The road show
The road show is one of the key market building activities. Basically, it is a series of presentations to potential large investors and to influencers (read financial journalists) about your issue. The lead manager and the PR agency organize these events. Depending on the size of the issue and the sector you are in, road shows will be conducted abroad also. The road show hits the road long before the issue hits the market.
In real life, it does not end till the issue closes, with the promoters continually following up with potential large investors (institutions as well as individuals) and trying to convince them to invest in the issue.
The process
An IPO is done through Lead Managers. Lead Managers are merchant bankers, ie, investment banks or financial consultants who help you execute the IPO. Depending on the size of the issue and the market segments you want to tap, you will choose one or more managers to the issue. A merchant banker cannot be the lead manager if both the banker and the company issuing shares have common directors.
The draft offer document is the preliminary offer document which contains complete information about your company’s background, management, finances, accounting practices, legal aspects, future plans, etc. It also provides detailed information about the reasons behind the IPO and where the capital raised will be deployed. It is prepared with the objective of providing a potential investor all information that is required to make an investment decision. SEBI issues you an Observation Letter, wherein it might give you a straight green signal or suggest modifications which you will have to incorporate in your draft offer document and re-file it with SEBI. Once you receive the go-ahead from SEBI, you have a minimum of 21 days and a maximum of 3 months to file your Offer Document with the Registrar of Companies.
| DARE/IPO basics |
| Draft offer document filed with SEBI by Lead Manager |
| Filing of Offer Document with RoC: Within 21-180 days from the time of receipt of Observation Letter from SEBI, giving clearance. |
| Promoters’ contribution: minimum 20% of post-issue capital |
| Lock-in period: 1 year bar on trading for pre- issue stock. Promoters’ shareholding unto 20% of total share capital is locked in for 3 years . |
| Issue open for 3-10 days |
| Minimum subscription required: 90% of issue size |
| Allotment for retail investors on competitive basis: at least 25% of issue size |
| Allotment for book-built issues: 35:15:50 for Retail investors: Non-institutional investors: QIBs |
| Firm allotment: Up to 10% of issue size to employees. Same for existing shareholders |
| No. of days to list: Around 3 weeks after closure of book-built issue |
| Relisting of delisted securities after a cooling period of 2 years |
The minimum amount of subscription required is 90%, failing which you are required to refund the entire amount to the investors. You can also resort to differential pricing, reserving some shares under Firm Allotment to be offered at a price different from what is offered to the general public, as long as the offer is at a price higher than the price at which the net offer to the public is made.
Firm allotment to employees and shareholders can be unto 10% of the issue size for each category. Once the basis of allotment is finalized, the final list of eligible allotees is drawn up by the Issue Registrar. Once the IPO is successful, the issue is registered with the stock exchanges, usually NSE (National Stock Exchange, Bombay) and BSE (Bombay Stock Exchange); a process known as Listing. Listing is executed through a formal agreement made with the stock exchange, known as a Listing agreement.
Delisting
You also have the option of delisting from your shares from the stock exchange, which means that trading on your shares in the concerned exchange will be discontinued. Delisting happens for three reasons - voluntary delisting by the company, public shareholding falling below the minimum limit specified in the listing conditions or listing agreement or compulsory delisting by the stock exchange.
Voluntary delisting can be done after a minimum of 3 years’ trading period in any stock exchange. It is done through Reverse Book Building wherein the company offers to buyback shares from its shareholders through a bidding conducted by Book Running Lead Managers.
Compulsory delisting happens when a company is suspended for a period of six months or more for not complying with the stipulations laid down in the Listing agreement. Stock exchanges allow the relisting of delisted securities only after a cooling period of two years.
| DARE/elements of an IPO |
| Observation letter from SEBI: This is the document that gives the go-ahead for the IPO or asks for corrections to the offer document |
| Offer document: Details the reasons for the IPO, the past and expected performance of the company, background of the promoters, etc. The full offer document can be quite huge. So, there is also an abridged offer document. |
| Red Herring Prospectus: The offer document - prospectus -minus the pricing and total number of shares on offer. |
| Opening and closing announcements: The company needs to take out advertisements announcing the opening and closing dates of the issue in at least one national English daily, one Hindi national daily and in one regional newspaper where it has its registered offices and on its website |
| Trading window closure: Occurs after listing. Period during which insiders (Promoters, Directors, senior employees upto three levels below the directors, all employees in the Accounts department, etc.) cannot trade in the companies shares. |
| Annual / quarterly results: Financial results of the company, approved by the Board of Directors. |
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