project was new

How to apply to a public issue ? When a company floats a public issue or IPO, it prints forms for application to be filled by the investors. Public issues are open for a few days only. As per law, any public issue should be kept open for a minimum of 3days and a maximum of 21 days. For issues, which are underwritten by financial institutions, the offer should be kept open for a minimum of 3 days and a maximum of 21 days. For issues, which are underwritten by all India financial institutions, the offer should be kept open for a maximum of 10 days. Generally, issues are kept open for only 3 to 4 days. The duly complete application from, accompanied by cash, cheque, DD or stock invest should be deposited before the closing date as per the instruction on the from. IPO's by investment companies (closed end funds) usually contain underwriting fees which represent a load to buyers. About Public Issues Corporates may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be made through the fixed price method, book building method or a combination of both. There are two types of Public Issues: ISSUE TYPE Fixed Price Issues OFFER PRICE DEMAND PAYMENT RESERVATIONS

Price at which the Demand for the 100 % advance payment 50 % of the shares offered securities are offered securities offered is is required to be made by are reserved for and would be allotted is known only after the the investors at the time applications below Rs. 2 made known in closure of the issue of application. lakh and the balance for advance to the investors higher amount applications. Book A 20 % price band is Demand for the 100 % advance payment 50 % of shares offered are Building offered by the issuer securities offered, is required to be made by reserved for QIBS, 35 % Issues within which investors and at various prices, the QIBs along with the for small investors and the are allowed to bid and is available on a real application, while other balance for all other

the final price is time basis on the categories of investors investors. determined by the BSE website during also have to pay 100 % issuer only after closure the bidding period. advance along with the of the bidding. application.

More About Book Building Book Building is essentially a process used by companies raising capital through Public Offerings-both Initial Public Offers (IPOs) or Follow-on Public Offers (FPOs) to aid price and demand discovery. It is a mechanism where, during the period for which the book for the offer is open, the bids are collected from investors at various prices, which are within the price band specified by the issuer. The process is directed towards both the institutional as well as the retail investors. The issue price is determined after the bid closure based on the demand generated in the process. The Process:

The Issuer who is planning an offer nominates lead merchant banker(s) as 'book runners'. The Issuer specifies the number of securities to be issued and the price band for the bids. The Issuer also appoints syndicate members with whom orders are to be placed by the investors. The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open auction. The book normally remains open for a period of 5 days. Bids have to be entered within the specified price band. Bids can be revised by the bidders before the book closes. On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels. The book runners and the Issuer decide the final price at which the securities shall be issued. Generally, the number of shares is fixed, the issue size gets frozen based on the final price per share. Allocation of securities is made to the successful bidders. The rest get refund orders.

Guidelines for Book Building Rules governing Book building are covered in Chapter XI of the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000. BSE's Book Building System

BSE offers a book building platform through the Book Building software that runs on the BSE Private network.

This system is one of the largest electronic book building networks in the world, spanning over 350 Indian cities through over 7000 Trader Work Stations via leased lines, VSATs and Campus LANS. The software is operated by book-runners of the issue and by the syndicate members, for electronically placing the bids on line real-time for the entire bidding period. In order to provide transparency, the system provides visual graphs displaying price v/s quantity on the BSE website as well as all BSE terminals.

ASBA Banks SEBI vide its circular no. SEBI/CFD/DIL/DIP/31/2008/30/7 July 30, 2008 introduced a supplementary process of applying in public issues, viz., the "Applications Supported by Blocked Amount (ASBA)" process. The ASBA process shall be available in all public issues made through the book building route. The main features of ASBA process are as follows: a. Meaning of ASBA: ASBA is an application for subscribing to an issue, containing an authorisation to block the application money in a bank account. b. Self Certified Syndicate Bank (SCSB): SCSB is a bank which offers the facility of applying through the ASBA process. For more details on the ASBA process, please refer to the SEBI circular mentioned above. The list of SCSBs is as below. For details of designated branches click on respective banks below:

Allahabad Bank Andhra Bank Axis Bank Bank of Maharashtra Bank of Baroda Bank of India Canara Bank Central Bank of India Citi Bank Corporation Bank Deutsche Bank Federal Bank HDFC Bank HSBC Bank ICICI Bank Ltd

IDBI Bank Limited Indian Bank Indusind Bank Indian Overseas Bank J P Morgan Chase Bank, N.A. Karur Vysya Bank Kotak Mahindra Bank Nutan Nagrik Sahakari Bank Ltd. Oriental Bank of Commerce Punjab National Bank South Indian Bank Standard Chartered Bank State Bank of Travancore State Bank of Bikaner & Jaipur State Bank of India State Bank of Hyderabad Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank Yes Bank Limited

Top Glossary Bid A bid is the demand for a security on behalf of an investor that is entered by the syndicate/subsyndicate members in the system. The two main components of a bid are the price and the quantity. Bidder The person

who

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Book

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process.

