MFS

1. MFS ISSUE MANAGEMENT: ACTIVITIES/PROCEDURES

2. INITIAL PUBLIC OFFERING (IPO) • Corporates may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be made through the fixed price method, book building method or a combination of both. • In case the issuer chooses to issue securities through the book building route then as per SEBI guidelines, an issuer company can issue securities in the following manner: • 100% of the net offer to the public through the book building route. • 75% of the net offer to the public through the book building process and 25% through the fixed price portion.

3. Entry Norms For IPO & FPO Entry Norms: • Net Tangible Assets of at least Rs. 3 crores for 3 full years. • Distributable profits in atleast three years. • Net worth of at least Rs. 1 crore in three years. • If change in name, atleast 50% revenue for preceding 1 year should be from the new activity. • The issue size does not exceed 5 times the pre- issue net worth

4. BASIC CONCEPTS: • Bid - A bid is the demand for a security that can be entered by the syndicate/sub-syndicate members in the system. The two main features of a bid are the price and the quantity. • Bidder - The person who has placed a bid in the Book Building process. • Book Running Lead Manager: (BRLM) - A Lead Merchant Banker who has been appointed by the Issuer Company as the Book Runner Lead Manager. The name of the Book Runner Lead Manager is mentioned in the offer document of the Issuer Company. • Floor Price and Cap Price (PRICE BAND) - The minimum offer price below which bids cannot be entered. The Issuer Company in consultation with the Book Running Lead Manager fixes the floor price while the maximum offer price is known as Cap Price in Price Band.

5. BASIC CONCEPTS: CONT… • Merchant Banker - An entity registered under the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1999. • Order Book • It is an 'electronic book' that shows the demand for the shares of the company at various prices.

6. BASIC CONCEPTS: CONT… • Offer Document: • “Offer document” means Prospectus in case of a public issue or offer for sale and Letter of Offer in case of a rights issue, which is filed with Registrar of Companies (ROC) and Stock Exchanges. An offer document covers all the relevant information to help an investor to make his/her investment decision. • Red Herring Prospectus: • Red Herring Prospectus is a prospectus, which does not have details of EITHER PRICE OR NUMBER OF SHARES being offered, or THE AMOUNT OF ISSUE. This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares are determined later.

7. BASIC CONCEPTS: CONT… • Abridged Prospectus: • Abridged Prospectus means the memorandum as prescribed in Form 2A of section 56 of the Companies Act, 1956. • It contains all the salient features of a prospectus. It also combines the application form of public issues. • Lock-in: • Lock-in indicates a freeze on the shares. SEBI (DIP) Guidelines have stipulated lock-in requirements on shares of promoters mainly to ensure that the promoters or main persons who are controlling the company, shall continue to hold some minimum percentage in the company after the public issue.

8. BASIC CONCEPTS: CONT… • Who decides the price of an issue? • There is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. • There are two types of issues, • First Case: where company and LM fix a price (called fixed price) and • Second Case: where the company and LM stipulate a floor price or a price band and leave it to market forces to determine the final price (price discovery through book building process). Rameshwar Patel

9. BASIC CONCEPTS: CONT… • What is firm allotment? • A company making an issue to public can reserve some shares on “ALLOTMENT ON FIRM BASIS” for some categories as specified in DIP guidelines. • Allotment on firm basis indicates that allotment to the investor is on firm (definite) basis. DIP guidelines provide for maximum % of shares, which can be reserved on firm basis. • The shares to be allotted on “firm allotment category” can be issued at a price different (GENERALLY HIGHER) from the price at which the net offer to the public is made. Rameshwar Patel

10. BASIC CONCEPTS: CONT… • How many days is the issue open? • Subscription list for public issues shall be kept open for at least 3 working days and not more than 10 working days. • In case of Book built issues, the minimum and maximum period for which bidding will be open is 3–7 working days extendable by 3 days in case of a revision in the price band. • Listing Time After Closure of an Issue: • The listing on the stock exchanges is done within 7 days from the finalization of the issue. Ideally, it would be around 3 weeks after the closure of the book built issue. • In case of fixed price issue, it would be around 37 days after closure of the issue.

