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 & Pension

Venture Capital Funds
Funds

Other
Institutions
• 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 - Advertising
Agency
- 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 2 –3 1 Continui
month
Prior to months
SEC Review
mont
Marketing the
ng…
Pricing, Trading
filing Issue and
-Prepare for Follow-on
- Due roadshow -“Red herrings” – Support
diligence presentation print
Valuation - Respond to and distribute -Analyze pricing
-Choose co- SEC -Stock Analysts issues
managers Comments present to and investor
- underwriters’ sales feedback
Documentati forces -Determine
on - Target key investors allocation
-Create underwriting to retail &
syndicate institution
-Presentations to -Begin aftermarket
sell-side trading
analyst
- Roadshow
Pricing
Overview
 Typical Pricing
Pricing Process
Last Days of Roadshow
Pricing Day

‘Book’ of
Demand
•Size
•Quality Trading
•Price Sensitivity begins
•Likely aftermarket
Analysi Agreem Allocation Market
s ent s to determin
External Factors on investors es price
•Recent Price/Siz at agreed
Developments e initial
- Stock Price levels price
- Market in general
- Industry Price
- Comparables Support
- New Issues 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
Key Highlights:
IPO

- 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