IPO Services

Fquently Asked Questions on IPO

  • What is an IPO?Open or Close
    What is an IPO?

    IPO is a short name for the phrase Initial Public Offer. There are following types of Public Offers.

    • Initial Public Offer (IPO)
    • Follow-on Public Offer (FPO)
    • Offer for Sale (OFS)
    • Composite Public Offer (CPO)
  • Initial Public Offer. (IPO)Open or Close

    The first Public Offer of Shares is Initial Public Offer. All Initial Public Offers are necessarily through Book Built Issue. It’s a price discovery mechanism, where the issue price is discovered, by receiving price bids from investors. The investors through this process decide the Issue Price. Before the Issue Opens only the Price Band is decided. The entire Pre-Issue Share Capital of the Company is locked in for minimum period of one year from the date of allotment.

  • What is Book Building?Open or Close

    There are two types of book built Issues.

    1. 100% Book Built. Where all categories of buyers bid during the time issue is open.

    2. 75% Book Built. Where only QIBs and NIBs bid during the first phase the issue is open. After the price discovery, the remaining 25% issue size is open as a fixed price issue for 3 more working days for retail investors.

    There are mainly 3 types of investors besides reserved categories and the allotment ratio is devised separately for each such category.

      i. Qualified Institutional Buyer (QIB)

      It means:

    • public financial institution as defined in section 4A of the Companies Act 1956.
    • scheduled commercial banks;
    • mutual funds;
    • foreign institutional investor registered with SEBI;
    • multilateral and bilateral development financial institutions;
    • venture capital funds registered with SEBI;
    • foreign venture capital investors registered with SEBI;
    • state industrial development corporations;
    • insurance companies registered with the Insurance Regulatory and Development Authority (IRDA);
    • provident funds with minimum corpus of Rs. 25 Crores;
    • pension funds with minimum corpus of Rs. 25 Crores).
    • Generally 50% of the Issue Size is allocated to QIBs and are not allowed to bid at Cutoff Price, as they are mainly responsible for Price Discovery.

      Note: The Allotment to the QIBs is done proportionately. The subscription ratio in the category is applied for the allotment. (See Page 299 of DIP Guidelines November 2007)

      ii. Non-Institutional Buyers (NIB / HNI)

      Those investors who bid for greater than Rs.1,00,000 in amount are in this Category.

      Generally 15% of the Issue Size is allocated to NIBs and are not allowed to bid at Cutoff Price, as they are mainly responsible for Price Discovery.

      iii. Retail Buyers

      Those Investors who bid for Rs.1,00,000/- or less in amount are in this category

      Generally 35% of the Issue Size is allocated to Retail Investors. They are allowed to bid at Cut-Off Price.

      Note: For Procedure of Allotment to Categories other than QIBs See Page no. 294 of DIP Guidelines November 2007.

  • What is a Price Band and what is Bid Lot ?Open or Close

    A price band is a range of price given for bidding. It consists of lowest price for bidding (Floor Price) and the highest price (Upper Price). The price band is decided by the issuer envisaging the demand for the Company’s shares in the market in consultation with the BRLM (Book Running Lead Manager to the Issue) and the investors have to bid to this issue through the syndicate members within this price band. The Syndicate Members update their bid on-line on the BSE/NSE terminals.

    In this issue a book is built by public bidding. The price band may be decided by the issuer in consultation with the BRLM minimum two days before the issue opens. The investors bid for a price within the price band decided. The issue price is discovered as the price on which the book cuts off the Issue Size in Shares.

    Bid Lot is the minimum number of shares an applicant has to apply for. If more shares than the bid lot to be applied then the applicant has to apply in the multiples of bid lot. The Bid lot is also the smallest denomination of allocation unit of shares.

  • Are the Investors allowed to Bid outside the Price Band?Open or Close

    No. The bids update mechanism on the BSE / NSE terminal does not allow bids outside the band.

