Investment Banking

Merchant Banking: An Issue Management Process

MERCHANT BANKING

AN INTRODUCTION

Organizations raise capital to fund their expansion plans, working capital requirements

etc. by issuing securities in the primary market. Merchant Bankers act as intermediaries between

the issuers of capital and the ultimate investor, who purchases these securities. Merchant

Banking can be broadly defined as financial intermediation that matches the entities that need

capital and those that have capital. Merchant bankers facilitate the flow of capital in the market.

Merchant banking activities, especially those covering issue and underwriting of shares

and debentures are regulated by the Merchant Bankers Regulations given by the Securities and

Exchange Board of India (SEBI).The Securities and Exchange Board of India (Merchant

Banker) Rules 1992 defines a Merchant Banker as:

“A person who is engaged in the business of issue management either by making

arrangements regarding selling, buying, or subscribing to securities as Manager, Consultant,

Advisor or rendering corporate advisory services in relation to such issue management.”

The merchant banker plays a vital role in channelizing the financial surplus of the society

into productive investment avenues. The merchant banker has a fiduciary role in relation to the

investors. He plays the lead role in the issue of a security. He is the leader among the

intermediaries associated with the issue. He is required to guide and co-ordinate the activities of

the Registrar to the issue, Bankers to the issue, Advertising Agency, Printers, Underwriters,

Brokers, etc.

The merchant banker has to ensure the compliance of all the laws and regulations

governing the securities market from time to time by RBI, SEBI, Companies Act, Stock

Exchanges Listing requirements etc. He may also be called upon to assist the statutory

authorities in developing a regulatory framework for orderly growth of capital markets.

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ISSUER INVESTOR

SEBI

INTERMEDIARIES

INVESTMENTBANKER

Guidance Co-ordination

MarketInformation

Capital

Regulatory Framework Compliance

Returns

Protection

RELATIONSHIPS OF THE MERCHANT BANKER


Management of Debt and Equity Offerings: This is the traditional operation for most of

the merchant bankers in India. The role of the merchant banker is dynamic as he has to

capitalize on the opportunities available in the market. He has to assist his corporate clients in

raising funds from the market. He may also be required to counsel them on various issues

that affect their finances. The main area of this role includes:

Instrument designing

Pricing of the issue

Registration of offer document

Underwriting support

Marketing of the issue

Allotment and refund

Listing on stock exchanges

Placement and Distribution: The distribution network of the merchant banker can be

classified as institutional and retail. The network of institutional investors consists of Mutual

Funds, Foreign Institutional Investors, Banks, Domestic and Multinational Financial

Institutions, Private Equity Funds, Pension Funds etc. The size of this network represents the

wholesale reach of the merchant banker. The retail distribution reach depends upon the

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networking with the investors. Many merchant bankers have associate firms which are

brokers on the stock exchange. These brokers appoint sub-brokers at various geographical

locations to service both the primary market and secondary market needs of the local

investors. The distribution network can be used to distribute various financial products like

equity shares, debt instruments, mutual fund products, fixed deposits, insurance products,

commercial paper etc.

Rights Issues of Shares: If a public company wants to increase its subscribed capital by

allotment of further shares, such further shares should be first offered to the existing

shareholders, in proportion to the capital paid up on the shares held by them at the date of

such offer. The shareholders to whom such an offer is made are not under any legal

obligation to accept the offer. On the other hand, they have a right to renounce the offer in

favour of any person. Shares so offered by a public company to its existing shareholders are

called rights shares. For rights issue by listed companies exceeding Rs. 50 lakhs, the issue

should be managed by a SEBI – registered merchant banker.

Corporate Advisory Services: Merchant banker’s offer customized solutions to the

financial problems of their clients. One of the key areas for the advisory role is financial

structuring. The process includes determining the appropriate level of gearing and advising

the company whether to leverage, de-leverage or maintain its current debt-equity levels. The

company’s working capital practices are studied and alternative working capital policies

suggested. The merchant banker may also explore the possibility of refinancing high cost

funds with alternative cheaper funds. Another area of advice is rehabilitation and turnaround

management. In case of sick units, they may design a revival package in co-ordination with

the banks and financial institutions.

Project Advisory: Merchant bankers are sometimes associated with their clients from the

early stage of their project. They assist companies in conceptualizing the project idea when it

is in a nebulous stage. Once the project is conceptualized, they carry out the initial feasibility

studies to examine its viability. They also help in the preparation of the detailed project

report and offer project appraisal services to the clients.

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Loan Syndication: Merchant bankers arrange to tie up loans for their clients. The first step

involves analyzing the client’s cash flow patterns so that terms of borrowings can be defined

to suit the cash flow requirements. The merchant banker then prepares the loan

memorandum. The loan memorandum is then circulated to various banks and financial

institutions and they are invited to participate in the syndicate. The banks then indicate the

amount of exposure they are willing to take and the interest rates thereon. The terms are

further negotiated and fine-tuned to match the requirements of both the parties. The final

allocation is done to the various members of the syndicate. The merchant banker also helps

the clients in loan documentation procedures.

Venture Capital and Mezzanine Financing: The venture capital business has emerged

from a fragmented industry dominated by wealthy individuals/families to an increasing

institutionalized sector. The size of the deals has increased and it is possible for even start –

up companies to raise huge capital from venture firms. The number of Venture Capital firms

has significantly rise and several industry specific venture funds have been set up. The

association of a merchant banker to handle the entire deal flow is becoming increasingly

imperative. Merchant bankers play several roles such as preliminary screening of the

company, assistance to venture investors in conducting their due diligence exercise, valuation

of the company, etc.

Mezzanine Financing refers to the late stage financing. At this stage a company is usually

profitable and has a business track record. The company needs fresh induction of capital to

finance its growth plans. However the conditions in the IPO market may not be favorable to

make an offering. The state of the IPO markets affects both, the availability of capital and

pricing. In such a scenario, mezzanine financing acts as a viable funding alternative. This

round of financing is usually in lieu of going public. Some Venture funds and Private equity

funds offer mezzanine finance to potential IPO companies. These funds act as warehouses for

investments and later divest their stake through public offering.

Mergers and Acquisitions: Mergers and Acquisitions are becoming increasingly significant

in terms of services offered by merchant bankers in India. The industry is passing through a

transitionary phase of restructuring. Companies are engaged in efforts to consolidate

themselves in areas of their core competencies and to divest those businesses where they do

not have any competitive advantage. Merchant bankers have been quick to capitalize on these

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opportunities. The role of a merchant banker is that of a financial engineer rather than that of

a business consultant. Most merchant bankers try to identify targets which will help their

clients to achieve specified objectives.

Takeover Defense: With the high level of hostile takeover activity in recent years, takeover

defense, both pre-emptive and defensive, has become an important product for merchant

bankers. It is difficult to prevent a takeover by a determined, well financed bidder who is

prepared to make a cash tender offer for its shares. However, measures can be taken to

reduce the likelihood of unfair takeover bids, to slowdown the takeover process (giving the

target company more time to negotiate or seek out alternatives).

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CATEGORIES OF MERCHANT BANKERS

Initially Merchant Bankers were classified into 4 categories with regard to their nature

and range of activities and their responsibilities to SEBI, investors and issuers of securities. Since

September 1997 only a single category exists. The requirements are as under:

Net Worth: minimum net worth of Rs. 5 crore.

Registration Fee: registration fees of Rs. 5 lakhs is to be paid at the time of grant of certificate

by the board and thereafter a renewal fee of Rs.2.5 lakhs every three years from the fourth year

from the date of initial registration.

Public Issue/ Rights Issue SEBI Filling Fees:

For a period of one year from the commencement of the Securities and Exchange Board of

India (Merchant Bankers) (Second Amendment, dated May 03, 2006) Regulations, 2006

A. Public Issues

Size of the Issue Fees

Less than or equal to Rs. 2 crores Rs. 10,000

Greater than Rs. 2 crores 0.05 % of the issue size

B. Rights Issues



Greater than Rs. 4 crores but less than Rs.1000

crores

0.025 % of the issue size

Greater than Rs. 1000 crores Rs. 25,00,000

After the expiry of one year from the commencement of the Securities and Exchange Board

of India (Merchant Bankers) (Second Amendment dated May 03, 2006) Regulations, 2006

A: Public Issues


Less than or equal to Rs. 1 crore Rs. 10,000

Greater than Rs. 1 crore 0.10 % of the issue size

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B: Rights Issues



Greater than Rs. 2 crores but less than Rs. 500

crores

0.05 % of the issue size

Greater than Rs. 500 crores Rs. 25,00,000

DIFFERENT KINDS OF ISSUES

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ISSUES

PREFERENTIALRIGHTSPUBLIC

FURTHER PUBLIC OFFERINGINITIAL PUBLIC OFFERING


Primarily, issues can be classified as a Public, Rights or Preferential issue (also known as

Private Placements). While the public and rights issues involve a detailed procedure, private

placements are relatively simpler. The classification of issues is illustrated below:

Initial Public Offering - the issuer makes an offer to new investors to enter into its shareholding

family.

Rights Issue - a listed company proposes to issue fresh securities to its existing shareholders.

Further Public Offering - an already listed company makes either a fresh issue of securities to

the public or an offer of sale to the public through an offer document.

Preferential Issue - an issue of shares or convertible securities by listed companies to a select

group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor

a public issue.

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INITIAL PUBLIC OFFERING (IPO)

AN INTRODUCTION

The first public offer of securities by a company after its inception is known as Initial

Public Offering (IPO). Going public (or participating in an “Initial Public Offering” or IPO) is a

process by which a business owned by one or several individuals is converted in to a business

owned by many. It involves the offering of part ownership of the company to the public through

the sale of equity securities (stock).

IPO dilutes the ownership stake and diffuses corporate control as it provides ownership to

investors in the form of equity shares. It can be used as exit strategy and finance strategy.

As a financing strategy, its main purpose is to raise funds for the company. When used as

an exit strategy, existing investors can offload equity holdings to the public.

REASONS FOR GOING PUBLIC

To raise funds for financing capital expenditure needs like expansion, diversification etc.

To finance increased working capital requirement.

As an exit route for existing investors.

For debt financing.

BENEFITS OF GOING PUBLIC

Access to Capital: The principal motivation for going public is to have access to larger

capital. A company that does not tap the public financial market may find it difficult to grow

beyond a certain point for want of capital.

Stockholder Diversification: As a company grows and becomes more valuable, its founders

often have most of its wealth tied up in the company. By selling some of their stock in a

public offering, the founders can diversify their holdings and thereby reduce somewhat the

risk of their personal portfolios.

Easier to raise new capital: If a privately held company wants to raise capital, it must either

go to its existing shareholders or look around for other investors. This can often be a difficult

and time consuming process. By going public, it becomes easier to find new investors for the

business.

