FAQ - IPO
What is primary & secondary market?
Primary market is the market where shares are offered to investors for the first time by the issuer company to raise their capital.
Secondary market is the market where stocks are traded after they are initially offered to the investor in primary market (IPO's etc.) and get listed on the stock exchange. Thus, Secondary market is a platform to trade listed equities, while Primary market is the way for companies to enter the secondary market.
What is the difference between Book Building Issue and Fixed Price Issue?
Initial Public Offering can be made through the fixed price method, book building method or a combination of both.
What is an IPO?
Initial public offering (IPO) is an offering of stock or shares to the general public by a company which wants to raise capital for the first time. In return, the company issues the shares to the investors in the company.
What is ‘IPO Grading’?
IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of equity shares. The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India.
Such grading is generally assigned on a five-point scale with a higher score indicating stronger fundamentals and vice versa as below.
IPO grade 1: Poor fundamentals
IPO grade 2: Below-average fundamentals
IPO grade 3: Average fundamentals
IPO grade 4: Above-average fundamentals
IPO grade 5: Strong fundamentals
IPO grading has been introduced as an effort to make additional information available for the investors in order to facilitate their assessment of equity issues offered through an IPO.
What do you mean by Price Band?
Price band is the spread within which the investors can bid. The price band usually contains an upper level and a lower level. The spread between the price band shall not be more than 20%. 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 ten days.
What is the CUT-OFF price?
In Book Building process retail investors have an additional option to choose "Cut-Off" price for bidding. Cut-off price means the investor is ready to pay whatever price is decided by the company at the end of the book building process. Retail investors have to pay the highest price while placing the bid at Cut-Off price. If company decides the final price lower than the highest price asked for, the remaining amount is returned to the retail investor.
Who decides the Price Band?
Company with help of lead managers (merchant bankers or syndicate members) decides the price or price band of an IPO.SEBI, the regulatory authority in India or Stock Exchanges do not play any role in fixing the price of a public issue. SEBI just validates the content of the IPO prospectus.
What is the role of Lead Managers in an IPO?
Lead managers are independent financial institutions appointed by the company offering the shares to the public. Companies can appoint more than one lead manager to manage big IPO's. Their main responsibilities are to initiate the IPO processing, help company in road shows, creating draft offer document and get it approved by the SEBI and stock exchanges and helping the company to list its shares on the stock market.
What is the role of the registrar of an IPO?
Registrar of a public issue is an independent financial institution registered with SEBI and stock exchanges. It is appointed by the company going public. Responsibility of a registrar for an IPO involves processing of IPO applications, allocation of shares to the applicants based on SEBI guidelines, process refunds through ECS or cheque and transfer allocated shares to investors Demat accounts.
What is the role of Syndicate member in the IPO?
Syndicate members are commercial or investment banks responsible for underwriting IPO's. Syndicate members are usually registered with SEBI or registered as brokers with BSE / NSE Stock Exchanges.
They work as intermediaries for Issuer Company and the buyers of the IPO stocks. Investors submit their bids for IPO shares through Syndicate Members appointed by the Issuer Company.
They are also known as 'The Members of the Syndicate'.The Members of the Syndicate circulate copies of the Red Herring Prospectus along with the bid cum application form to potential investors. They are also responsible for accepting the bids, payments and application forms for the public issue. After receiving the bid for IPO Shares from an investor, Syndicate Member enters bidding detail into the electronic bidding system and generates a Transaction Registration Slip ("TRS") for each price and demand option and give the same to the bidder.The Bidder can make the revision to the bid any number of times during the Bidding Period.
However, for any revision(s) in the Bid, the Bidders should use the services of the same member of the Syndicate through whom he or she had placed the original Bid.
the Members of Syndicate deposit all the money received from investors to the Escrow Account opened by the Issuer Company. The Bid cum Application Form along with other supporting documents is then send to the registrar of the issue for further processing.
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.
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 2, 00, 000. Any bid made in excess of this will be considered in the HNI category.
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 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.
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 the "Green-shoe” Option?
The green shoe option is a clause in the underwriting agreement of an IPO, which allows selling additional shares, usually 15%, to the public if the demand exceeds expectations and the stock trades above its offering price.
How can I get information on forthcoming IPOs?
When you login to our website, on the HOME PAGE there is an icon on the left down "IPO”. This covers in-depth analysis of IPOs. When clicked on it, you will get a list of all closed, current as well as forthcoming issues with opening and closing dates.
Where can I get a form for investing in the IPO / Public Issue?
You can get a form for investing in the IPO from any of our branch offices.
Who would guide me whether to buy an IPO issue or not?
Our research team provides its opinion on the issue based on an analysis of the company’s financials, promoters’ background and other key details. This can help in guiding your investment decision.
What are ADR and GDRs?
ADR stands for American Depository Receipts and GDR stands for Global Depository Receipts.
A depositary receipt (DR) is a type of negotiable (transferable) financial security that is traded on a local stock exchange but represents a security, usually in the form of equity that is issued by a foreign publicly listed company. Thus these are a physical certificate which allows investors to hold shares in equity of other countries.
What is the difference between the ADRs and GDRs?
If the depository receipt is traded in the United States of America (USA), it is called an American Depository Receipt, or an ADR. If the depository receipt is traded in a country other than USA, it is called a Global Depository Receipt, or a GDR.
What do you mean by Foreign Currency Convertible Bonds?
Foreign currency convertible bond (FCCB) is a convertible bond issued by a country in a currency different than its own currency. This is the powerful instrument by which the country raises the money in the form of a foreign currency. The bond acts like both a debt and equity instrument. Like bonds it makes regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock.
How does issuing FCCB help the issuing companies?
Some companies, banks, governments, and other sovereign entities may decide to issue bonds in foreign currencies because:
• It may appear to be more stable and predictable than their domestic currency
• Gives issuers the ability to access investment capital available in foreign markets
• The bond acts like both a debt and equity instrument. Like bonds it makes regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock
• It is a low cost debt as the interest rates given to FCC Bonds are normally 30-50 percent lower than the market rate because of its equity component.
• Conversion of bonds into stocks takes place at a premium price to market price. Conversion price is fixed when the bond is issued.
How does applying for FCCB benefit the investor?
• Safety of guaranteed payments on the bond
• Can take advantage of any large price appreciation in the company’s stock
• Redeemable at maturity if not converted
• Easily marketable as investors enjoys option of conversion in to equity if resulting to capital appreciation
How is taxation done on FCCBs?
Taxation is computed in the following way:
• Until the conversion option is exercised, all the interest payments on the bonds, is subject to deduction of tax at source at the rate of 10%.
• If Foreign Currency Convertible Bonds ( FCCB ) is converted into shares it will not give rise to any capital gains liable to income-tax in India
• If Foreign Currency Convertible Bonds (FCCB) is transferred by a non-resident investor to another non-resident investor it shall not give rise to any capital gains liable to tax in India.