  • What is the Issue Duration and revision of Price Band?Open or Close

    The Issue is Open for bidding for 3 to 7 working days (SEBI Working days). In case when the book is not built satisfactorily, indicating investor dissatisfaction for the price band, the Issuer and the Lead Managers may decide to revise the price band, that is decrease the floor and upper price to encourage bidders. In case of revision, the issue remains open for another 3 working days for new bidding and the earlier bidding is considered erased.

  • What is the revision of Bid?Open or Close

    The bidder may revise the price at which he/she has bidded earlier. The price revision has to be done before the Issue closes. In the application, there are revision-forms included with the same application number. The bidder is at the liberty to revise the price upwards, than bidded earlier. The downward revision is not allowed.

  • What are Book Runners?Open or Close

    In an application, the list of city wise book runners with their complete address and Tel nos is printed on 2nd page and last but one page of the application. These book runners accept the applications from the investors and update the bids on-line.

  • What are the Mandatory Collection Centers?Open or Close

    All the cities where Stock Exchanges are located will have to be included in the collection centers for all issues. There are 3 exchanges in Mumbai; all other cities given below have at least one exchange. The following 20 cities are Mandatory Collection Centers.

    MANDATORY COLLECTION CENTRES
    A) NORTHERN REGION
    1
    Ludhiana Stock Exchange Ludhiana
    2
    Delhi Stock Exchange Delhi
    3
    Jaipur Stock Exchange Jaipur
    4
    U.P. Stock Exchange Kanpur
    B) SOUTHERN REGION
    1
    Hyderabad Exchange Hyderabad
    2
    Bangalore Stock Exchange Bangalore
    3
    Coimbatore Stock Exchange Coimbatore
    4
    Cochin Stock Exchange Cochin
    5
    Madras Stock Exchange Chennai
    6
    Mangalore Stock Exchange Mangalore
    C) EASTERN REGION
    1
    Calcutta Stock Exchange Calcutta
    2
    Gauhati Stock Exchange Gauhati
    3
    Magadh Stock Exchange Patna
    4
    Bhubaneswar Stock Exchange Bhubaneswar
    D) WESTERN REGION
    1
    Bombay Stock Exchange Mumbai
    2
    National Stock Exchange Mumbai
    3
    OTC Exchange of India Mumbai
    4
    Pune Stock Exchange Pune
    5
    M P Stock Exchange Indore
    6
    Vadodara Stock Exchange Vadodara
    7
    Ahmedabad Stock Exchange Ahmedabad
    8
    Saurashtra Kutch Stock Exchange Rajkot
    TOTAL 20 CITIES
  • How is Issue Price Discovered?Open or Close

    The price for which maximum percent of shares, (at or over the issue size), is received is the price discovered and is decided as the Issue Price. The allocation of shares is priced by this Issue Price.

    Illustration of Book Building and Price Discovery Process (Investors should note that the following is solely for the purpose of illustration and is not specific to any Issue) The Bidders can bid at any price within the Price Band. For instance, assume a Price Band of Rs. 60/- to Rs. 72/- per Equity Share, Issue size of 5,400 Equity Shares and receipt of five Bids from the Bidders. A graphical representation of the consolidated demand and price will be made available at the websites of the BSE (www.bseindia.com) and the NSE (www.nseindia.com) during the Bidding/Issue Period. The illustrative book as set forth below shows the demand for the Equity Shares of the Company at various prices and is collated from Bids from various investors.

    Bid Qty.
    Bid Price (Rs.)
    Cumulative Qty.
    Cumulative Subscription
    1,500
    72
    1,500
    27.78%
    3,000
    69
    4,500
    83.33%
    4,500
    66
    9,000

    166.67%

    6,000
    63
    15,000
    277.78%
    7,500
    60
    22,500
    416.67%

    The price discovery is a function of demand at various prices. The highest price at which the Company is able to issue the desired quantity of Equity Shares is the price at which the book cuts off, i.e., Rs.66 in the above example. The Company in consultation with the BRLMs, will finalize the Issue Price at or below such cut off price, i.e., at or below Rs.66. All Bids at or above this Issue Price and cut-off Bids by Retail Investors are valid Bids and are considered for allocation after the exclusion of Technical Rejections, in the respective category.