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Enhances liquidity: The stock of a closely held firm is not liquid. If one of the holders wants

to sell some of his shares, it is hard to find potential buyers, especially if the sum involved is

large. Even if a buyer is located there is no established price at which to complete the

transaction. These problems are easily overcome in a publicly owned company.

Establishes value for the firm: This can be very useful in attracting key employees with

stock options because the underlying stock have a market value and a market for them to be

traded that allows for liquidity for them.

Image: The reputation and visibility of the company increases. It helps to increase company

and personal prestige.

Signals from the Market: Stock prices represent useful information to the managers.

Everyday, investors render judgment about the prospects of the firm. Although the market

may not be perfect, it provides a useful reality check.

Other Advantages:

Additional incentive for employees in the form of the companies stocks. This also helps

to attract potential employees.

Window of opportunity.

It commands better valuation of the company.

Better situated for making acquisitions.

DISADVANTAGES / COSTS OF GOING PUBLIC

A public company, of course is not an unmixed blessing. There are several disadvantages of

going public.

Disclosure: A public company is required to disclose information to investors and others.

Hence, it cannot maintain a strict veil of secrecy over its expansion plans and product

market strategies as its non-public counterpart can do. Management may not like the idea

of reporting operating data, because such data will then be available to competitors.

Dilution: When a company issues shares to public, existing shareholders suffer dilution of

their proportionate ownership in the firm.

Loss of Flexibility: The affairs of a public company are subject to fairly comprehensive

regulation. Hence, when a non-public company is transformed into a public company there is

some loss of flexibility.

Accountability: Understandably, the degree of accountability of a public company is

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higher. It has to explain a lot to its investors.

Self dealings: The owner managers of closely held companies have many opportunities for

self-transactions. Although legal they may not want to disclose these to the public.

Inactive market - low price: If a firm is very small and its shares are not traded frequently,

then its stock will not really be liquid and the market price may not be truly representative of

the stocks value.

Control: Owning less than 50% of the shares could lead to a loss of control in the

management.

Costs: Apart from the cost of issuing securities, a public company has to incur recurring

costs for providing investors with periodical reports, holding shareholder meetings,

communicating with institutional investors and financial analysts, and fulfilling various

statutory obligations, like filing quarterly reports with the Securities and Exchange Board of

India. These reports can be costly especially for small firms

Other Disadvantages:

The profit earned by the company should be shared with its investors in the form of

dividend.

An IPO is a costly affair. Around 15-20% of the amount realized is spent on raising the

same.

A substantial amount of time and effort has to be invested.

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TRENDS IN IPO’S

Let us have a look at the general development of the primary markets over the years. There

have been many changes in the regulation of primary market in order to save investors from

fraudulent companies. The most path breaking development in the primary market regulation has

been the abolition of CCI (Controller of Capital Issues). The aim was to give the freedom to the

companies to decide on the pricing of the issue and this was supposed to bring about a self-

managing culture in the financial system. But the move was hopelessly misused in the years of

1994-1995 and many companies came up with issues at sky-high prices and the investors lost

heavily. That phase took a heavy toll on the investor’s sentiment and the result was the reduction

in the amount of money raised through IPO route.

1993-96: With controls over pricing gone, companies rushed to tap the primary market and

they did so with remarkable ease, thanks to overly optimistic merchant bankers and gullible

investors. Around Rs 20,000 crores were raised during this period. Some of the prominent

money mobilizers were the so called ‘sunrise sectors’ - polyester, textiles, finance,

aquaculture. The euphoria spilled over to the secondary market. But reality soon set in.

Issuers soon failed to meet projections, many disappeared or sank. Result: the small investor

deserted both markets-till the next boom.

1998-2000: As the great Indian software story played itself out, software stocks led a bull

charge on the bourses. The primary market caught up, and issues from the software markets

flooded the market. With big IPO’s from companies in the ICE (Information Technology,

Communication and Entertainment) sectors, the average issue size shot up from Rs.5 crore in

1994-96 to Rs.30 crore. But gradually, hype took over and valuations reached absurd levels.

Both markets tanked.

2001-2002: There were hardly any IPO’s and those who ventured got a lukewarm response.

A depressed secondary market had ensured that the doors for the primary market remained

closed for the entire FY 2001-2002.There were hardly any IPO’s in FY 2001-2002.

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2002: This time the primary market boom promised to be different. To start with, the cream

of corporate India was queuing up, which ensured quality. In this fragile market, issue

pricing remains conservative, which potentially meant listing gains. This rekindled the

interest of small investors in stocks and drew them back into the capital market.

2003: Even as the secondary market moved into top gear in 2003 the primary market too

scripted its own revival story, buoyed largely by the Maruti IPO which was oversubscribed

six and a half times. In 2003 almost all primary issues did well on domestic bourses after

listing, prompting retail investors to flock to IPO’s. All IPO’s, including Indraprastha Gas

and TV Today Network which was oversubscribed 51 times showed the growing appetite for

primary issues.

Divi Labs hit the market in February followed by Maruti. Close on the heels of Maruti,

came the UCO Bank IPO, which attracted about 1 million applicants. The primary issue of

Indian Overseas Bank attracted about 4.5 million applicants and Vijaya Bank over Rs 40

billion in subscriptions. TV Today’s public offer was expected to draw in excess of Rs 30

billion. It was really Maruti Udyog that took the lead with its new issue. The issue was

heavily over-subscribed and by the middle of December the share value appreciated 186 per

cent. The near trebling of the investment in less than 6 months inspired the retail investor

who is now back again in the market scouting for good scrip’s.

After the phenomenal success of Maruti issue, a number of companies approached the

capital market and a lot more are waiting for SEBI approval.

SEBI has taken enough care to force companies to make relevant disclosures for the

investor to judge the quality of new issues. Besides, the companies themselves have been

careful not to over-price the shares. On the contrary, some of the companies have deliberately

under-priced them to let the issue get over-subscribed and to let the investor share some of

the capital gains after listing.

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HOW IPO’S HAVE FARED IN THE PAST

* Source: SEBI Bulletin (April 2006)

Chart 2: Money Raised through IPO’s in the Past

*till September 2005

Source: DNA-Prime Database

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AMOUNT


ELIGIBILITY NORMS FOR AN IPO

SEBI has laid down eligibility norms for entities accessing the primary market through

public issues. The main entry norms for companies making a public issue (IPO or FPO) are

summarized as under:

Entry Norm I (EN I):

An unlisted company may make an initial public offering (IPO) of equity shares or any other

security which may be converted into or exchanged with equity shares at a later date, only if it

meets all the following conditions:

a) Net Tangible Assets of at least Rs. 3 crores for 3 full years.

b) Distributable profits in at least three years

c) Net worth of at least Rs. 1 crore in three years

d) If change in name, at least 50% revenue for preceding 1 year should be from the new

activity

e) The aggregate of the proposed issue and all previous issues made in the same

financial year in terms of size (i.e., offer through offer document + firm allotment +

promoters’ contribution through the offer document), does not exceed five times its

pre-issue net worth as per the audited balance sheet of the last financial year.

A listed company shall be eligible to make a public issue of equity shares or any other security

which may be converted into or exchanged with equity shares at a later date, only if it meets all

the following conditions:

a) If change in name, at least 50% revenue for preceding 1 year should be from the new

activity

b) The aggregate of the proposed issue and all previous issues made in the same

financial year in terms of size (i.e., offer through offer document + firm allotment +

promoters’ contribution through the offer document), does not exceed five times its

pre-issue net worth as per the audited balance sheet of the last financial year.

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To provide sufficient flexibility and also to ensure that genuine companies do not suffer on

account of rigidity of the parameters, SEBI has provided two other alternative routes to company

not satisfying any of the above conditions, for accessing the primary Market, as under:

Entry Norm II (EN II):

a) Issue shall be through book building route, with at least 50% to be mandatory allotted

to the Qualified Institutional Buyers (QIBs).

b) The minimum post-issue face value capital shall be Rs.10 crore or there shall be a

compulsory market-making for at least 2 years.

QIBs mean public financial institutions as defined under section 4A of the Companies Act,

scheduled commercial banks, mutual funds, foreign institutional investors registered with

SEBI, multilateral and bilateral development financial institutions, venture capital funds and

foreign venture capital funds registered with SEBI, insurance companies registered with the

Insurance Regulatory and Development Authority, provident funds and pension funds with a

minimum amount of Rs 25 crore and State Industrial Development Corporations.

OR

Entry Norm III (EN III):

a) The “project” is appraised and participated to the extent of 15% by Financial

Institutions/ Scheduled Commercial Banks of which at least 10% comes from the

appraisers.

b) The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a

compulsory market-making for at least 2 years.

In addition to satisfying the aforesaid eligibility norms, the company shall also satisfy the criteria

of having at least 1000 prospective allotees in its issue.

Exemption from Eligibility Norms

The provisions shall not be applicable in case of:

a) A banking company including a Local Area Bank (set up under sub-section (c) of

Section 5 of the Banking Regulation Act, 1949 and which has received license from

the Reserve Bank of India.

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b) A corresponding new bank set up under the Banking Companies (Acquisition and

Transfer of Undertaking) Act, 1970 Banking Companies (Acquisition and Transfer of

Undertaking) Act, 1980, State Bank of India Act 1955 and State Bank of India

(Subsidiary Banks) Act.

c) An infrastructure company whose project has been appraised by a Public Financial

Institution (PFI) or Infrastructure Development Finance Corporation (IDFC) or

Infrastructure Leasing and Financing Services Ltd. (IL&FS) or a bank which was

earlier a PFI not less than 5% of the project cost is financed by a PFI / IDFC / IL&FS

or severally, irrespective of whether they appraise the project or not, by way of loan

or subscription to equity or a combination of both.

d) Rights issue by a listed company.

SEBI GUIDELINES

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SEBI has come up with Investor Protection and Disclosure Norms for companies raising

funds through IPO. These rules are amended from time to time to meet with the requirement of

changing market conditions.

DISCLOSURE NORMS

Risk Factor: The Company/Merchant Banker must specify the major risk factor in the front

page of the offer document.

Issuers Responsibility: It is the absolute responsibility of the issuer company about the true

and correct information in the prospectus. Merchant Banker is also responsible for giving

true and correct information regarding all the documents such as material contracts, capital

structure, appointment of intermediaries and other matters.

Listing Arrangement: It must clearly state that once the issue is subscribed where the shares

will be listed for trading.

Disclosure Clause: It is compulsory to mention this clause to distinctly inform the investors

that though the prospectus is submitted and approved by SEBI it is not responsible for the

financial soundness of the IPO.

Merchant Bankers Responsibility-Disclaimer Clause: The Lead Manager has to certify

that disclosures made in the prospectus are generally adequate and are in conformity with the

SEBI Guidelines.

Capital Structure: The Company must give complete information about the Authorized

capital, Subscribed Capital with top ten shareholders holding pattern, Promoters interest and

their subscription pattern etc. Also about the reservation in the present issue for Promoters,

Foreign Institutional Investor’s (FII’s), Collaborators, NRI’s etc. Then the net public offer

must be stated very clearly.

