Who decides the price of an issue?

 The issuer in consultation with Merchant Banker shall decide the price.
 SEBI does not play any role in price fixation.
 There are two types of issues:
(i) The company and Lead Merchant Banker fix a price : fixed price
(ii) The company and the Lead Manager 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 does ‘price discovery through Book Building Process’ mean?
 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.
What is the main difference between offer of shares through book building and
offer of shares through normal public issue?
Basis Public issue Book Building Process
Price price is known in advance to Price at which securities will
the investor be allotted is not known
Demand Demand can be known Demand is known at the
everyday as the book is being close of the issue.
built
What is Cut-Off Price?
 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”.
 Floor price in book building is the minimum price.
Price band:
 The spread between the floor and the cap of the price band
 Price band is fixed by the Company in consultation with the Merchant
banker.
 Minimum number of days for which a bid should remain open in book
building process is 3 days.
 No outcry system for Book building process only electronic system is
allowed.
Can the individual investor use the book building facility to make an
application? Yes.
How does one know if shares are allotted in an IPO/offer for sale? What is the
timeframe for getting refund if shares not allotted? Within 11 Days
 Allotment should be completed with 8 days from the issue close date.
 As soon as the basis of allotment is completed, within 2 working days the
details of credit to Demat account / allotment advice and despatch of
refund order needs to be completed.
How long does it take to get the shares listed after issue? 12 working days
Role of a ‘Registrar’ to an issue:
The Registrar finalizes the list of eligible allottees after deleting the invalid
applications and ensures that the corporate action for crediting of shares to
the demat accounts of the applicants is done and the dispatch of refund orders
to those applicable are sent.
Does NSE provide any facility for IPO?
Yes. NSE’s electronic trading network spans across the country providing access
to investors.
What is a Prospectus?
It’s the disclosure of information to the public. This disclosure includes
information like the reason for raising the money, the way money is proposed
to be spent, the return expected on the money etc. This information is in the
form of ‘Prospectus’ which also includes information regarding the size of the
issue, the current status of the company, its equity capital, its current and past
performance, the promoters, the project, cost of the project, means of
financing, product and capacity etc
Draft Offer document:
The offer document ( Prospectus) in draft stage.
The draft offer documents are filed with SEBI, atleast 30 days prior to the
registration of red herring prospectus or prospectus with Registrar.
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.
‘Abridged Prospectus’
It is a shorter version of the Prospectus and contains all the salient features of a
Prospectus.
Who prepares the ‘Prospectus’: ‘Merchant Bankers’
‘Lock-in’ : It indicates a freeze on the sale of shares for a certain period of time.
‘Listing of Securities’:
Listing means admission of securities of an issuer to trading privileges on a
stock exchange through a formal agreement.
The prime objective of admission to dealings on the exchange is to provide
liquidity and marketability to securities, as also to provide a mechanism for
effective control and supervision of trading.
‘Listing Agreement’:
It specifies the terms and conditions of listing and the disclosures that shall be
made by a company on a continuous basis to the exchange.
‘Delisting of securities’:
Permanent removal of securities of a listed company from a stock exchange. As
a consequence of delisting, the securities of that company would no longer be
traded at that stock exchange.
SEBI’s Role in an Issue:
 Companies are required to file a draft offer document with SEBI for its
observations.
 SEBI does not recommend any issue nor does take any responsibility
either for the financial soundness of any scheme or the project.
 SEBI does not associate itself with any issue/issuer and should not
guarantee for the funds to the investor.
Can companies in India raise foreign currency resources?
Yes. Indian companies are permitted to raise foreign currency resources
through two main sources.
(i) issue of foreign currency convertible bonds more commonly known as
‘Euro’ issues
(ii) Issue of ordinary shares through depository receipts namely ‘Global
Depository Receipts (GDRs)/American Depository Receipts (ADRs)’ to
foreign investors .
An American Depositary Share (“ADS”) is a U.S. dollar denominated form of
equity ownership in a non-U.S. company.
ADSs are issued by a depository bank, such as JPMorgan Chase Bank.
They are traded in the same manner as shares in U.S. companies, on the New
York Stock Exchange (NYSE) and the American Stock Exchange (AMEX) or
quoted on NASDAQ and over-the-counter (OTC) market.
Global Depository Receipts (GDRs) may be defined as a global finance vehicle
that allows an issuer to raise capital simultaneously in two or markets through
a global offering.
1 GDR=10 shares