  • What are Technical Rejections?Open or Close

    The application is excluded from the allotment process, if certain technical defects are found in the applications received. The Technical Rejections commonly used are listed below.

    Code
    Description
    1 PAN is required to be submitted with the form.
    2 Amount paid does not tally with the amount payable for the value of Equity Shares applied for.
    3 Age of first applicant not given.
    6 Copy of PAN card or PAN allotment letter is not enclosed.
    7 Applications for number of equity shares, which are not multiples of. Application Lot Size.
    8 Category is not ticked.
    9 Multiple Applications.
    10 Signature of sole Applicants missing.
    13 Application form does not have the Applicant's depository details.
    14 Application form is not delivered by the Applicant within the time.
    15 No corresponding record is available with the Depositories.
    11 Signature of second Applicants missing.
    12 Signature of Third Applicants missing.
    4 Age of Second applicant not given.
    5 Age of Third applicant not given.
    16 Bank account details (for refund) are not given.
    17 Application by minors.
    18 Application for lower number of Equity Shares than specified for that category of investors.
    19 Application at a price less than the Issue price.
    20 Application at a price higher than the price band.
    21 Same Demat details given for more than one applications
    22 Same PAN given for more than one applications
    23 More than 20 applications for the same address
    24 NIB applied for CUTOFF price
    25 Body Corporate applied for CUTOFF Price
    26 Company stamp not affixed for body corporate
    27 Check Returned or Unpaid
    28 Not in Valid Bids
    29 Allotment Prohibited by SEBI

    Depending on Subscription Status and in consultation with Issuer and BRLM, the registrar chooses the technical rejections applicable for the issue. Such rejected applications get a full refund if the Check with the application is not Retuned Unpaid.

  • What is the general Time Line for completion of Public Offer? Open or Close

      The time line for the IPO is 15 days. In these 15 days the registrar, Issuer and the Lead Managers to the Issue have to ensure allotment, Crediting of Shares to the Share Holders’ demat Accounts and dispatch of all refund.

  • When the shares are listed for trading?Open or Close

      The listing on Stock Exchange for trading will have to be done within 7 working days after the allotment. Within two days of allotment, the Company applies for listing and trading permission.

      In case of FPO, the in-principal listing permission is acquired before the shares are allowed to be credited to the share holders’ demat account by the depositories. This precaution is taken since the shares for the same co. and for the same ISIN are already being traded on the stock exchange and the new shares being of the same ISIN can be traded if credited to the demat accounts, even if the trading permission is delayed.

      In case of IPO, the listing permission is given only after the stock exchange ensures, that the shares are credited to the share holders’ demat account. Till the trading permission is given the shares are frozen and can not be traded.

  • 3.1 Follow-on Public Offer (FPO) Open or Close

    When the Co. has already been formed through an IPO for part of the total Authorised share Capital and wants to come up with another Public Offer for balance shares out of the Authorised Capital or Additional Authorised Capital i.e. New Shares for a new Project, the Company launches FPO

    The FPO can be launched in two ways i.e. Book Built way or Fixed Price Issue.

  • 3.2 Offer for Sale (OFS)Open or Close

    When some of the promoters want to offer part of their shares to public, they offer these shares to Public by way of either bidding for price discovery or by fixed price issue. The issue is just like any other Issue, only the amount so collected is paid to the Promoters/ Directors, whose shares are offered for sale, i.e. there is no project involved and the shares are not new shares.

  • 3.3 Composite Public Offer (CPO)Open or Close

    An Issuer my decide to offer shares to the existing share holders for a price lower than envisaged issue price or price band. For this purpose, the Issuer will launch a Composite Issue i.e. a combination of Right and Public Issue. The Right Issue will precede the Public Issue by 30 days, i.e the minimum time a Right Issue is Open. It is mandatory to allot shares for the composite issue together and finish all activities in the time line provided for the Public Issue. In case of Under Subscription in any of the component of the Composite issue i.e. Right or Public, the balance shares in the offer will spill over to other oversubscribed component unless specifically mentioned in the offer letter.