Auditors Report: The Auditors have to clearly mention about the past performances, Cost of

Project, Means of Finance, Receipt of Funds and its usage prior to the IPO. Auditor must also

give the tax-benefit note for the company and investors.

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INVESTOR PROTECTION NORMS

Pricing of Issue: The pricing of all the allocations for the present issue must follow the bid

system. The reservation must be disclosed for different categories of investors and their

pricing must be specified clearly.

Minimum Subscription: If the company does not receive minimum subscription of 90% of

subscription in each category of offer and if the issue is not underwritten or the underwriters

are unable to meet their obligation, then fund so collected must be refunded back to all

applicants.

Basis of Allotment: In case of full subscription of the issue, the allotment must be made with

the full consultation of the concerned stock exchange and the company must be impartial in

allotting the shares.

Allotment/Refund: Once the allotment is finalized, the refund of the excess money must be

made within the specified time limits otherwise the company must pay interest on delayed

refund orders.

Dematerialization of Shares: As per the provisions of the Depositories Act, 1996, and

SEBI Rules, now all IPO will be in Demat form only.

Listing of Shares: It is mandatory on the part of the promoters that once the IPO is fully

subscribed, and then the underlying shares must be listed on the stock exchange. This

provides market and exit routes to the investors.

OTHER SEBI GUIDELINES

Promoters Contribution and Lock - in:

1. The promoters’ contribution in case of public issues by unlisted companies should not be

less than 20 percent of the post-issue capital.

2. In case of public issues by listed companies, promoters should contribute to the extent of

20 percent of the proposed issue or should ensure post issue holding to an extent of 20

percent of the post issue capital.

3. In case of composite issues of a listed company, the promoters’ contribution shall at the

option of the promoter(s) be either 20% of the proposed public issue or 20% of the post-issue

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capital. Rights issue component of the composite issue shall be excluded while calculating

the post-issue capital.

4. For any issue of capital to the public the minimum promoter’s contribution is locked in

for a period of 3 years. If the promoters contribution exceeds the required minimum

contribution, such excess is locked in for a period of 1 year.

Securities Ineligible for Computation of Promoter’s Contribution:

1. Where the promoters of any company making an issue of securities have acquired equity

during the preceding three years, before filing the offer documents with SEBI, such

equity shall not be considered for computation of promoters contribution if it is;

a) acquired for consideration other than cash and revaluation of assets or

capitalisation of intangible assets is involved in such transactions; or

b) resulting from a bonus issue, out of revaluation reserves or reserves without

accrual of cash resources.

2. In case of public issue by unlisted companies, securities which have been issued to the

promoters during the preceding one year, at a price lower than the price at which equity is

being offered to public shall not be eligible for computation of promoters’ contribution.

3. No securities forming part of promoters’ contribution shall consist of any private

placement made by solicitation of subscription from unrelated persons either directly or

through any intermediary.

4. The securities for which a specific written consent has not been obtained from the

respective shareholders for inclusion of their subscription in the minimum promoters’

contribution subject to lock-in shall not be eligible for promoters’ contribution.

Collection Centers for Receiving Applications:

The minimum number of collection centres for an issue of capital shall be:

1. The four metropolitan centres situated at Mumbai, Delhi, Calcutta and Chennai

2. All such centres where the stock exchanges are located in the region in which the

registered office of the company is situated.

The issuer company shall be free to appoint as many collection centres as it may deem fit in

addition to the above minimum requirement.

Underwriting:

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The issuers have the option to have a public issue underwritten by the underwriter.

1. In respect of every underwritten issue, the lead merchant bankers shall accept a minimum

underwriting obligation of 5% of the total underwriting commitment or Rs.25 lakhs

whichever is less.

2. The outstanding underwriting commitments of a merchant banker shall not exceed 20

times its net worth at any point of time.

Timeframes for Issue and Post-Issue Formalities:

1. The minimum period for which the public issue is to be kept open is 3 working days and

the maximum for which it can be kept open is 10 working days.

2. A public issue is affected if the issue is able to procure 90% of the total issue size within

60 days from the date of the earliest closure of the public issue.

3. In case of oversubscription the company may have he right to retain the excess

application money and allot shares more than the proposed issue, which is referred to as

“green-shoe option”.

4. Allotment has to be made within 30 days of the closure of the Public issue and 42 days in

case of Rights issue.

5. All the listing formalities of a Public Issue have to be completed within 7 days from the

date of finalization of the basis for allotment.

Dispatch of Refund Order:

1. Refund orders have to be dispatched within 30 days of the closure of the issue.

2. Refunds of excess application money i.e. non-allotted shares have to be made within 30

days of the closure of the issue.

Other Regulations:

1. Underwriting is not mandatory but 90% subscription is mandatory for each issue of

capital to public unless it is disinvestment where it is not applicable.

2. If the issue is undersubscribed then the collected amount should be returned back.

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3. If the issue size is more than Rs 500 crores, voluntary disclosures should be made

regarding the deployment of funds and an adequate monitoring mechanism put in place to

ensure compliance.

4. There should not be any outstanding warrants for financial instruments of any other

nature, at the time of the IPO.

5. In the event of the initial public offer being at a premium and if the rights under warrants

or other instruments have been exercised within 12 months prior to such offer, the

resultant shares will be not taken into account for reckoning the minimum promoters

contribution further, the same will also be subject to lock-in.

6. Code of advertisement as specified by SEBI should be adhered to.

7. Draft prospectus submitted to SEBI should also be submitted simultaneously to all stock

exchanges where it is proposed to be listed.

8. No company shall make any further issue of capital in any manner whether by way of

issue of bonus shares, preferential allotment, rights issue or public issue or otherwise,

during the period commencing from the submission of offer document to the Board on

behalf of the company for public or rights issues, till the securities referred to in the said

offer document have been listed or application moneys refunded on account of non-

listing or under subscription, etc. unless full disclosures regarding the total capital to be

raised from such further issues are made in the draft offer document.

PRINCIPAL STEPS IN AN IPO

The issue of securities to members of the public through a prospectus involves a fairly

elaborate process, the principal steps of which are as follows.

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1. The board of directors approves the proposal to raise capital from the public and authorizes the

managing director (or a board committee) to do all the tasks relating to the public issue.

2. The company convenes a meeting to seek the approval of shareholders and the share holders pass a

special resolution under section 81(1A) of the Companies Act authorizing the company to make the

public issue.

3. The company appoints a merchant banker as the lead manager (LM) to the issue.

4. The LM carries out due diligence to check all relevant information, documents, and certificates for the

issue.

5. The company, advised by the LM, appoints various intermediaries such as the registrar to the issue,

the bankers to the issue, the printers, and advertiser.

6. The LM draws up the issue budget, keeping in mind the guidelines issued by the Ministry of Finance

on issue expenses, and the company approves the same (The main components of the issue expenses

are fees for LM, underwriters, registrar and bankers, brokerage, postage, stationery, issue marketing

expenses, etc.)

7. The LM prepares the Draft Red Herring Prospectus (DRHP) in consultation with management and

seeks the approval of the Board.

8. The LM files the DRHP approved by the board, with SEBI for its observation along with a soft copy.

SEBI places the same on its website for comments from the public.

9. The company makes listing application to all the stock exchanges where the shares are proposed to be

listed along with copies of the draft red herring prospectus. The DRHP is also hosted on the websites

of the LM and the underwriters.

10. The company enters into a tripartite agreement with the registrar and all the depositories for

providing the facility of offering the shares in a dematerialized mode.

11. If the issue is proposed to be underwritten (it is optional in a retail issue and mandatory

in a book built issue to the extent of the net public offer), the LM makes underwriting

arrangements.

12. Within 21 days, SEBI makes its observations on the DRHP. The stock exchanges also suggest

changes, if any. The company carries out the modifications to the satisfaction of these authorities.

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13. The company files the prospectus with the Registrar of Companies (ROC).

14. The LM and the company market the issue using a combination of press meetings, brokers'

meetings, investors' meeting and so on.

15. The company releases a mandatory advertisement, called the 'announcement advertisement' 10 days

prior to the opening of the issue. This has to conform to Form 2A, also called the abridged prospectus.

16. The LM and the printer dispatch the application forms to all stock exchanges, SEBI; collection

centres brokers, underwriters, and investor associations. Every application form is accompanied by the

abridged prospectus.

17. The issue is kept open for a minimum of 3 days and a maximum of 10 days.

18. After the issue is closed, the basis of allotment is finalized by the stock exchange, LM, and the

registrar, in conformity with certain SEBI- prescribed rules.

19. The LM ensures that the demat credit or dispatch of share certificates and refund orders to the

allotees is completed within two working days after the basis of allotment is finalized and the shares

are listed within 7 days of the finalization of the basis of allotment.

INTERMEDIARIES INVOLVED AND THEIR ROLES

The process of IPO is highly complex and its success is extremely important for the

company. In this process it is important that all the intermediaries should work cohesively and

within a framework of law. Any serious error by any intermediary can affect the IPO.

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The following are the important intermediaries involved in the process:

MERCHANT BANKERS

Eligibility criteria: SEBI issues an authorization letter to the finance companies, which are

eligible to work as merchant bankers. The eligibility criteria depend on network and

infrastructure of the company. The company should not be engaged in activities that are

banned for merchant bankers by SEBI. SEBI issues authorization letter valid for 3 years and

the company has to pay necessary fees. Such merchant banker can be appointed as lead

manager for IPO.

Functions: Merchant banker can work as lead manager, co-lead manager, investment banker,

underwriter etc.

Responsibility: Lead managers are fully responsible for the content and correctness of the

prospectus. They must ensure the commencement to the completion of the IPO. Certain

guidelines are laid down in section 30 of the SEBI act 1992 on the maximum limits of the

intermediaries associated with the issue.

Size of the Issue No of Lead Managers

50 cr. 2

50-100 cr. 3

100-200 cr. 4

200-400 cr. 5

Above 400 cr. 5 or more as agreed by SEBI

The number of co managers should not exceed the number of lead managers. There can be only 1

adviser to the issue. There is no limit on the number of underwriters.

BROKERS

All the recognized stock exchange members are called brokers and thus any member of a

recognized stock exchange can become a broker to the issue.

The brokers can work as broker and underwriter or both. In India usually a broker not only

does his normal broking business buying and selling securities for brokerage but also works

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as an underwriter. They can give underwriting commitment in accordance with their net

worth. A broker offer marketing support, underwriting support, disseminates information to

investors about the issue and distributes issues stationary at retail investor level. The brokers

are governed by rules of SEBI and the respective stock exchange.

The brokers are important for the success of the issue. The brokers appoint sub brokers who

are in direct contact with the investors.