11. BASIC CONCEPTS: CONT… • The INTERMEDIARIES in an issue: • Merchant Bankers to the issue or Book Running Lead Managers (BRLM) • Syndicate Members • Registrars to the Issue • Bankers to the Issue • Auditors of the Company • Underwriters to the Issue • Solicitors Rameshwar Patel

12. BASIC CONCEPTS: CONT… • Green-shoe Option: • Green Shoe option means an option of allocating shares in excess of the shares included in the public issue and operating a post-listing price stabilizing mechanism for a period not exceeding 30 days in accordance with the provisions of Chapter VIIIA of DIP Guidelines, which is granted to a company to be exercised through a Stabilizing Agent. • This is an arrangement wherein the issue would be over allotted to the extent of a maximum of 15% of the issue size. • From an investor’s perspective, an issue with green shoe option provides more probability of getting shares and also that post listing price may show relatively more stability as compared to market. • Mainly practiced in US and European Markets

13. BASIC CONCEPTS: CONT… • What is Safety Net? • Any safety net scheme or buy-back arrangements of the shares proposed in any public issue shall be finalized by an issuer company with the lead merchant banker in advance and disclosed in the prospectus. • Such buy back or safety net arrangements shall be made available only to all original resident individual allottees limited up to a maximum of 1000 shares per allottee and the offer is kept open for a period of 6 months from the last date of dispatch of securities.

14. BASIC CONCEPTS: CONT… • Who is a Syndicate Member? • The Book Runner(s) may appoint those intermediaries who are registered with the Board and who are permitted to carry on activity as an ‘Underwriter’/ Syndicate Members. • The syndicate members are mainly appointed to collect and enter the bid forms in a Electronic Book in case of book built issue. • Differential pricing: • When one category of investors is offered shares at a price different from the other category it is called differential pricing. An issuer company can allot the shares to retail individual investors at a discount of maximum 10% to the price at which the shares are offered to other categories.

15. BASIC CONCEPTS: CONT… • What is HARD Underwriting? • Hard underwriting is when an underwriter agrees to buy his commitment at its earliest stage. The underwriter guarantees a fixed amount to the issuer from the issue. Additional shares are also purchased at later stage, if any. • What is SOFT Underwriting? • Soft underwriting is when an underwriter agrees to buy the shares at later stages as soon as the allocation process is complete. Rameshwar Patel

16. SALIENT FEATURES OF OFFER DOCUMENT (PROSPECTUS): • GENERAL INFORMATION: • NAME AND ADDRESS OF THE COMPANY • OPENING AND CLOSING DATES OF THE ISSUE • NAME OF STOCK EX. WHERE THE PRICE IS TO BE LISTED • NAME AND ADDRESS OF THE LEAD MANAGERS • CREDIT RATING OF AN ISSUE, IF ANY. • CAPITAL STRUCTURTE OF THE COMPANY: • ISSUED, SUBSCRIBED AND PAID UP CAPITAL • SIZE OF THE PRESENT ISSUE • DETAILS OF PROMOTER’S HOLDINGS AND LOCK-IN • TERMS OF PRESENT ISSUE: • HOW TO APPLY, AVAILABILITY OF FORMS AND MODE OF PAYMENT

17. SALIENT FEATURES OF OFFER DOCUMENT (PROSPECTUS): CONT….. • PARTICULARS OF THE ISSUE: • OBJECTIVES OF THE ISSUE • PROJECT COST AND MEANS OF FINANCING • COMPANY MANAGEMENT AND PROJECT: • HISTORY OF THE COMPANY • BACKGROUND OF PROMOTERS AND DIRECTORS • DETAILS OF PLANT, MACHINERY AND TECHNOLOGY • DETAILS OF COLLABORATIONS AND PARTNERSHIP, IF ANY • PRODUCT DETAILS • INSTALLED AND UTILISED CAPACITY • FUTURE PROSPECTS AND PLANS

18. SALIENT FEATURES OF OFFER DOCUMENT (PROSPECTUS): CONT… • FINANCIAL STATEMENTS AND PERFORMANCE: • P & L A/c AND BALANCE SHEET • PAST PROFIT AND LOSS DATA • ANY CHANGE IN ACCOUNTING POLICIES IN LAST 3 YEARS AND ITS EFFECTS ON PROFIT • FINANCIAL PERFORMANCE OF SUBSIDIARY COMPANY, IF ANY • RISK FACTORS OF THE COMPANY, IF ANY

19. Private Placement Market • It refers to the direct sale of newly issued securities to a small number of investors through merchant bankers. • These investors are selected clients; • Financial institutions • Corporate Bodies • Banks • High net worth individuals • BENEFITS: • Less time and cost of issue • Greater flexibility • Simplified procedure

