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Case study of Snowman Logistics Ltd and Shemaroo Entertainment LtdCRITICAL REPORT ON DISCLOSURE IN OFFER DOCUMENTSPresented by:Asdulla KhanFarhin MaldarAsif BaigJavedPrashantAdilAltamashHasibFaisalOctober 2014

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To make aware the intending investors about the procedure what has to be followed in the issue of securities for public subscription.To provide them the guidelines which are to be followed by companies in an IPO.To know the key terms and various stages in an IPO process.About the various parties involved along with the company for making an IPO.To look into the aspects of different companies which have come for an IPO recently along with their respective strengths and weakness.To know how the share are valued and the different methods of pricing them in an IPO.To know the various parties involved in an IPO and their respective formalities to be completed.To know the factors which can lead to success or failure of an IPOObjective & our approach to study

Any business cannot run without funds.All subscribers should pay the value of shares agreed to be taken by them.But this initial capital may not be sufficient for running a business.Public Offer & Private Placement (Companies Act 2013)

A company can issue capital by issuing securities.

There are separate legal methods for public and private companies for issuing securities.

A Private Company may issue its securities:By way of right or bonus issue; orThrough private placement.ISSUE OF SECURITIES BY PRIVATE COMPANIES

ISSUE OF SECURITIES BY PUBLIC COMPANIES A Public company may issue securities:To public through prospectus i.e.Public Offer.Through private placement;Through right issue.The term public offer includes initial public offer; or further public offer; or Offer for sale of securities to the public by an existing shareholder through issue of a prospectus.

FUND RAISING OPTIONSFund Raising OptionsIn IndiaDebtEquityHybridFrom Banks & FIsIPOVarious forms of ConvertiblesPublic issue of Bonds/DebenturesFPORight IssuePref. Issue

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.PurposeFor Funding needsFunding Capital Requirements for Organic GrowthExpansion through ProjectsDiversificationFunding Global RequirementsFunding Joint Venture and Collaborations needsFunding Infrastructure Requirements, Marketing Initiatives.What is an IPO and its purpose?

Distribution ChannelsFinancing Working Capital RequirementsFunding General Corporate PurposesInvesting in businesses through other companiesRepaying debt to strengthen the Balance SheetMeeting Issue ExpensesFor Non-funding NeedsEnhancing Corporate StatureRetention and incentive for Employees through stock optionsProvide liquidity to the shareholdersWhat is an IPO and its purpose?

Governing LawsBefore 1992, Public issues were governed by Chief Controller of Capital Issues (CCCI).In 1992, CCCI has been abolished and SEBI has been formed. Now IPO is governed by Followings:The Companies Act 2013SEBI (Disclosure & Investor Protection) Guidelines, 2000Securities Contracts (Regulation) Act, 1956Listing norms/Guidelines of NSE/BSEIPO

Different Kinds of Issues

Issues Public Rights Initial Public Offering Fresh Issue Offer For Sale Preferential Further Public Offering Fresh Issue Offer For Sale

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IPO Floating Process

DIFFERENCE BETWEEN IPO IN INDIA & USINDIAUS1. In India the books are built directly by the companies.1. The underwriter takes the shares on his books and then allots shares to theinvestors.2. The book-building process is transparent.2. The book-building process is confidential.3. In India the book has to be open for a minimum of 5 business days and the period needs to be revised if the price band is revised.3. The books can be closed or opened anytime.4. In India the price band is fixed4. The price band is soft meaning the bidder can bid for a price outside the price band too .5. Retail investors in India have to put in a cheque or block an equivalent amount corresponding to the IPO bid in their DEMAT accounts .5. In abroad, neither category needs to pay any margin.