UNDERWRITERS

The underwriter is the principle player in the IPO providing the firm with-

Reputation: As the underwriter is legally liable and because he has on going dealing with

the customers to whom he sells shares. The underwriter puts his reputation on the line.

Finding investors: The underwriter first puts together a syndicate of other underwriters to

distribute the shares. The syndicate finds investors willing to put their money into the

company. This has serious implications.

Experience: The underwriter knows the detail of the process better than any other participant

since issuing shares is one of their primary business functions. Underwriters are the ones who

provide proper guidance.

After market support: The underwriter protects investors and thus makes the offering more

attractive. It is important for the firm to have a clear understanding with the underwriter

exactly how much support he plans to provide if the IPO is not fully subscribed and

accordingly his underwriting commission is fixed.

Future services: A good relationship with an underwriter can save time and money in future

dealings.

Pre offering assistance: The underwriter will conduct road shows with the company’s

management distribute the prospectus and marketing of the underwriters directly generates

talk to potential investors about appropriate pricing. Some part of the value that the potential

shareholders attach to shares. Underwriting involves a commitment from the underwriter to

subscribe to the shares of a particular company to the extent it is under subscribed by the

public or existing shareholders of the corporate. The fees for underwriter and broker are

decided by the company within the maximum possible limit as fixed by the SEBI.

BANKERS TO THE ISSUE

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Any scheduled bank registered with SEBI can be appointed as the banker to the issue.

Several commercial banks are working as bankers to the issue. They get fees on amount

collected by them. There are no restrictions on the number of bankers to the issue. The main

function of banker involves collection of duly filed application forms with money

(cheque/drafts) maintains a daily report, transferring the proceeds to the share application

money collected with the application forms to the registrar. The bank provides application

forms to the investors. They accept duly filled forms with cheque/drafts. They prepare

collection reports and transfer funds and applications to the company/registrar.

REGISTRAR AND SHARE TRANSFER AGENTS

Registration with SEBI is mandatory to take on responsibilities as a registrar or share transfer

agent. The registrar provides administrative support to the issue process. Each agent is

registered with SEBI. Hey have to maintain net worth and infrastructure criteria. They have

to renew their License periodically. He collects all application from the bank and ensures

reconciliation of funds and of application amount and participates in process of basis of

allotment. If the IPO is oversubscribed they provide computerized program for allotment.

They manage refund orders and allotment letters. They provide the final list of allotees to

Lead Manager ROC and stock exchange. If the company wants they also manage post issue

IPO functions relating to shareholders register for the company.

DEPOSITORIES

Since the year 2000, it has been made compulsory that all fresh issue of shares must be made

only in the dematerialized format (DEMAT). The Depository institute issues unique number

of every IPO or company, when shares are allotted to the company/registrar provides

shareholders register to depository in electronic form. Thus automatically all shareholders get

allotment in their DEMAT account.

LEGAL ADVISOR

Normally the company for the purpose of IPO does this appointment. He is responsible legal

compliance of IPO process. There are other intermediaries like Advertising Agents etc. but

the company governs their role.

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COST OF AN ISSUE The cost of public issue is normally between 8 and 12 percent depending on the size of the

issue and on the level of marketing efforts. The important expenses incurred for a public issue

are as follows:

Underwriting expenses: The underwriting commission is fixed at 2.5 % of the nominal

value (including premium, if any) of the equity capital being issued to public.

Brokerage: Brokerage applicable to all types of public issues of industrial securities are

fixed at 1.5% whether the issue is underwritten or not. The managing brokers (if any) can be

paid a maximum remuneration of 0.5% of the nominal value of the capital being issued to

public.

Fees to the Managers to the Issues: The aggregate amount payable as fees to the managers

to the issue was previously subject to certain limits. Presently, however, there is no

restriction on the fee payable to the managers of the issue.

Fees for Registrars to the Issue: The compensation to he registrars, typically based on a

piece rate system, depends on the number of applications received, number of allotters, and

the number of unsuccessful applicants.

Printing Expenses: These relate to the printing of the prospectus, application forms,

brochures, share certificate, allotment/refund letters, envelopes, etc.

Postage Expenses: These pertain to the mailing of application forms, brochures, and

prospectus to investors by ordinary post and the mailing of the allotment/refund letters and

share certificates by register posts.

Advertising and Publicity Expenses: These are incurred primarily towards statutory

announcements, other advertisements, press conferences, and investor’s conferences.

Listing Fees: This is the concerned fee payable to concerned stock exchange where the

securities are listed. It consists of two components: initial listing fees and annual listing fees.

Stamp Duty: This is the duty payable on share certificates issued by the company. As this is

the state subject, it tends to vary from state to state.

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PRICING OF AN ISSUE

Controller of Capital Issue: During the Controller of Capital Issue (CCI) regime the issues

were priced by the company and approved by CCI. Generally the CCI was very conservative

and hardly allowed premium issues.

Arrival of SEBI: After the Arrival of SEBI free market policy is followed for pricing of

issue. Merchant Bankers are responsible for justifying the premium. The company was

allowed to give future profit projections. A company can issue shares to applicants in the

firm allotment category at higher price than the price at which securities are offered to public.

Further, an eligible company is free to make public/rights issue in any denomination

determined by it in accordance with the Companies Act, 1956 and SEBI norms.

An unlisted company eligible to make a public issue and desirous of getting its securities

listed on a recognized stock exchange pursuant to a public issue, or listed company making a

public issue may freely price its equity shares or any securities convertible at a later date into

equity shares.

BASIS FOR ISSUE PRICE

1. The following information shall be disclosed:

a) Earnings per share (EPS) i.e. pre-issue for the last three years(as adjusted for changes in

capital);

b) P/E Ratio pre-issue and comparison thereof with the industry P/E where available.

c) Average return on net worth (RONW) in the last three years.

d) Minimum return on increased net worth required for maintaining pre-issue EPS.

e) Net Asset value per share on last Balance Sheet.

f) Net Asset Value per share after the issue and comparison thereof with the issue price.

g) Comparison of all the accounting ratios of the issuer company as mentioned above with

the industry average and with the accounting ratios of the peer group.

Projected earnings shall not be used as a justification for the issue price in the offer

document.

2. The issuer company and the lead merchant banker shall provide the accounting ratios as

mentioned above to justify the issue price.

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3. In case of book built issues, the offer document shall state that the final price has been

determined on the basis of the demand from the investors.

Pricing is the most important and difficult aspect of an IPO. However in the present

scenario most of the issues are priced by the book building method. Accurate pricing is

essential for the success of an IPO.

The following are the two types of issues:

FIXED PRICE ISSUE

In the fixed price issue, an issuer company is allowed to freely price the issue. The basis of

issue price is disclosed in the offer document where the issuer discloses in detail about the

qualitative and quantitative factors justifying the issue price.

Suppose a company would like to come up with a fixed price public issue, the issuer

company just needs to file the prospectus stating the number of shares, the price per share

and the total issue size. Then the public bids at the price already determined by the issuer

company and gets the allocation according to the quantity of bids and the availability of

shares. Both the price of the shares and the number of shares to be issued remains fixed.

BOOK BUILDING ISSUE

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

such securities is assessed for the determination of the quantum of such securities to be

issued by means of a notice, circular, advertisement, document or information memoranda or

offer document”.

Book building is basically a process used in IPO for efficient price discovery. It is a

mechanism where, during the period for which the IPO is open, bids are collected from

investors at various prices, which are above or equal to the floor price. The offer price is

determined after the bid closing date.

As per SEBI guidelines, an issuer company can issue securities to the public through

prospectus in the following manner:

100 % of the net offer to the public through book building process.

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75 % of the net offer through the book building process and 25 % through the price

determined by the book building process.

PRICE BAND

Issuer company can mention a price band of 20% (cap in the price band should not be

more than 20% of the floor price) in the offer documents filed with SEBI and actual

price can be determined at a later date before filing of the offer document with the

Registrar of Companies(ROC).

If the Board of Directors of the issuer company has been authorized to determine the

offer price within a specified price band such price shall be determined by a

Resolution to be passed by the Board of Directors.

The Lead Merchant Bankers shall ensure that in case of the listed companies, a 48

hours notice of the meeting of the Board of Directors for passing resolution for

determination of price is given to the designated stock exchange.

In case of public issue by listed company, issue price or price band may not be

disclosed in the draft prospectus filed with SEBI.

In case of a rights issue, issue price or price band may not be disclosed in the draft

letter of offer filed with SEBI. The issue price may be determined anytime before

fixation of the record date, in consultation with the designated stock exchange.

The final offer document shall contain only one price and one set of financial

projections, if applicable.

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THE PROCESS OF BOOK BUILDING The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'.

The Issuer specifies the number of securities to be issued and the price band for orders.

The Issuer also appoints syndicate members with whom orders can be placed by the

investors.

Investors place their order with a syndicate member who inputs the orders into the 'electronic

book'. This process is called 'bidding' and is similar to open auction.

A Book should remain open for a minimum of 5 days.

Bids cannot be entered less than the floor price.

Bids can be revised by the bidder before the issue closes.

On the close of the book building period the 'book runner evaluates the bids on the basis of

the evaluation criteria which may include –

Price Aggression

Investor quality

Earliness of bids, etc.

The book runner and the company conclude the final price at which it is willing to issue the

stock and allocation of securities.

Generally, the number of shares is fixed. The issue size gets frozen based on the price per

share discovered through the book building process.

Allocation of securities is made to the successful bidders.

Book Building is a good concept and represents a capital market which is in the process of

maturing.

PERSONS INVOLVED IN THE BOOK-BUILDING PROCESS

The principal intermediaries involved in the Book Building process are the company; Book

Running Lead Managers (BRLM) and syndicate members who are intermediaries registered with

SEBI and are eligible to act as underwriters. Syndicate members are appointed by the BRLM.

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HOW IS THE BOOK BUILT?

A company that is planning an initial public offer appoints a Merchant Banker as a book runner.

Initially, the company issues a draft prospectus which does not mention the price, but gives other

details about the company with regards to issue size, past history and future plans among other

mandatory disclosures. After the draft prospectus is filed with the SEBI, a particular period is

fixed as the bid period and the details of the issue are advertised. The book runner builds an

order book, that is, collates the bids from various investors, which shows the demand for the

shares of the company at various prices. Prospective investors can revise their bids at anytime

during the bid period that is, the quantity of shares or the bid price or any of the bid options.

BASIS OF DECIDING THE FINAL PRICE

On closure of the book, the quantum of shares ordered and the respective prices offered are

known. The price discovery is a function of demand at various prices, and involves negotiations

between those involved in the issue. The book runner and the company conclude the pricing and

decide the allocation to each syndicate member.

PAYMENT FOR THE SHARES

The bidder has to pay the maximum bid price at the time of bidding based on the highest bidding

option of the bidder. The bidder has the option to make different bids like quoting a lower price

for higher number of shares or a higher price for lower number of shares. The syndicate member

may waive the payment of bid price at the time of bidding. In such cases, the issue price may be

paid later to the syndicate member within four days of confirmation of allocation. Where a

bidder has been allocated lesser number of shares than he or she had bid for, the excess amount

paid on bidding, if any will be refunded to such bidder.

