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All About IPO

This document defines and explains key terms related to initial public offerings (IPOs) and follow-on public offerings (FPOs) in India. It states that an IPO is when an unlisted company issues securities to the public for the first time, while an FPO is when an already listed company issues additional securities. It also describes fixed price and book building IPOs, cut-off prices, retail investors, and the different types of public issues like IPOs, FPOs, and rights issues. Finally, it outlines SEBI's eligibility norms for companies making public issues in India.

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56 views3 pages

All About IPO

This document defines and explains key terms related to initial public offerings (IPOs) and follow-on public offerings (FPOs) in India. It states that an IPO is when an unlisted company issues securities to the public for the first time, while an FPO is when an already listed company issues additional securities. It also describes fixed price and book building IPOs, cut-off prices, retail investors, and the different types of public issues like IPOs, FPOs, and rights issues. Finally, it outlines SEBI's eligibility norms for companies making public issues in India.

Uploaded by

newdelhiindia
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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All About IPO's and FPO's

What is an Initial Public Offering?

Initial Public Offering, IPO, is when an unlisted company makes either a fresh issue of
securities or an offer for sale of its existing securities or both for the first time to the public.

What is a Follow on Public Offering?

A Follow on Public Offering, FPO, is when an already listed company makes either a fresh
issue of securities to the public or an offer for sale to the public, through an offer document.
An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous
listing obligations.

What is a Fixed Price IPO?

It’s an issue where issuing company defines single price per share. After subscription,
company decides the basis of allotment depending upon under/over subscription. On this
basis an applicant may or may not get allotment of shares.

What is a Book Building IPO?

It’s an issue where issuing company defines a price range i.e floor (lower) price and Cap
(Upper) price. After subscription, company decides the basis of allotment depending upon
under/over subscription. On this basis an applicant may or may not get allotment of shares.

What is a Cut Off Price?

In Book building issue, the issuer is required to indicate either the price band or a floor price
in the red herring prospectus. The actual discovered issue price can be any price in the price
band or any price above the floor price. This issue price is called “Cut Off Price”. Only retail
individual investors have an option of applying at Cut Off Price.

How is the Retail Investor defined as?

‘Retail Individual Investor’ means an investor who applies or bids for securities of or for a
value of not more than Rs.1,00,000/

What are the different kinds of issues?

Primarily, issues can be classified as a Public, Rights or preferential


issues (also known as private placements). While public and rights issues involve a detailed
procedure, private placements or preferential issues are relatively simpler. The classification
of issues is illustrated below:Public issues can be further classified into Initial Public
offerings andfurther public offerings. In a public offering, the issuer makes an offer fornew
investors to enter its shareholding family. The issuer company makes detailed disclosures as
per the DIP guidelines in its offerdocument and offers it for subscription.
The significant features are illustrated below:

Issues
Public Preferential Rights
Initial Public Offering Further Public Offering
Fresh Issue Offer for sale Fresh Issue Offer for sale

Initial Public Offering (IPO) is when an unlisted company makes either a


fresh issue of securities or an offer for sale of its existing securities or
both for the first time to the public. This paves way for listing and trading
of the issuer’s securities.

A follow on public offering (FPO) is when an already listed company makes either a fresh
issue of securities to the public or an offer for sale to the public, through an offer document.
An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous
listing obligations.

Rights Issue (RI) is when a listed company which proposes to issue fresh securities to its
existing shareholders as on a record date. The rights are normally offered in a particular ratio
to the number of securities held prior to the issue. This route is best suited for companies who
would like to raise capital without diluting stake of its existing shareholders unless they do
not intend to subscribe to their entitlements.

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. 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)

What are the eligibility norms for making these issues?

SEBI has laid down eligibility norms for entities accessing the primary market through public
issues. There is no eligibility norm for a listed compaNy making a rights issue as it is an offer
made to the existing shareholders who are expected to know their company. The main entry
norms for companies making a public issue (IPO or FPO) are summarized as under:

Entry Norm I (EN I): The company shall meet the following
requirements:
(a) Net Tangible Assets of at least Rs. 3 crores for 3 full years.
(b) Distributable profits in atleast three years
(c) Net worth of at least Rs. 1 crore in three years
(d) If change in name, atleast 50% revenue for preceding 1 year should be from the new
activity.
(e) The issue size does not exceed 5 times the pre- issue net worth
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
OR
Entry Norm III (EN III):
(a) The “project” is appraised and participated to the extent of 15% by FIs/Scheduled
Commercial Banks of which at least 10% comes from the appraiser(s).
(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

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