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 FAQ - IPO
     
 
    What is an ECS Facility?
    What is an Initial Public Offering?
    What is a Follow on Public Offering?
    What is a Rights Issue?
    What is Sebi’s role in an issue?
    Does Sebi recommends an issue?
    Does Sebi approve the contents of the issue?
    What is the difference between an Offer Document, Red Herring Prospectus, a Prospectus
      and an Abridged Prospectus? What does it mean when someone says “Draft
      Offer Document”
?
    What is a Red Herring Prospectus?
    What is anAbridged Prospectus?
    Who decides the price of an issue?
    What is a Fixed Price Offer?
   What does “price discovery through book building process” mean?
    How does Book Building work?
    What is a price band?
    What is a Cut Off Price?
    What is firm allotment?
    What is reservation on competitive basis?
    Who is eligible for reservation and how much? (QIBs, NIIs, etc.,)
    Who is a Qualified Institutional Buyer?
    How is the Retail Investor defined as?
    How many days is the issue open?
    Can I change/revise my bid?
    Can I know the number of shares that would be allotted to me?
    Which are the reliable sources for me to get information about response to issues?
    How long will it take after the issue for the shares to get listed?
    What is a Green shoe option?
    What is the recourse available to the investor in case of issue complaints?
 
 
     
 


What is an ECS Facility?

Electronic Clearing Scheme (ECS) available at 64 Centres.

Centres managed by RBI (15)
Ahmedabad, Bangalore, Bhubneshwar, Kolkata, Chandigarh, Chennai, Guwahati, Hyderabad, Jaipur, Kanpur, Mumbai, Nagpur, New Delhi, Patna, Thiru'puram.

Centres managed by State Bank of India (21)
Baroda, Dehradun, Nashik, Panaji, Surat, Trichy, Trichur, Jodhpur, Gwalior, Jabalpur, Raipur, Calicut, Siliguri (non-MICR), Pondicherry, Hubli, Shimla(Non-MICR), Tirupur, Burdwan (Non-Micr), Durgapur (Non-Micr), Sholapur, Ranchi

Centres managed by Punjab National Bank (13)
Agra, Allahabad, Jalandhar, Lucknow, Ludhiana, Varanasi, Kolhapur, Aurangabad, Mysore, Erode, Udaipur, Gorakhpur, Jammu

Centres managed by State Bank of Indore (1)
Indore

Centres managed by Union Bank of India (3)
Pune, Salem, Jamshedpur

Centres managed by Andhra Bank (1)
Visakhapatnam

The applicant having a bank account in one of the aforesaid 64 (bank) centers will get refunds through ECS. You are requested to ensure that bank details including MICR code ( a 9 digit code which appears in the cheque leaf) maintained at the depository level are updated at your DP end The bank account details will be directly taken from the depositories' database and hence are not required to be filled in the application form for issues wholly made in dematerialized form. You shall get individual intimations about details of the bank where refund amount (if any) have been credited .These intimation shall be dispatched by the Registrars within 15 days ( in case of a Book Built issue) and 30 days (in case of Fixed price issue) from the closure of the issue. SEBI has provided for various mode of making refund to the applicants viz. Direct Credit, RTGS (Real Time Gross Settlement), ECS (Electronic Clearing Service) and NEFT (National Electronic Funds Transfer). As stated above, applicants in 64 centers where clearing houses are managed by RBI and other banks will get refunds through ECS . Applicants at other centers will continue to get refunds through Registered/Ordinary post. Applicants are advised to read the instructions given in the prospectus/ abridged prospectus/ application form carefully.


 
   
 


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. This paves way for listing and trading of the issuer's securities.


 
   
 



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 Rights Issue?

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

 
   
 


What is Sebi's role in an issue?

Any company making a public issue or a listed company making a rights issue of value of more than Rs 50 lakh is required to file a draft offer document with Sebi for its observations. The company can proceed further on the issue only after getting observations from Sebi. The validity period of Sebi's observation letter is three months only i.e. the company has to open its issue within three months period.

 
   
 


Does Sebi recommends an issue?