ADVANTAGE OF THE BOOK BUILDING PROCESS VERSUS THE NORMAL IPO

PROCESS

Unlike in Book Building, IPO’s are usually marketed at a fixed price. Here the demand cannot be

anticipated by the merchant banker and only after the issue is over the response is known. In

book building, the demand for the share is known before the issue closes. The issue may be

deferred if the demand is less. This process allows for price and demand discovery. Also, the

cost of the public issue is reduced and so is the time taken to complete the entire process.

Book Building Process v/s Fixed Price Process

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Features Fixed Price Process Book Building Process

Pricing Price at which the Security is

offered/ allotted is known in

advance to the investor.

Price at which the Security 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.

ALLOTMENT PROCEDURE IN CASE OF 100% BOOK BUILDING

In case an issuer company makes an issue of 100% of the net offer to public through 100% book

building process:

a) Not less than 35% of the net offer to the public shall be available for allocation to retail

individual investors;

b) Not less than 15% of the net offer to the public shall be available for allocation to non

institutional investors i.e. investors other than retail individual investors and Qualified

Institutional Buyers;

c) Not more than 50% of the net offer to the public shall be available for allocation to Qualified

Institutional Buyers.

ALLOTMENT PROCEDURE IN CASE OF 75% BOOK BUILDING

In case an issuer company makes an issue of 75% of the net offer to public through book

building process and 25% at the price determined through book building –

a) In the book built portion, not less than 25% of the net offer to the public, shall be available

for allocation to non Qualified Institutional Buyers and not more than 50% of the net offer to

the public shall be available for allocation to Qualified Institutional Buyers.

b) The balance 25% of the net offer to the public, offered at a price determined through book

building, shall be available only to retail individual investors who have either not participated

or have not received any allocation, in the book built portion.

MARKETING AND PROMOTION OF AN IPO

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The role of marketing, and particularly promotion, in the pricing and trading of Securities

is fairly limited.

PRELIMINARY REQUIREMENTS

The company has to complete all legal requirements, appoint all intermediaries and once they get

SEBI card (approval), the process of marketing of IPO can commence.

TIMING OF IPO

This the most important factor for the success of IPO. If secondary market is depressed, if there

is political unrest, if serious international problems are prevailing then it is considered to be

negative factors for timing of IPO’s. If these factors are favorable then the Company must find

out about the timing of other prestigious IPO’s. Normally in good times many companies are

crowding at the same time.

A Question of Timing: Timing the issue is critical as it determines the success or failure of

an issue to a great extent. During 1995-96, Primary Market boom, there was a period during

which there were two to three issues in a day. This is a dangerous situation. The ideal time

for marketing an issue is a boom in the Secondary Market, peaceful socio-political-economic

environment and at least two days gap between two issues.

The Effects of Marketing on IPO’s: A merchant banker’s marketing campaign for an IPO

is critical. This campaign, as much as anything that precedes or follows it, will determine the

success or failure of the IPO. The key is to stimulate investor demand for the stock so that,

the demand will exceed the supply. Through the marketing effort, the underwriter attempts to

create an imbalance in the supply/demand equation for the issue, so that there are more

buyers than sellers when the stock is finally released for sale to the public.

To understand the sense of these statements one must understand the relationship

between the marketing of an IPO and its initial returns, and how different parties benefit from

this relationship. A security’s value is an increasing function of the number of investors who

know about the security. Investor knowledge leads to greater value consequently; the efforts

taken by a merchant banker to promote awareness in a firm can affect the valuation of its

stock by expanding the investor base.

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The reputation of a merchant banker could expand a firm’s investor base at a lower cost

than the firm can, since the promotional efforts of a merchant banker on behalf of the firm

would be more creditable. The efforts of a merchant banker to promote an IPO through

increased media coverage will increase retail interest in that stock.

GENERAL PROCEDURE FOR MARKETING OF IPO

Press Conference

Promoters and Lead Managers call for press conference in each major investment center.

Reporters are briefed about the issue. They carry it as news-item in their papers.

Investors Conference

The prospective investors are called by invitation. The Promoters and Lead Managers give

presentations. They reply to the questions of the investors to boost their confidence.

Road Shows

This is like the investors conference but normally is done abroad for marketing ADR/GDR

issues. It is an expensive process and requires a lot of legal compliances. The company has to

observe the rules of the concerned country. However, road shows are becoming more and

more popular in India.

Newspaper Advertisements

The company releases statutory advertisements in leading newspapers. The company has to

publish abridges prospectus in leading newspapers. It is the responsibility of the promoters to

ensure that the issuing company and their group companies should not release any

commercial advertisement, which may influence the investor’s decision for investment.

Printing - Prospectus

The company has to print approved prospectus and provide enough copies to all

intermediaries. If any investor asks for a copy of prospectus it must be provided to him

without any fees. Sufficient quantities should be maintained at the registered office of the

company and with the Lead Managers.

Printing Application Forms

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Sufficient number of application forms must be printed much before the opening of the issue.

Each form must contain abridged prospectus in SEBI approved format. Sometimes different

coloured forms are issued to FI, FII, NRI and general public. It is compulsory to provide

stationery to all underwriters and brokers. They will arrange distribution to their sub-brokers

and other clients. Sometimes, company makes direct dispatch of forms to prospective

investors

GUIDELINES FOR ADVERTISEMENT OF IPO’s

An issue advertisement shall be truthful, fair and clear and shall not contain any statement

which is untrue or misleading.

Any advertisement reproducing or purporting to reproduce any information contained in an

offer document shall reproduce such information in full and disclose all relevant facts and not

be restricted to select extracts relating to that item.

An advertisement shall be set forth in a clear, concise and understandable language.

Extensive use of technical, legal terminology or complex language and the inclusion of

excessive details which may distract the investor shall be avoided.

An issue advertisement shall not contain statements which promise or guarantee rapid

increase in profits.

An issue advertisement shall not contain any information that is not contained in the offer

document.

No models, celebrities, fictional characters, landmarks or caricatures or the likes shall be

displayed on or form part of the offer documents or issue advertisements.

No advertisement shall include any issue slogans or brand names for the issue except the

normal commercial name of the company or commercial brand names of its products already

in use.

If any advertisement carries any financial data, it shall also contain data for the past three

years and shall include particulars relating to sales, gross profit, net profit, share capital,

reserves, earnings per share, dividends and the book values.

No issue advertisement shall be released without giving “Risk Factors” in respect of the

concerned issue.

No corporate advertisement of Issuer Company shall be issued after 21 days of the filing of

the offer document with the Board till the closure of the issue unless the risk factors as are

required to be mentioned in the offer document, are mentioned in such advertisement.

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No advertisement shall be issued stating that the issue has been fully subscribed or

oversubscribed during the period the issue is open for subscription, except to the effect that

the issue is open or closed.

PRE ISSUE OBLIGATIONS

The following are the pre-issue obligations of the Merchant Bankers to an issue:

Exercising of due diligence by Lead manager.

Payment of requisite fees

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Documents to be submitted with the offer document by the lead manager

Memorandum of Understanding(MOU)

Inter-se allocation of responsibilities(in case there is more than one lead manager)

Due Diligence certificate

Certificate signed by the Chartered Accountant(CA)

Submit a list of promoters group and other details

Appointment of Intermediaries

Signing of Underwriting Agreement

Drafting of draft prospectus in consultation with the merchant bankers and submitting the

same to SEBI along with the requisite fees and other requirements and submitting the same

to the Stock exchange as per guidelines.

File red herring prospectus with SEBI/stock exchanges/ROC after receiving clearance from

SEBI and stock exchanges.

Dispatch of issue material to the stock exchanges, brokers, underwriters, bankers to the issue,

investor associations etc.

No Complaints Certificate

Ensuring mandatory and other collection centers for the issue.

Appoint Authorized Collecting Agents

Appointment of Compliance officer by the issuer company

Distribution of Application forms and Abridged prospectus

Agreement with depositories for receiving issues in DEMAT form

Overseeing the bidding process

Maintaining the escrow account

Provisions for electronic registration of bids

POST ISSUE OBLIGATIONS

Post issue monitoring Reports to be submitted by Lead managers. These reports shall be

submitted within 3 working days from the due dates.

Processing of Applications

Deciding the basis for allotment

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Distribution of allotted shares to successful bidders

Refund of money to unsuccessful bidders

Establishment of Underwriters liability, if any

Post issue advertisements

File final prospectus with SEBI/ stock exchanges/ ROC after incorporating the basis of

allotment, price discovery etc.

Listing of the issue on the designated stock exchanges

Redressal of Investor Grievances

OTHER ISSUES RELATED TO IPO’S

REVISION OF PRICE BAND OR BIDDING/ISSUE PERIOD:

In case the price band of the issue is revised, the revised price band and the bidding/issue

period will be widely disseminated by informing the stock exchanges by publishing the

details in 2 national newspapers (one each in English and Hindi) and in a regional

41


newspaper; and also by indicating the change on the website of the Book Running lead

Managers (BRLM’s) and at the terminals of the members of the Syndicate. In case the price

band is revised, the bidding period shall be extended for a further period of three days,

subject to the total bidding period not exceeding ten working days.

As per SEBI guidelines, the cap on the price band should not be more than 120% of the floor

of the price band. Therefore, in case of a revision in the price band, the floor of the price

band can move up or down to the extent of 20% of the floor price band disclosed in the Red

Herring Prospectus.

PROSPECTUS IS APPROVED BY SEBI BUT THE COMPANY DOES NOT COME

OUT WITH THE PROPOSED ISSUE:

An issue shall open within 3 months from the date of issuance of the observation letter by the

Board, if any or within 3 months from the 22nd day from the date of filing of the draft offer

document with the Board, if no observation letter is issued. If the company fails to come out

with the issue within 3 months, then it is barred from making an issue in the market for the

next 6 months. Once the 6 months period lapses the company has to file a new prospectus

with SEBI if it wants to come out with an issue. The detail of the recent IPO where the issue

was withdrawn is as follows:

Company Lead Manager Date of Withdrawal Type of Issue

Gayatri Projects Ltd. Allianz Securities Ltd June 1, 2006 IPO

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RIGHTS ISSUE

WHAT IS A RIGHTS ISSUE?

According to Section 81 of the Companies Act, 1956, if a public company wants to

increase its subscribed capital by allotment of further shares after two years from the date of its

incorporation or from the date of first allotment, whichever is earlier, such further shares should

be first offered to the existing equity shareholders, in proportion to the capital paid–up on the

shares held by them at the date of such offer. The shareholders to whom the offer is made are not

under any legal obligation to accept the offer. On the other hand, they have a right to renounce

the offer in favour of any person.