  • What is a Fixed Price Issue?Open or Close

    When the Issue Price is fixed before the Issue Opens, it is called Fixed Price Issue. Unlike Bidding, the applications are accepted by the bank branches designated for collection. The Issue is open for 3 to 7 days and all the activities up to dispatch or Refund are completed within 30 days from the date the Issue closes.

  • What is the use of IPO for a common Investor?Open or Close

      It is the chance to get the shares for a new company for an initial price. In future, if Co. performs, the share price might be too high for a common investor.

  • What shall I do to get the shares in my demat account quickly and prompt Refund? Also how can I increase my chances of allotment of shares?Open or Close

      When applying for a Public Issue, the investor needs to take following precautions. Your Demat Account should be Existing and active to receive Credit and should be updated with following.

      1. Correct and current Address.

      2. Correct and Currently used Bank Account Number, Name of the Bank and Branch is updated in the Demat Account

      3. The 9 digit MICR Code of the bank branch. This Code can be seen on the bank’s latest Check leaf, after the Check No. Using this code, the refund banker can transfer refund amount to the receiver’s bank account, eliminating the postal delays and loss of refund order in transit. The transfer of funds is done through ECS Credit Service (See ECS FAQ) and is applicable only for the 15 cities where RBI has offices. The Cities are as follows.

      City
      Code
      City
      Code
      Delhi
      110
      Bangalore
      560
      Chandigarh
      160
      Chennai
      600
      Kanpur
      208
      Trivandrum
      695
      Jaipur
      302
      Kolkata
      700
      Ahmedabad
      380
      Bhubaneshwar
      751
      Mumbai
      400
      Guwahati
      781
      Nagpur
      440
      Patna
      800
      Hyderabad
      500
         

      In case of high amount refund, it would be better to find and write the currently used IFSC code of the bank branch in the application. IFSC: Indian Financial System Code (IFSC) is an alpha-numeric code designed to uniquely identify bank branches in India. This is an 11 -digit code with the first four digits are characters representing the bank code, e.g. Bank Of Baroda may be coded as “BARB”, the fifth digit is a control character, and the last 6 digits is a number which identifies the branch.)

      By using this code, the refund banker can transfer high amounts directly to the receivers bank account within one hour through RTGS i.e. Real Time Gross Settlement.(See RTGS FAQ)

      4. The names in the application are same as in the demat account no. written on the application. Also they are in same order in case of joint names.

      5. The address and bank details should be written on application also if space provided for additional information.

      6. The investor has to write the age with out fail. Also the application has to be signed by all applicants.

      7. In case of Body corporate, it is necessary to affix Co. Stamp before signing.

      8. The PAN (Permanent Account No.- by Income Tax Dept.) is clearly written and a copy of the PAN Card is attached to the Application for application amount higher than Rs.49,999/-

      9. The investors, who apply online through several online trading accounts, should ensure that their own Demat No. is printed on the application.

      10. Ensure that the Check/ DD with the application are from a local bank. Non Local cheques will not be accepted by the banker where the bid applications are deposited and will be treated as Check Returned Unpaid by the banker.

      Please note that all your information i.e. address, bank account details etc. are down loaded from your demat account for the refund or credit activities and any flaw left in the demat account will hamper your chances of allotment and further credit of shares or refund.

      After taking above precautions, if you want to increase your chances of allotment, envisage and apply in a category of shares in which there might be least number of applications. Then your chances of allotment will automatically increase.

      You are advised, not to apply more than once (except in case of bid revision), in same or different categories. Such applications will not be considered for allotment and are liable to be rejected on the date of the submission.