Sebi does not recommend any issue nor does take any responsibility either for the financial soundness of any scheme or the project for which the issue is proposed to be made or for the correctness of the statements made or opinions expressed in the offer document

 
   
 



Does Sebi approve the contents of the issue?

It is to be distinctly understood that submission of offer document to Sebi should not in any way be deemed or construed that the same has been cleared or approved by Sebi. The lead manager certifies that the disclosures made in the offer document are generally adequate and are in conformity with Sebi guidelines for disclosures and investor protection in force for the time being. This requirement is to facilitate investors to take an informed decision for making investment in the proposed issue.

 
   
 

What is the difference between an Offer Document, Red Herring Prospectus, a Prospectus and an Abridged Prospectus? What does it mean when someone says “Draft 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 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. “Draft Offer document” means the offer document in draft stage. The draft offer documents are filed with Sebi, atleast 21 days prior to the filing of the Offer Document with ROC/ SEs. Sebi may specifies changes, if any, in the Draft Offer Document and the issuer or the lead merchant banker shall carry out such changes in the Draft Offer Document before filing the Offer Document with ROC/ SEs. The Draft Offer document is available on the Sebi website for public comments for a period of 21 days from the filing of the Draft Offer Document with Sebi.


 
   
 


What is a Red Herring Prospectus?

Red Herring Prospectus, RHP, 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. An RHP for and FPO can be filed with the RoC without the price band and the issuer, in such a case will notify the floor price or a price band by way of an advertisement one day prior to the opening of the issue. In the case of book-built issues, it is a process of price discovery and the price cannot be determined until the bidding process is completed. Hence, such details are not shown in the Red Herring Prospectus filed with RoC in terms of the provisions of the Companies Act. Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with RoC is called a Prospectus.


 
   
 

What is anAbridged Prospectus?

Abridged Prospectus means the memorandum as prescribed in Form 2A under sub-section (3) of section 56 of the Companies Act, 1956. It contains all the salient features of a prospectus. It accompanies the application form of public issues

 

 
   
 



Who decides the price of an issue?

Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines have provided that the issuer in consultation with Merchant Banker shall decide the price. There is no price formula stipulated by Sebi. Sebi does not play any role in price fixation. The company and merchant banker are however required to give full disclosures of the parameters which they had considered while deciding the issue price. There are two types of issues one where company and LM fix a price (called fixed price) and other, 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).


 
   
 



What is a Fixed Price Offer?

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. The 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 Draft Offer Documents filed with Sebi and actual price can be determined at a later date before filing of the final offer document with Sebi/RoCs.


 
   
 



What does “price discovery through book building process” mean?

“Book Building” means 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 the securities is assessed on the basis of the bids obtained for the quantum of securities offered for subscription by the issuer. This method provides an opportunity to the market to discover price for securities.

 
   
 



How does Book Building work?

Book building is a process of price discovery. Hence, the Red Herring prospectus does not contain a price. Instead, the red herring prospectus contains either the floor price of the securities offered through it or a price band along with the range within which the bids can move. The applicants bid for the shares quoting the price and the quantity that they would like to bid at. Only the retail investors have the option of bidding at ‘cut-off'. After the bidding process is complete, the ‘cut-off' price is arrived at on the lines of Dutch auction. The basis of Allotment is then finalized and letters allotment/refund is undertaken. The final prospectus with all the details including the final issue price and the issue size is filed with ROC, thus completing the issue process.

 

 
   
 



What is a price band?

The Red Herring Prospectus may contain either the floor price for the securities or a price band within which the investors can bid. The spread between the floor and the cap of the price band shall not be more than 20%. In other words, it means that the cap should not be more than 120% of the floor price. The price band can have a revision and such a revision in the price band shall be widely disseminated by informing the stock exchanges, by issuing press release and also indicating the change on the relevant website and the terminals of the syndicate members. 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 thirteen days.


 
   
 



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”. This is decided by the issuer and LM after considering the book and investors' appetite for the stock. Sebi (DIP) guidelines permit only retail individual investors to have an option of applying at Cut Off Price.

 

 
   
 



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 basis. DIP guidelines provide for maximum percent 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 from the price at which the net offer to the public is made provided that the price at which the security is being offered to the applicants in firm allotment category is higher than the price at which securities are offered to public.