Pricing METHODS OF PUBLIC ISSUEIssue Type Offer Price Demand Payment ReservationsFixed Price Issues Price at which the securities are offered and would be allotted is made known in advance to the investors Demand for the securities offered is known only after the closure of the issue 100 % advance payment is required to be made by the investors at the time of application. 50 % of the shares offered are reserved for applications below Rs. 1 lakh and the balance for higher amount applications. Book Building Issues A 20 % price band is offered by the issuer within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding. Demand for the securities offered , and at various prices, is available on a real time basis on the BSE website during the bidding period.. 10 % advance payment is required to be made by the QIBs along with the application, while other categories of investors have to pay 100 % advance along with the application. 50 % of shares offered are reserved for QIBS, 35 % for small investors and the balance for all other investors.

Fixed price issues are issues in which the issuer is allowed to price the shares as he wishes. The basis for the price is explained in anoffer document through qualitative and quantitative statements. This offer document is filed with the stock exchanges and the registrar of companies.Book-building is a process of price discovery used in public offers. The issuer sets a base price and a band within which the investor is allowed to bid for shares. 13

Fixed Price Method:In this method of pricing the Merchant Banker in consultation with the firm fixes the price at which an investor can subscribe toExample: ABC Ltd.Issue Open for subscription: Aug 14, 2014 - Aug 20, 2014Issue Price : Rs. 50 Per Equity Share No. of shares Issued : 10,00,000 Equity SharesFace Value: Rs. 10 per shareIssue Size: Rs. 5 Crore Listing At: BSE, NSE

Book Building Method:In the method of price discovery by Book building the company and the Merchant Banker stipulate a price band and leave it to market forces to determine the final price. Example : XYZ Ltd.Issue Open for subscription: Feb 23, 2014 - Feb 26, 2014 Issue Price: Rs. 50 - Rs. 60 per Equity ShareNo. of shares Issued: 10,00,000 Equity SharesFace Value: Rs. 10 per Equity Share Issue Size: Rs. 5 Crore Listing At: BSE,NSE

Bidder noNo of SharesBid Price per Share1200000Rs 602100000Rs 583200000Rs 574300000Rs 555200000Rs 536200000Rs 327200000Rs 50

Small/Retail investors and Other Investors get allotments on a proportional basis.If a retail investor has applied for 20 shares in the issue, and the issue is over-subscribed five times in the retail category, he qualifies to get 4 shares (20 shares/5)Retail investors have the option to enter bid at Cut off option.The difference is refunded to the investor.In the above example if an investor had chosen bid at Cut Off option while applying for the IPO, and was applying for 20 shares, then he will have to pay Rs 60 (Cap Price) X 20= Rs 1200 at the time of applying for the IPO.If he was allotted 20/5 = 4 shares, then the price comes to Rs 212 (4 x 53).The Investor would be refunded Rs 1200 Rs 212 = Rs 988

Let's suppose, A Ltd, makes an offer for 200,000 shares. The issue is oversubscribed -- i.e. there is demand for more shares than the issuer plans to issue. Further, a minimum allotment of 100 shares is to be made for every investor.The cut-off price has been decided and now the allotments are to be made. In the RII category, 1,500 applicants have applied for 100 shares each, i.e. there is a demand for 150,000 shares.A Ltd plans to issue 35% of the total issue to this category, i.e. 70,000 shares. In the NII category, 200 applicants have applied for 500 shares each, i.e. 100,000 shares. A Ltd plans to issue 15% of the total issue to this category, i.e. 30,000 shares.The cut-off price has already been decided, so adjusting the quantity remains the only way of reaching the equilibrium. Applying the proportionate allotment system each investor in the RII category will get 46.67 shares [(70,000/ 150,000) x 100)]. But the minimum allotment has to be 100 shares.So through a lottery, 700 investors are chosen and allotted 100 shares each, making a total of 70,000 shares. In the NII category every investor will get 150 shares [(30,000/100,000) x 500)]. And that is how equilibrium is reached.

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Approval of RBI might be required for public issues by banks Issuer may announce floor price or price band at least 2 working days before bid opening in IPO and at least 1 day before bid opening in FPO in newspapers Cap on the price