Shares so offered by a public company to its existing equity shareholders, are called right

shares because they are offered to the shareholder as a matter of legal right. Rights shares are

usually offered on terms advantageous to the shareholders. For example, shares of the face value

of Rs. 10 maybe offered at par value, while the market price of the shares at the time of

announcing the offer maybe more than Rs. 10 per share.

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LEGAL ASPECTS

According to Section 81 of the Companies Act, the following conditions have to be satisfied

by a public company issuing rights shares:

1. Such shares must be offered to holders of equity shares in proportion, as nearly as

circumstances admit, to the capital paid up on the share.

2. The offer must be made giving a notice specifying the number of shares offered.

3. The offeree must be made to accept the shares within a period specified in the notice which

shall not be less than 15 days. A renouncement form in favour of someone else is also given

in the application form.

4. Unless the articles of association of the company provide otherwise, the notice must also

state that the shareholders have a right to renounce all or any of the shares offered to them in

favour of one or more of the nominees.

5. After the expiry of the time specified in the notice or on receipt of intimation earlier from the

shareholder declining to accept the shares offered, the Board of Directors may dispose of the

unsubscribed shares in such manner as they think most beneficial to the company.

44


REGULATORY FRAMEWORK FOR RIGHTS ISSUES

1. The SEBI guidelines for Disclosure and Investor Protection apply only to rights issue made

by listed companies. These guidelines do not apply to rights issue of any amount by existing

private companies and unlisted public companies.

2. Private companies or unlisted companies therefore, only need to comply with the

requirements laid down in the Companies Act, 1956.

3. Where any company has withdrawn the rights issue after announcing the record date, such

company is not permitted to make application for listing of any of its securities for a

minimum period of 12 months from the announced record date.

4. Underwriting of rights issues is not mandatory. However, stand-by underwriting support can

be extended to a rights issue.

5. These guidelines are not applicable to composite issues i.e. an issue of securities on rights

basis made either simultaneously or preceded by or followed by an issue of securities to

public, within a period of three months before or after closure of rights issue as the case

maybe.

6. The gap between the closure date of rights issue and public issue should not exceed 30 days.

No bonus issue should be made within 12 months from the date of issue.

7. Appointment of a Merchant Banker: Where issue of share by way of rights by a listed

company does not exceed Rs.50 lakhs, appointment of merchant banker is not mandatory.

For rights issues by listed companies exceeding Rs. 50 lakhs, the issue should be managed by

a SEBI registered merchant banker.

8. Rights issues shall be kept open for at least 30 days and not more than 60 days.

9. If the company does not receive at least 90 percent of the issued amount including accepted

devolvement from underwriters, if any, within 42 days from the date of closing of the issue,

the amount of subscription received is required to be refunded.

10. If there is any delay in the refund amount collected by more than 8 days, the company and

the directors of the company shall be jointly and severally liable to repay the amount due by

way of refund with interest as per section 73 of the companies act, 1956 from the delayed

period.

11. No part of over-subscription should be retained under any circumstances i.e. quantum of

rights issue should not exceed as specified in the letter of offer.

45


12. No company shall make a public or rights issue of equity share or any security

convertible at later date into equity share, unless all the existing partly paid-up shares have

been fully paid or forfeited.

13. No preferential allotment should be made along with the rights issue. If any preferential

allotment to the employees or any identified persons has been proposed to be made, this

should be done independent of the rights issue by complying with the provision of the

Companies Act, 1956.

14. An advertisement should be prominently issued in not less than two All India newspapers at

least one week before the date of opening of the subscription.

15. Promoters Contribution and Lock-in requirements: The requirements in regards to

promoter’s contribution and lock in shall not be applicable in case of a rights issue. Provided

that, the promoters shall disclose their existing shareholding and the extent to which they are

participating in the proposed issue, in the offer document.

16. Compliance Reports: The lead manager must ensure that the letter of offer for rights

contains all the information specified under the Companies Act. He has to submit the draft

letter of offer to SEBI six weeks before the issue is scheduled to open for subscription. If

SEBI makes any modifications within three weeks of the submission of letter of offer then

such modifications have to be incorporated before filing the letter of offer. The copy of the

letter of offer shall be submitted by the lead manager to SEBI two weeks before the issue

opens for subscription.

17. Post Issue Monitoring Reports: The lead manager shall submit a 3 days monitoring report

and a 50 days monitoring report within 3 days and 50 days respectively of the date of closure

of the issue.

46


ADVANTAGES AND DISADVANTAGES OF A RIGHTS ISSUE

A rights offer provides the shareholders with the option of retaining their proportionate

ownership in a company when it sells additional shares. It is probably beneficial only to the large

shareholders because of the separation of ownership and control. A rights offering can be more

beneficial to the company as it need not have a broad market appeal and can be only

concentrated on investors who already have shares in the company. Also the cost of making

rights offerings is less when compared to public issues.

On the other hand, a rights offering generally takes a longer time to complete and the

offering eliminates the possible transaction cost savings of selling large blocks of shares to

institutions not currently holding the stock.

47


FUTURE TRENDS

The new fiscal (2006-07) appears very promising for rights issues. A buoyant secondary

market and revised SEBI guidelines would encourage companies to come out with rights issues.

According to PRIME database, as many as 31 companies have already applied for or

have obtained SEBI approval for raising Rs. 2153 crores. Some of the major ones include Bajaj

Auto Finance (Rs.950 crores), California Software (Rs.27 crores), Dagger Forst Tools (Rs. 29

crores), Goa Carbon (Rs.37 crores), Goldstone Teleservices (Rs.32 crores), HBL Nife Power

Systems (Rs.22 crores), Hester Pharmaceuticals (Rs.10 crores), JMC Projects (Rs.28 crores),

JSW Steel (Rs.400 crores), Konark Synthetics (Rs.16 crores), Mohit Industries (Rs.14 crores),

OCL India (Rs.70 crores), Pacific Cotspin (Rs.13 crores), R.S.Software (Rs 16 crores), Shree

Bhawani Paper Mills (Rs.15 crores), Tata Teleservices (Maharashtra) (300) and Upper Ganges

Sugar (Rs.68 crores).

In addition, according to PRIME database, there are at least 30 companies who have in

the last 6 months announced their plans to tap the rights market and may firm up their plans in

the near future. These include Channel Guide (Rs.21 crores), Cochin International Airport

(Rs.150 crores), JK Paper (Rs.170 crores), L.G.Balakrishnan & Bros. (Rs.100 crores), Media

Matrix Worldwide (Rs.40 crores), Shree Digvijay Cement (Rs.134 crores), South India Corp.

(Agencies) (Rs.250 crores), Space Computer & Systems (Rs.31 crores), TT Ltd.(Rs.20 crores)

and Valuemart Info Technologies (Rs.16 crores).

48


CALENDAR OF AN IPO

TIMELINE OF AN IPO

Sr. No Steps

Fixed Price

Process

Book Building Process

1 Receiving Mandate 03/01/06 03/01/062 Appointment of Intermediaries 13/01/06 13/01/063 Due Diligence Procedure* 13/02/06 13/02/064 Preparation of Draft Prospectus 20/02/06 20/02/065 SEBI Filling of Draft Red Herring Prospectus 22/02/06 22/02/06

6 Filling of no Complaints received letter during the period of 21 days after filing DRHP 15/03/06 15/03/06

7 Stock Exchange in principle approval for Listing 22/03/06 22/03/06

8 Submission of Stock Exchange in principal approval letter along with updated DRHP to SEBI 25/03/06 25/03/06

9 SEBI acknowledgement letter with its observations 03/04/06 03/04/0610 Marketing of the Issue Starts 04/04/06 04/04/0611 Filling of updated RHP with SEBI, RoC 10/04/06 10/04/0612 Statutory Advertisement 1 week prior to opening of issue 11/04/06 11/04/0613 Mandatory Advertisement on Opening of Issue 18/04/06 18/04/0614 Issue opens 18/04/06 18/04/0615 Marketing of the Issue Ends 27/04/06 27/04/0616 Issue closes 28/04/06 28/04/0617 Allotment of Securities to Successful Bidders 28/05/06 13/05/0618 Post Issue Closure Advertisement 28/05/06 13/05/06

19 Dispatch of demat securities and documents to designated stock exchanges 30/05/06 15/05/06

20 Refund to Unsuccessful Bidders 15/06/06 30/05/0621 Post Issue Monitoring Reports by the BRLM A 3rd day report 01/05/06 01/05/06B 78th day report 15/07/06 15/07/06

22 Listing of the Securities on the Designated Stock Exchanges 05/06/06 20/05/06

Note: *The due diligence procedure takes around 1 month subject to the time taken by the issuer company to provide required information.

** We have considered a hypothetical date (03/01/2006) as the base date for the calendar of activities.

***The above time table is made as per SEBI DIP Guidelines which is subject to timely receivable of information’s, observations and approvals from Company, SEBI, SE & other intermediaries.

INEFFICIENCIES49


INEFFICIENCIES/BOTTLENECKS IN THE IPO PROCESS

Approval of the Draft Prospectus by SEBI: As per the SEBI guidelines, it takes 3 weeks

to approve a draft prospectus filed by the issuer company, but in reality this procedure takes

around 8 – 10 weeks. This increases the time line required to come out with an IPO.

Market Timing: The success of IPO’s depends to some extent on the health of the capital

markets in the country. If a company comes out with an IPO when the sentiment of the

investors towards the stock market is negative, it will get a very lukewarm response. Market

volatility is a concern for companies coming out with IPO’s. Issuer companies are sometimes

forced to extend the bidding period or cut the price at the lower end of the price band as seen

recently in the cases of Air Deccan and Prime Focus IPO. Some other companies which were

planning to come out with an IPO are waiting for the sentiments to turn positive on the stock

market before taking a final call on public issues.

According to Prithvi Haldea of Prime Database, currently there are three categories of IPO’s

in the market. They are as follows,

Firms where issue date for the IPO has been announced.

Firms which have filed draft prospectus with SEBI and

Firms planning for IPO’s

It is estimated that there are around 4 - 6 firms where the issue date has been announced, 8 –

10 firms whose prospectus has been cleared by SEBI but the date of IPO has not been

announced, around 48 firms whose prospectus has not been cleared and around 350 firms

planning to come out with an IPO in the near future.

Market Manipulation: In some IPO’s there are cases of market manipulation i.e. prices of

the shares of the company are rigged by false information, false trading etc. within days of its

listing and in many such cases the shares are even delisted within years resulting in huge

losses to the investors. This erodes the investor’s confidence in the primary market.

Multiple Allotments of Shares to a Single Investor: As seen in the recent IPO scams,

multiple allotments of shares were made to a single person in the retail investor category,

resulting in a single person cornering a huge proportion of the allotments reserved for retail

50


investors. This results in opportunity losses to genuine retail investors who have applied for

the shares under this category.