 

 
   
 



What is reservation on competitive basis?

Reservation on competitive basis is when allotment of shares is made in proportion to the shares applied for by the concerned reserved categories. Reservation on competitive basis can be made in a public issue to the employees of the company, shareholders of the promoting companies in the case of a new company and shareholders of group companies in the case of an existing company, Indian mutual funds, foreign institutional investors (including non resident Indians and overseas corporate bodies), Indian and multilateral development institutions and scheduled banks.

 

 
   
 



Who is eligible for reservation and how much? (QIBs, NIIs, etc.,)

In a book built issue allocation to Retail Individual Investors, RIIs, Non Institutional Investors, NIIs, and Qualified Institutional Buyers, QIBs, is in the ratio of 35:15:50 respectively. In case the book built issues are made pursuant to the requirement of mandatory allocation of 60% to QIBs in terms of Rule 19(2)(b) of SCRR, the respective figures are 30% for RIIs and 10% for NIIs. This is a transitory provision pending harmonization of the QIB allocation in terms of the aforesaid uule with that specified in the guidelines.


 
   
 



Who is a Qualified Institutional Buyer?

Qualified Institutional Buyers are those institutional investors who are generally perceived to possess expertise and the financial muscle to evaluate and invest in the capital markets. In terms of clause 2.2.2B (v) of DIP guidelines, a ‘Qualified Institutional Buyer' shall mean: a. Public financial institution as defined in section 4A of theCompanies Act, 1956; b. Scheduled commercial banks; c. Mutual funds; d. Foreign institutional investor registered with Sebi; e. Multilateral and bilateral development financial institutions; f. Venture capital funds registered with Sebi. g. Foreign Venture capital investors registered with Sebi. h. State Industrial Development Corporations. i. Insurance Companies registered with the Insurance Regulatoryand Development Authority, IRDA. j. Provident Funds with minimum corpus of Rs 25 crore k. Pension Funds with minimum corpus of Rs 25 crore These entities are not required to be registered with Sebi as QIBs. Any entities falling under the categories specified above are considered as QIBs for the purpose of participating in primary issuance process.


 
   
 



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.


 
   
 


How many days is the issue open?

As per Clause 8.8.1, 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. The public issue made by an infrastructure company, satisfying the requirements in Clause 2.4.1 (iii) of Chapter II may be kept open for a maximum period of 21 working days. As per clause 8.8.2., rights issues shall be kept open for at least 30 days and not more than 60 days.

 

 
   
 


Can I change/revise my bid?

Yes. The investor can change or revise the quantity or price in the bid using the form for changing/revising the bid that is available along with the application form. However, the entire process of changing of revising the bids shall be completed within the date of closure of the issue.


 
   
 



Can I know the number of shares that would be allotted to me?

In case of fixed price issues, the investor is intimated about the CAN/Refund order within 30 days of the closure of the issue. In case of book built issues, the basis of allotment is finalized by the book running lead Managers within 2 weeks from the date of closure of the issue. The registrar then ensures that the demat credit or refund as applicable is completed within 15 days of the closure of the issue. The listing on the stock exchanges is done within 7 days from the finalization of the issue.


 
   
 



Which are the reliable sources for me to get information about response to issues?

In the case of book-built issues, the exchanges (BSE/NSE) display the data regarding the bids obtained (on a consolidated basis between both these exchanges). The data regarding the bids is also available categorywise. After the price has been determined on the basis of bidding, the statutory public advertisement containing, inter alia, the price as well as a table showing the number of securities and the amount payable by an investor, based on the price determined, is issued.

 

 
   
 




How long will it take after the issue for the shares to get listed?

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.


 
   
 



What is a 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.


 
   
 



What is the recourse available to the investor in case of issue complaints?

Most of the issue complaints pertain to non-receipt of refund or allotment, or delay in receipt of refund or allotment and payment of interest thereon. These complaints shall be made to the post issue lead manager, who in turn will take up the matter with registrar to redress the complaints. In case the investor does not receive any reply within a reasonable time, investor may complain to Sebi, Office of investors Assistance.