20. PREFERENTIAL ISSUE: • A preferential issue is an issue of shares or of 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. • Shares are issued to Promoter’s Family/Friends/Relatives. • This is a faster way for a company to raise equity capital. The issuer company has to comply with the Companies Act and the requirements contained in Chapter pertaining to preferential allotment in SEBI (DIP) • ADVANTAGES; • To enhance promoters holding • To issue shares by way of employees stock option plans (ESOPs) Rameshwar Patel

21. Qualified Institutional Placement(QIP) • QIP is a capital raising tool, primarily used in India, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities which are convertible to equity shares to a Qualified Institutional Buyer (QIB). • Apart from preferential allotment, this is the only other speedy method of private placement whereby a listed company can issue shares or convertible securities to a select group of persons. • QIP is highly preferable over other methods because the issuing firm does not have to undergo complicated procedural requirements to raise this capital. • Why was it introduced? • The (SEBI) introduced the QIP process to prevent listed companies in India from developing an excessive dependence on foreign capital. Rameshwar Patel

22. Who can participate in the issue? • The specified securities can be issued only to QIBs, who shall not be promoters or related to promoters of the issuer. • The issue is managed by a SEBI-registered merchant banker. There is NO Pre-issue Filing of the placement document with SEBI. • The placement document is placed on the websites of the stock exchanges and the issuer, with appropriate disclaimer to the effect that the placement is meant only for QIBs on private placement basis and is not an offer to the public. Rameshwar Patel

23. BOOK BUILDING: “Book building is basically a method ofPRICE DISCOVERY. “ In this method, the company doesn't fix up a particular price for the shares, but instead gives a price range (PRICE BAND), e.g. Rs 80-100. When bidding for the shares, investors have to decide at which price they would like to bid for the shares, for e.g. Rs 80, Rs 90 or Rs 100. They can bid for the shares at any price within this range. Based on the demand and supply of the shares, the final price is fixed. The lowest price (Rs 80) is known as the FLOOR PRICE and the highest price (Rs 100) is known as CAP PRICE. The price at which the shares are allotted is known as - “CUT OFF PRICE”. The entire process begins with the selection of the lead manager, an investment banker whose job is to bring the issue to the public.

24. Book Building Process: • The Issuer who is planning to offer appoints lead merchant banker(s) as 'BOOK RUNNERS'. • The Issuer specifies the number of securities to be issued and the price band for the bids. • The Issuer also appoints syndicate members with whom orders are to be placed by the investors. • The syndicate members input the orders into an 'ELECTRONIC BOOK'. This process is called 'BIDDING‘. • The book normally remains open for a period of 5 days (means Issue time duration). • Bids have to be entered within the specified price band.

25. Book Building Process: Cont.. • On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels. • The book runners and the Issuer decide the final price at which the securities shall be issued. • Generally, the number of shares are fixed, the issue size gets frozen based on the final price per share. • Allocation of securities is made to the successful bidders. • The rest get refund orders. Rameshwar Patel

26. TYPES OF INVESTORS: • The Retail Individual Investor (RII), the Non-institutional Investor (NII) and the Qualified Institutional Buyers (QIBs). • RII is an investor who applies for stocks for a value of not more than Rs 100,000. Any bid exceeding this amount is considered in the NII category. • NIIs are commonly referred to as High Net-worth Individuals. • Each of these categories is allocated a certain percentage of the total issue. RII Category - 35 % of Total Issue NII Category - 15 % of Total Issue QIB Category - 50 % of Total Issue • Allotment to RIIs and NIIs is made through a proportionate allotment system. The allotment to the QIBs is at the discretion (sometimes Firm Allotment) of the BRLM.

27. BOOK BUILDING V/s FIXED PRICE

28. Qualified Institutional Buyers (QIBs) • ‘Qualified Institutional Buyer’ shall includes: • Public financial institution • Scheduled commercial banks; • Mutual Funds; • Foreign institutional investor registered with SEBI; • Venture Capital funds registered with SEBI. • Foreign Venture Capital investors registered with SEBI. • State Industrial Development Corporations. • Insurance Companies • Provident /Pension Funds with minimum corpus (fund) of Rs.25 crores

29. Reverse Book Building • It is a price discovery mechanism for the companies who want to delist their shares or buy back shares from the shareholders.