Odd Lot Any number of shares less than the market lot makes is defined as an odd lot. Book Running Lead Manager The lead merchant bankers appointed by the Issuer Company are referred to as the Book Running Lead Managers. The names of the Book Running Lead Managers are mentioned in the offer document of the Issuer Company. Market Makers

Marker Maker is an entity which provides two-way quote for particular scrip. The main function of the market maker is to create liquidity in that scrip. (The more details are available in the SEBI circular dated 26th April, 2010.) Floor Price The minimum offer price below which bids can not be entered. The Issuer Company in consultation with the Book Running Lead Managers fixes the floor price. Merchant Banker An entity registered under the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1999. Syndicate Members The Book Running Lead Managers to the issue appoint the Syndicate Members, who enter the bids of investors in the book building system. Syndicate Members are intermediaries registered with SEBI who also carry on the activity of underwriting. Order Book It is an 'electronic book' that shows the demand for the shares of the company at various prices on a real time basis. Top Benefits of Listing at BSE SME Platform 1. Access to capital and future financing opportunities Going public would provide the MSME's with equity financing opportunities to grow their business from expansion of operations to acquisitions. Companies in the growth phase tend to get over-leveraged at which point, banks are reluctant to provide further credit. Equity capital is then necessary to bring back strength to the balance sheet. The option of equity financing through the equity market allows the firm to not only raise long-term capital but also get further credit due through an additional equity infusion. The issuance of public shares expands the investor base, and this in turn will help set the stage for secondary equity financings, including private placements. In addition, Issuers often receive more favourable lending terms when borrowing from financial institutions. The mechanics of listing on a stock exchange (audited balance sheets, being subject to corporate governance norms etc) would address many of the transparency and informational asymmetry constraints that the financial institutions face in lending to the SME sector. In addition, equity financing lowers the debt burden leading to lower financing costs and healthier balance sheets for the firms. The continuing

requirement for adhering to the stock market rules for the issuers lower the on-going information and monitoring costs for the banks. 2. Increased visibility and prestige

Going public is likely to enhance the company's visibility. Greater public awareness gained through media coverage, publicly filed documents and coverage of stock by sector investment analysts can provide the SME with greater profile and credibility. This can result in a more diversified group of investors, which may increase the demand for that company's shares leading to an increase in the company's value. 3. Venture Capital (VC)

It has been seen that there is greater vitality of venture capital in stock market centered systems. The underdeveloped equity culture has made it difficult for companies to both get into the VC phase as well as graduate from venture capital/startups phase to a scale of operations that would make them internationally competitive. A vibrant equity market would provide prove to be an added incentive for greater venture capital participation by providing an exit option leading to a reduction in their lock-in period. 4. Liquidity for shareholders

Becoming a public company establishes a market for the company's shares, providing its investors with an efficient and regulated vehicle in which to trade their own shares. Greater liquidity in the public market can lead to better valuation for shares than would be seen through private transactions. 5. Create employee incentive mechanisms

The employees of the SME enterprises can participate in the ownership of their own company and benefit from being a shareholder. This can serve to ensure stronger employee commitment to the company's performance and success. Share options in a public company have an immediate and tangible value to employees, especially as a recruitment incentive. 6. Facilitate growth through Mergers and Acquisitions

As a public company, company's shares can be utilized as an acquisition currency to acquire target companies, instead of a direct cash offering. Using shares for an acquisition can be a tax efficient and cost effective vehicle to finance such a transaction. 7. Encourages Innovation & Entrepreneurial Spirit

The ability of companies in their early stages of development to raise funds in the capital markets allows these companies to grow very quickly. This growth helps speed up the dissemination of new technologies throughout the economy. In addition, by raising the returns available from pursuing new ideas, technologies etc the capital markets facilitate entrepreneurial activities. 8. Efficient Risk Distribution

The development of the capital markets has helped distribute risk more efficiently by transfer of risk to those best able to bear it. This ability to transfer risk facilitates greater risk- taking, but this increased risk-taking does not destabilize the economy. Thus the capital markets ensure that capital flows to its best uses and that riskier activity with higher payoffs are funded. Despite the many benefits associated with public listing, the MSME's are not able to access the capital markets through existing Stock Exchanges due to the stringent regulatory, disclosure and financial requirements. The creation of a separate Stock Exchange/ separate platform on existing exchanges for MSME's designed to cater to the needs of Indian MSME's has been on the policy makers agenda for some time now. A dedicated stock exchange for the SME sector would allow the SME's to access capital markets easily, quickly and at lower costs. The dedicated exchange is expected to provide better, focused and cost effective service to the SME sector. Top Guidelines for Listing

SEBI has time to time issued the circulars and guidelines for setting up of the exchange for small and medium enterprises. These circulars have been revised after taking suggestions from market participants for the SME exchange. The final circular was issued on 18th May, 2010.The necessary provisions for the listing of specified securities under the SME exchange have been made in the Chapter XA of Issue of Capital and Disclosure Requirements (ICDR). The guidelines emphasis on the following :

The post issue face value capital should not exceed Rupees Twenty Five Crores.

The minimum application and trading lot size shall not be less than Rs. 1, 00,000/The existing members would be eligible to participate in SME exchange. The issues shall be 100% underwritten and merchant bankers shall underwrite 15% in their own account.

SEBI has compulsorily mandated market making for all scrips listed and traded on SME exchange. The obligations for market makers are as follows :

The merchant bankers to the issue will undertake market making through a stock broker who is registered as market maker with the SME exchange. The merchant bankers shall be responsible for market making for a minimum period of 3 years. The market makers are required to provide two way quote for 75% of the time in a day. The same shall be monitored by the exchange. There will not be more than 5 market makers for a scrip. Market makers will compete with other market makers for better price discovery. The exchange shall prescribe the minimum spread between the bid and ask price. During the compulsory market making period, the promoter holding shall not be eligible for the offering to market makers. Market Maker shall be allowed to deregister by giving one month notice to the exchange. Trading system may be either order driven or quote driven. The application and trading lot size is being kept at Rs. 1, 00,000/- so as to curtail the

entry of retail investors. It has also been stated that the minimum depth shall be of one lakh rupees and at any point of time it can not go below that amount. The investors holding with value less than Rs. 1, 00,000/- shall be allowed to offer their holding to the market maker in one lot. However, in functionality the market lot will be subject to revival after a stipulated time.