Opening of Multiple Demat Accounts (Benami Accounts) by a Single Investor: In recent

investigations by SEBI relating to the IPO scams it was found that the Depository

Participants(DP’s) have not followed the stringent Know Your Client (KYC) Norms

prescribed by SEBI for opening of DEMAT accounts. This resulted in opening of multiple

demat accounts (benami accounts) by single investors to corner significant portions of IPO’s

reserved for retail investors. Some of the discrepancies observed in following the KYC

norms are as followed:

No signature across the photographs of the account holders.

Same signature for multiple accounts but different addresses.

Same addresses for multiple demat accounts.

No proof of identification submitted to the DP’s.

No proof of address provided by the account holders.

Photographs of the accountholders stapled and not affixed as per SEBI guidelines.

The Depositories are aware of the possibility of the existence of accounts being operated

without following proper KYC norms, but they have not put in place a system to detect such

accounts and take proper actions.

Inefficiency by Depositories: The depositories are required to have adequate controls,

systems and procedures for monitoring and evaluating its compliances with the statutory

requirements laid down by SEBI and prevent any conduct by DP’s which is detrimental to

the interest of the investors or the securities market. In this respect, the depositories have

failed to perform and supervise the operations of the DP’s and also failed to inform SEBI of

the deficiencies. Some of the deficiencies are as follows:

The penalties imposed on the DP’s for account opening deficiencies are as low as Rs.

500 – 1000.

NSDL system allows accounts to be stored in the databases with no check on the

addresses and other details.

NSDL has to inspect the records of the DP’s on timely intervals but the periodicity of

inspection is not established as per any document.

51


NSDL does not impose penalties for violations rectified immediately after inspection,

does not impose penalties harsher than monetary penalties for the remaining

violations and also waives the penalties imposed if the DP reports rectification of

deficiencies. This system creates no disincentive or deterrent for a DP to comply till

NSDL inspects and finds the violation, since rectification after inspection assures that

no penalty of any kind is imposed on DP.

Deficiencies on the part of Bidders to the Issue: There are some technical reasons for

rejection of the bids made by the bidders in the retail and non-institutional categories. Some

of the reasons are as follows:

The amount paid does not tally with the amount payable for the highest value of

equity shares bid for.

Age of the first bidder not given.

Bids by minors or by person’s incompetent to contract as per the Indian Contracts

Act.

PAN not stated if the bid is for Rs. 50,000 or more.

GIR no. stated instead of PAN.

Proof of PAN not attached to bid cum application form.

Bids for lower number of equity shares than specified for that category of investors.

Bids at a price less than lower end of price band.

Bids at a price more than the higher end of price band.

Bids for number of equity shares which are not in the multiples as specified in the

Red Herring Prospectus.

Multiple Bids by a single person.

Signature of sole and/or joint bidders missing.

Bid cum application form does not have the stamp of the BRLM or syndicate

members.

Bid cum application form does not have the bidder’s depository account details.

Bids for amounts greater than maximum permissible amounts prescribed by the

regulations.

Bids are not accompanied by applicable margin amounts.

52


No requirement of PAN details for application below Rs.50000: As per the current SEBI

guidelines, investors are required to submit PAN details for applications for shares in an IPO

above Rs. 50000. This can be a loop-hole in the system as investors in the retail allotment

category can make multiple applications as benami's by subscribing for less than Rs. 50000

as they need not submit their PAN card details.

Oversubscription of Public Issues: Generally there are three classes of investors in the

market; those who invest only in the primary market, then those who invest only in the

secondary market and those who invest in both. In the recent years the primary market has

witnessed a boom with many companies coming out with their IPO’s. This provides huge

investment opportunities fro investors interested in the primary markets. This has led to so

many issues in recent past being oversubscribed by as much a 20 – 60 times. Such

tremendous responses also results in huge amounts of paper work and processing of

applications. During such times there may be a possibility of certain issues pertaining to the

stringent SEBI guidelines being overlooked as has been witnessed in the IPO scams in recent

years. The system currently in place may not be suited to efficiently handle such enormous

data and some lacunas may exist.

Quotas for IPO Allotments: The IPO subscription in India is a quota based system where

SEBI has prescribed the quotas for the investors in the retail investor, non- retail investors

and institutional investor’s category. The reservation for retail investors limits their

opportunity of investing in IPO’s and earning the resulting gains. Such a quota based system

may have fuelled the practice of investors putting in multiple applications in public offerings

to corner the shares. Thousands of fictitious applications were found to have been put in in a

spate of IPO’s during the equity boom between 2003 and 2005 to cash in the gains when the

shares were listed.

Problems faced by the Merchant bankers in the Due Diligence process: The merchant

bankers appointed by the issuer company are required to verify various documents, reports,

financial information, etc which requires some time. Many a times the issuer company tries

to show itself in positive light so that its issue gets a fairly positive response in the market

and to enable this they do not provide true and fair data to the merchant bankers or they forge

the documents etc. It becomes then the duty of the appointed merchant bankers to uncover

53


the true information and only after carrying out the due diligence procedure to the best of

available resources proceed with the issue.

Delays in Refunds to Unsuccessful bidders in IPO’s: According to the SEBI guidelines the

refunds to unsuccessful bidders should be done within 15 days and 30 days of deciding the

allotment in case of book building issue and fixed price issue respectively. But in reality

many a times the refunds get delayed resulting in blockage of funds of the unsuccessful

bidders who could have used those funds to invest in some other IPO. This is an opportunity

loss for the investors.

54


IMPROVING EFFICIENCY IN THE IPO PROCESS

PAN Cards Compulsory for opening DEMAT Accounts: From April 1, 2006 demat

accounts can be opened only if PAN card details are furnished by the intending demat

account holders to the DP (Depository Participant). Also CDSL (Central Depository Services

(India) Limited has issued a notice regarding all the demat accounts opened on or before 31 st

March 2006 saying that if the said demat account holders want to continue the operation of

their demat accounts they should furnish the PAN card details to their respective DP’s on or

before 30th September 2006. PAN card details in this case imply original Pan Card for

verification and photocopy for the DP’s record.

This step on the part of the DP’s will help reduce the instances of opening of multiple demat

accounts in the same name or using the same address.

Removal of Quota System in the IPO Allotment Process: The Finance Ministry has given

a suggestion to SEBI that the quota system in the IPO allotment process should be done away

with as it leads to investors putting in multiple bids to corner portions of the public offerings.

The ministry is of the opinion that instead of the quota system a non-discretionary price

discovery process marked by an auction based method could be adopted.

Restriction on Share Transfer before listing: Market regulator SEBI is considering a

proposal that seeks to restrict transfer of equity shares of a company before it is listed, in a

move aimed at reducing large scale off market transactions. Large scale irregular transfer of

shares before their listing was seen in the recent IPO scams. Hence the proposal by SEBI

aims at reducing such scams and preventing the individuals who deal in such transactions

from making big gains when the securities are listed on the stock exchanges.

Grading of Merchant Bankers: SEBI has also recently made a proposal to grade the

merchant bankers involved in the handling of a public issue. As per this proposal, Merchant

bankers will be graded on their track record; the issues brought out in the past, the kind of

documents that were submitted and other such parameters. Also SEBI will not certify the

grading agency’s assessment. The grading would be merely aimed at assisting the investors

particularly the small investors in taking informed decisions.

55


Improvement in the Refund process: Currently the refund process is a time consuming

procedure in the IPO process, as the unsuccessful bidders have to undergo a long wait to get

back the money they have paid for subscribing to an IPO. An ECS (Electronic Clearing

System) which is not mandatory as of now should be made mandatory in case of all the

refunds. This will ensure efficiency and will help do away with the irregularities in the refund

process.

IPO funding: Nowadays individuals who want to subscribe to a public issue but do not have

the resources can avail funding from various banks at reasonable rates. Availability of easy

funding will boost up the investors responses to the public issues.

Some of the terms and conditions for an IPO funding by banks are as follows:

The shares should be subscribed in demat form only

The customer exercising such an option should have a demat account or open a demat

account with the bank etc.

Let us have a look at all the requirements prescribed by UTI Bank for IPO funding for

individuals:

ELIGIBILITY: Finance would be provided to those subscribing for shares in the

public/rights issues of reputed companies who should be listed with the listing requirements

of NSE/ BSE.

TERMS AND CONDITIONS:

Minimum Application: 200 shares

Loan Amount: 80% of the application amount (subject to a maximum of Rs. 10 lakhs)

Margin: 50% or as per the directives issues by RBI from time to time.

Rate of Interest: 4% above the Prime Lending Rate (PLR) with a minimum of 16%

Processing Charges: Rs. 250

OTHER REQUIREMENTS:

The shares should be in demat form only.

The customer exercising the option should either have or open a DP account as also a

non cheque Book/ ATM card Savings/ Current account with the bank.

56


Processing charges, Interest amount and margin money to be recovered up front by

way of a pay order.

A letter from the applicant irrevocably that he will not change the mandate in the

application, and if he does the application may be rejected by the Registrars/

Company. This letter will be filed with the company along with the share application

form.

The scheme will close one day before the close of the issue when payment towards

fees is made in cash/ draft/banker’s cheque or three days before the close of the issue

when payment is made through a clearing cheque.

The customer shall open a savings account without a cheque book/ ATM card with

the bank and shall irrevocably mandate credit of refund if any to the account. The

customer will authorize the bank to recover the loan by debiting this account in the

event of non-allotment. No other debits would be allowed in this account.

The requirement by other banks for IPO funding is more or less the same as seen above in

the UTI bank example.

Thus, IPO funding is a boon fro investors especially for the investors who prefer to invest in

the primary market.

