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IPO Distribution

IPO Distribution

The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.

In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market.

Also referred to as a "public offering"


Primarily, issues can be classified as a Public, Rights or Preferential issues.
Initial Public Offering 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. It is a way for a company to raise money from investors for its future projects and get listed to Stock Exchange. Or An Initial Public Offer (IPO) is the selling of securities to the public in the primary stock market.
A further public offering (FPO) is when an already listed company makes either a fresh issue of securities to the public or an offer to 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.
Offer documents 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 and Stock Exchanges. 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 filling of the offer Document with ROC/Ses. SEBI may specifies changes, if any, in the draft offer Document and the issuer or the lead marchant 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 filling of the draft Offer Documents with SEBI.
Red Herring Prospectus 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 an FPO can be filed with the RoC without the price band and the issuer, in such a case will notify the floor 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.
An issuer company is allowed to freely price the issue. The basis of issue price of 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 filling of the final offer documents with SEBI/ROCs
Initial Public Offering can be made through the fixed price method, book building method or a combination of both. Fixed Price process ? Price at which the securities are offered/allotted is known in advance to the investor. ? Demand for the securities offered is known only after the closure of the issue. ? Payment if made at the time of subscription wherein refund is given after allocation. Book building process ? Price at which securities will be offered/allotted is not known in advance to the investor. Only an indicative price range is known. ? Demand for the securities offered can be known everyday as the book is built. ? Payment only after allocation
Floor Price is the minimum price (lower level) at which bids can be made for an IPO. 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 investor has to pay the highest price while placing the bid at Cut-Off price. If company decides the final price lower then the highest price asked for IPO, the remaining amount is return to the retail investor
Book building is a process of price discovery. Hence, the Red Herring prospectus does not contain a price. Instead, the red hearing 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
Company decides on the price band in consultation with Merchant Bankers. The basis of issue price is disclosed in the offer document. The issuer is required to disclose in detail about the qualitative and quantitative factors justifying the issue price.
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. NRI's who apply with less then Rs 2,00,000 /- are also considered as RII category.
Yes, RI can bid in a book-built issue for a value not more than Rs. 2,00,000. Any bid made in excess of this will be considered in the HNI category.
Individual investors, NRI's, companies, trusts etc who bid for more then Rs 2 lakhs are known as Non-institutional bidders. They need not to register with SEBI like RII's. Non-institutional bidders have an allocation of 15% of shares of the total issue size in Book Build IPO's.
Financial Institutions, Banks, FII's and Mutual Funds who are registered with SEBI are called QIB's. They usually apply in very high quantities. QIBs are mostly representatives of small investors who invest through mutual funds, ULIP schemes of insurance companies and pension schemes. QIB's have an allocation of 50% of shares of the total issue size in Book Build IPO's.
The form for applying/bidding of shares is available with our all offices and Branches.
As per the requirement, all the issues of size in excess of Rs.10 crores, are to made compulsorily in the demat more. Thus, if an investor chooses to apply for an issue that is being made in a compulsory demat mode, he ha to have a demat account and has the responsibility to put the correct DP ID and Client ID details in the bid/application forms.
The investors are generally advised to study all the material facts pertaining to the issue including the risk factors before considering any investment. They are strongly warned against any ‘tips’ or relying on news obtained through unofficial means.
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.
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 exchange is done within 7 days form the finalization of the issue.
The investor is entitled to receive a confirmatory allotment Note (CAN) in case he has been allotted shares within 15 days from the date of closureof a book built issue. The registrar has to ensure that the demat credit or refund as applicable is completed with in 15 days of the closure of the book built issue.
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.
Yes, SEBI vide its circular dated January 20,2006 has permitted use of ECS for refunds in the issue process.
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.
The application are required to ensure that bank details including MICR code(9 digit code which appears in the cheque leaf) maintained at the depository level are updated.

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