  • What should I do if I do not get the credit of allotted shares in my demat account after allotment?Open or Close

      You must quickly contact the Registrar to the Issue and ensure correction to the Demat No. After receiving the correction, the registrar will give the credit within 3 to 7 days.

      Do not make deals or trade the shares on assurances, until they are actually credited to your demat account.

  • What should I do if I do not get the refund through ECS if applicable or refund order?Open or Close

      In case of Refund Order, you should check with your local post office whether an article is kept waiting claimant. It may so happen that when the postman came, there was no one to receive the article. If the refund order is returned, then you must contact the Registrar to the Issue and request him to send it to you.

      In case of ECS Failure due to any reason, the registrar will get a DD issued, for the amount and dispatch to the Address retrieved from your Demat Account. In some cases the refund amount is received by your bank but neither credited nor refunded to the refund banker. In such a case, you will have to follow up with your banker to either credit your account or refund the money to the refund banker, so that a DD can be issued.

  • What is the guarantee that I will earn Profit when I sell the shares or get dividend in future?Open or Close

      There is no guarantee. You should use good advice from knowledgeable people and your intuition before applying.

      In case of ECS Failure due to any reason, the registrar will get a DD issued, for the amount and dispatch to the Address retrieved from your Demat Account. In some cases the refund amount is received by your bank but neither credited nor refunded to the refund banker. In such a case, you will have to follow up with your banker to either credit your account or refund the money to the refund banker, so that a DD can be issued.

  • How do I ensure succession for my shares while applying for the shares?Open or Close

      You can provide nominee details in the demat account. Also there is space provided for entering the nominee name in the application.

  • After Applying if I change my mind, how can I withdraw my application?Open or Close
      11.1 Withdrawal of Application

      (The withdrawal of application is not allowed for a QIB investor.) The application may be withdrawn by an applicant by writing a letter, to the registrar of the issue, clearly mentioning complete application no., names as in the application and signatures of all applicants. The subject should be written as “Withdrawal from and Name of the public Issue (Co. Name).” The applicant has to ensure that the withdrawal application is reached to the registrar within 11 calendar days from the closure of the issue, in case of Book Built Issue and within 26 days for a fixed price issue, as practically 12th day is the last possible day when the registrar can submit the Basis of allotment to the Stock Exchange in a Book Built Issue. Similarly 27th day is the last possible day for submission of Basis of Allotment for the Fixed Price Issue. The withdrawal or cancellation of withdrawal will not be considered if the issuer decides to do the allotment before above time line and the letters are received after the allotment or submission of Basis of Allotment to the Stock Exchange.

      11.2 Refund in case of Withdrawal

      In case of withdrawal from the issue, the refund will be dispatched with all other investors’ refund. In case of withdrawal your application will not be considered for the allotment and you will get Full Refund if the Check with the application is not Returned Unpaid.

      11.3 Cancellation of Withdrawal

      In case of Cancellation of Withdrawal, the subject should be “Cancellation of Withdrawal dated (Date), with Application-No, names and signatures, as in the withdrawal letter/Application. Please note there can only be one withdrawal and one cancellation and both letters should reach the registrar in the time line specified above.

  • How do I ensure help in case of delay; in Refund or Credit of Shares? Open or Close

      Each Registrar has set up a helpline number and email id. You can either send an email to the Registrar to the Issue or call on the Tel. Nos provided for the purpose. In case of call or email, first ask for the help by giving the name of the issue and application number. Do not call out of curiosity or chatting. The general information needed to be known by you, is published in the news papers. Be polite on the phone to whoever is attending your call. The Registrar is your best friend in case of any trouble you face. Normally all registrars set up a Post Issue Investor Relations Cell, who look after the quick delivery of shares or refund or management of returned articles and investor correspondence.

      In case of any follow up to be done with your banker, you should do it with information to the registrar. Follow the advice given by the registrar to solve your query.

      In these modern days, the professional banks can note stop payments within one hour, and the registrar can issue fresh refund order and despatch to your corrected address within 2 to 3 days. Always ensure to give corrections in writing signed by all applicants.

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