57


APPENDIX 1

List of Merchant Bankers Registered with SEBI

Sr. no Name Place State1 A.K. CAPITAL SERVICES LTD New Delhi Delhi2 ABN AMRO SECURITIES (INDIA) PRIVATE LTD Mumbai Maharashtra3 ALLAHABAD BANK Calcutta West Bengal4 ALLBANK FINANCE LTD. Calcutta West Bengal5 ALLIANZ SECURITIES LTD New Delhi Delhi6 AMBIT CORPORATE FINANCE PRIVATE LTD Mumbai Maharashtra7 AMERICAN EXPRESS BANK LTD Mumbai Maharashtra8 ANAND RATHI SECURITIES PVT LTD Mumbai Maharashtra9 ANDHRA BANK Hyderabad Andhra Pradesh

10 ANZ CAPITAL PRIVATE LIMITED Mumbai Maharashtra11 ARYAMAN FINANCIAL SERVICES LTD New Delhi Delhi12 ASHIKA CAPITAL LTD Calcutta West Bengal13 ASIT C. MEHTA INVESTMENT INTERRMEDIATES LTD Mumbai Maharashtra14 ASK RAYMOND JAMES & ASSOCIATES LTD Mumbai Maharashtra15 BAJAJ CAPITAL LTD New Delhi Delhi16 BANK OF AMERICA, N.A Mumbai Maharashtra17 BANK OF MAHARASHTRA Pune Maharashtra18 BARCLAYS BANK PLC Mumbai Maharashtra19 BATLIVALA & KARANI SECURITIES INDIA PVT LTD Calcutta West Bengal20 BOB CAPITAL MARKETS LTD Mumbai Maharashtra

21 BRESCON CORPORATE ADVISORS LTD (BRESCON FINCL SERVICES LTD) Mumbai Maharashtra

22 BRICS SECURITIES LTD Mumbai Maharashtra

23 CALYON BANK (FORMERLY CREDIT AGRICOLE INDOSUEZ) Mumbai Maharashtra

24 CANARA BANK Bangalore Karnataka

25 CD EQUISEARCH PVT. LTD. (FORMERLY CD CAPITAL MARKETS LTD) Calcutta West Bengal

26 CENTRAL BANK OF INDIA Mumbai Maharashtra

27 CENTRUM CAPITAL LIMITED (FORMERLY CENTRUM FINANCE LTD) Mumbai Maharashtra

28 CHARTERED CAPITAL & INVESTMENT LTD Ahemedabad Gujarat29 CIL SECURITIES LTD Hyderabad Andhra Pradesh30 CITIBANK N A Mumbai Maharashtra31 CITIGROUP GLOBAL MARKETS INDIA PVT. LTD Mumbai Maharashtra32 CLSA INDIA LTD Mumbai Maharashtra

33 DARASHAW & COMPANY PRIVATE LTD (FORMERLY BADAR FINANCE) Mumbai Maharashtra

34 DEUTSCHE BANK Mumbai Maharashtra35 DEUTSCHE EQUITIES INDIA PRIVATE LIMITED Mumbai Maharashtra36 DEVELOPMENT CREDIT BANK LTD Mumbai Maharashtra37 DSP MERRILL LYNCH LTD Mumbai Maharashtra38 EDELWEISS CAPITAL LTD Mumbai Maharashtra39 ENAM FINANCIAL CONSULTANTS PVT LTD Mumbai Maharashtra40 ESCORTS SECURITIES LTD New Delhi Delhi41 FEDERAL BANK LTD, THE Alwaye,Ernakulam Kerala42 FEDEX SECURITIES LTD Mumbai Maharashtra43 FIRST GLOBAL FINANCE PVT LTD New Delhi Delhi

58


44 FORTUNE FINANCIAL SERVICES (INDIA) LTD Mumbai Maharashtra45 GLOBAL TRUSTCAPITAL FINANCE PVT. LTD. Mumbai Maharashtra46 GSFS CAPITAL & SECURITIES LTD Ahemedabad Gujarat47 HEM FINANCIAL SERVICES LTD Jaipur Rajasthan48 HONGKONG AND SHANGHAI BANKING CORPORATION Mumbai Maharashtra

49 HSBC SECURITIES AND CAPITAL MARKETS (INDIA) PVT LTD Mumbai Maharashtra

50 ICICI BANK LTD Vadodara Gujarat51 ICICI SECURITIES LTD. (ICICI SECURITIES & FIN. CO LTD) Mumbai Maharashtra52 IDBI CAPITAL MARKET SERVICES LTD Mumbai Maharashtra53 IFCI FINANCIAL SERVICES LTD New Delhi Delhi54 IL& FS INVESTSMART LTD Mumbai Maharashtra55 IMPERIAL CORPORATE FINANCE & SERVICES PVT LTD Mumbai Maharashtra56 IND GLOBAL CORPORATE FINANCE PVT LTD Mumbai Maharashtra57 INDBANK MERCHANT BANKING SERVICES LTD Chennai Tamil Nadu58 INDIA INFOLINE SECURITIES PVT LTD Mumbai Maharashtra

59 INDIABULLS SECURITIES LIMITED (FORMERLY ORBIS SEC LTD) New Delhi Delhi

60 INDIAN OVERSEAS BANK Chennai Tamil Nadu61 INDUSIND BANK LTD Pune Maharashtra62 INDUSTRIAL DEVELOPMENT BANK OF INDIA Mumbai Maharashtra63 INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY Chennai Tamil Nadu

64 ING VYSYA BANK LTD. (ERSTWHILE THE VYSYA BANK LTD.) Bangalore Karnataka

65 INGA ADVISORS PVT. LTD. Mumbai Maharashtra

66 INTEGRATED ENTERPRISES (INDIA) LTD (INTEGRATED ADVISORY SERVICES) Chennai Tamil Nadu

67 INTER CORPORATE FINANCIERS & CONSULTANTS LTD. Calcutta West Bengal68 J P MORGAN INDIA PVT. LIMITED Mumbai Maharashtra69 J M MORGAN STANLEY PVT LTD Mumbai Maharashtra70 KARUR VYSYA BANK LTD, THE Karur Tamil Nadu71 KARVY INVESTOR SERVICES LTD Hyderabad Andhra Pradesh72 KEYNOTE CORPORATE SERVICES LTD Mumbai Maharashtra73 KHANDWALA SECURITIES LTD Mumbai Maharashtra74 KJMC GLOBAL MARKET (INDIA) LTD Mumbai Maharashtra75 KOTAK MAHINDRA CAPITAL COMPANY LTD Mumbai Maharashtra76 L & T CAPITAL COMPANY LTD Mumbai Maharashtra

77 LAZARD INDIA PRIVATE LTD (LAZARD CREDIT CAPITAL LTD.) Mumbai Maharashtra

78 LEHMAN BROTHERS SECURITIES PVT LTD Mumbai Maharashtra79 LKP SHARES AND SECURITIES LTD Mumbai Maharashtra80 LODHA CAPITAL MARKETS LTD Calcutta West Bengal81 MACQUARIE INDIA ADVISORY SERVICES PVT LTD Mumbai Maharashtra82 MASTER CAPITAL SERVICES LTD Ludhiana Punjab83 MATA SECURITIES INDIA PRIVATE LTD Mumbai Maharashtra84 MEFCOM CAPITAL MARKETS LTD New Delhi Delhi85 MEGHRAJ SP CORPORATE FINANCE (PVT) LTD Mumbai Maharashtra86 MEHTA INTEGRATED FINANCE LTD Ahemedabad Gujarat

87 MICROSEC CAPITAL LTD(FORMERLY MICROSEC INDIA LTD) Calcutta West Bengal

88 MUNOTH FINANCIAL SERVICES LTD Chennai Tamil Nadu89 N M ROTHSCHILD AND SONS (INDIA) PVT LTD Mumbai Maharashtra90 NEXGEN CAPITALS LTD New Delhi Delhi91 ORIENTAL BANK OF COMMERCE New Delhi Delhi

59


92 PIONEER INVESTCORP LTD Mumbai Maharashtra93 PNB GILTS LIMITED New Delhi Delhi94 PNR SECURITIES LTD New Delhi Delhi95 PRIME SECURITIES LTD Mumbai Maharashtra96 PUNEET ADVISORY SERVICES PVT LTD Mumbai Maharashtra97 PUNJAB & SIND BANK New Delhi Delhi98 PUNJAB NATIONAL BANK New Delhi Delhi99 R R. FINANCIAL CONSULTANTS LTD New Delhi Delhi

100 RABO INDIA SECURITIES PRIVATE LIMITED Mumbai Maharashtra101 ROLTA SHARES AND STOCKS PVT LTD Mumbai Maharashtra102 S B & T FINANCE PRIVATE LTD Mumbai Maharashtra103 SBI CAPITAL MARKETS LTD Mumbai Maharashtra104 SHRIYAM BROKING INTERMEDIARY LTD Mumbai Maharashtra105 SICOM LTD Mumbai Maharashtra106 SMIFS CAPITAL MARKETS LTD Calcutta West Bengal107 SOBHAGYA CAPITAL OPTIONS LTD. New Delhi Delhi108 SOCIETE GENERALE Mumbai Maharashtra109 SPA MERCHANT BANKERS LIMITED New Delhi Delhi110 SREI CAPITAL MARKETS LTD Calcutta West Bengal111 SSKI CORPORATE FINANCE PVT LTD Mumbai Maharashtra112 STANDARD CHARTERED BANK Mumbai Maharashtra113 STATE BANK OF BIKANER AND JAIPUR Jaipur Rajasthan114 STATE BANK OF HYDERABAD Hyderabad Andhra Pradesh

115 STATE BANK OF INDORE Indore Madhya Pradesh

116 STATE BANK OF SAURASHTRA Bhavnagar Gujarat117 STRATCAP SECURITIES (INDIA) PRIVATE LIMITED Mumbai Maharashtra118 SUMEDHA FISCAL SERVICES LTD Calcutta West Bengal119 SYNDICATE BANK Manipal Karnataka

120 SYSTEMATIX CORPORATE SERVICES LTD. Indore Madhya Pradesh

121 TAIB CAPITAL CORPORATION LTD Mumbai Maharashtra122 TAMILNAD MERCANTILE BANK LTD Tuticorin Tamil Nadu123 TATA SONS LIMITED Mumbai Maharashtra124 THE CATHOLIC SYRIAN BANK LTD Thrissur Kerala125 THE SANGLI BANK LTD Sangli Maharashtra126 TRANSWARRANTY CAPITAL PVT LTD Mumbai Maharashtra127 UBS SECURITIES INDIA PVT. LTD Mumbai Maharashtra128 UNION BANK OF INDIA Mumbai Maharashtra129 UNITED BANK OF INDIA Calcutta West Bengal130 UNITED WESTERN BANK LTD, THE Satara Maharashtra131 UTI BANK LTD Mumbai Maharashtra

132 UTI SECURITIES LTD(FORMERLY UTI SECURITIES EXCHANGE LTD) Mumbai Maharashtra

133 VCK CAPITAL MARKET SERVICES LTD Calcutta West Bengal134 VIJAYA BANK Bangalore Karnataka135 VLS SECURITIES LIMITED New Delhi Delhi136 VIVRO FINANCIAL SERVICES PVT LTD Ahemedabad Gujarat137 YES BANK LTD. Mumbai Maharashtra

Source: SEBI

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BIBLIOGRAPHY

BOOKS Merchant Banking – Principles and Practice – H.R.Machiraju

Managing IPO’s – The role of Investment Bankers – ICFAI University

Financial Management – Prasanna Chandra

NCFM Securities Market (Basic) Module – NSE

NEWSPAPERS The Economic Times

DNA Money

WEBSITES www.sebi.gov.in

www.nse-india.com

www.bseindia.com

www.indiainfoline.com

www.moneycontrol.com

www.dnaindia.com

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http://www.moneycontrol.com/

http://www.indiainfoline.com/

http://www.nse-india.com/

http://www.sebi.gov.in/

Investment Banking

Documents

merchant bankers act

merchant bankers regulations

merchant banking activities

issue allotment

business of issue management

securities market

capital requirements

issuers of capital