Fixing Price Band and Marketing Issue of IPO: Group Members Preetha Divya Aparna Nancy Genga Natasha

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Fixing Price Band and

Marketing Issue of IPO


Group Members
Preetha
Divya
Aparna
Nancy
Genga
Natasha
Fixing the Price Band
Introduction
Initial Public Offer (IPO) is the selling of securities
to the public in the primary market.
 It 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.
This paves way for listing and trading of the issuer’s
securities. The sale of securities can be either
through book building or through normal public
issue.
Who decides the price of an issue?
• Indian primary market ushered in an era of free
pricing in 1992.
• Issuer in consultation with Merchant Banker shall
decide the price.
• There is no price formula stipulated by SEBI. It does
not play any role in price fixation.
• The company and merchant banker are however
required to give full disclosures of the parameters
which they had considered while deciding the issue
price
Contd…….
• There are two types of issues,
• One where company and Lead Merchant Banker
fix a price (called fixed price) and other,
• where the company and the Lead Manager (LM)
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?

Book Building is basically a process used in


IPOs for efficient price discovery. 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. The offer price is determined after
the bid closing date.
What is the main difference between offer of
shares through book building and normal public
issue?
 Price at which securities will be allotted is not known
in case of offer of shares through Book Building
while in case of offer of shares through normal public
issue, price is known in advance to investor.
 Under Book Building, investors bid for shares at the
floor price or above and after the closure of the book
building process the price is determined for allotment
of shares.
 In case of Book Building, the demand can be known
everyday as the book is being built. But in case of the
public issue the demand is known at the close of the
issue.
What is Cut-Off Price and floor
price?
 In a Book building issue, the issuer is required to indicate
either the price band or a floor price in the prospectus.
 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”.
 The issuer and lead manager decides this after considering
the book and the investors’ appetite for the stock.
 Floor price is the minimum price at which bids can be
made.
Price Band in a book built IPO
• The prospectus may contain either the floor price
for the securities or a price band within which the
investors can bid.
• The spread between the floor and the cap of the
price band shall not be more than 20%.
• In other words, it means that the cap should not be
more than 120% of the floor price.
Contd….
• The price band can have a revision and such a
revision in the price band shall be widely
disseminated by informing the stock exchanges,
by issuing a press release and also indicating the
change on the relevant website and the terminals
of the trading members participating in the book
building process.
• 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.
Contd….
• The minimum number of days for which a bid
should remain open during book building is 3
days.
• Open outcry system cannot be used for book
building. As per SEBI, only electronically linked
transparent facility is allowed to be used in case
of book building.
• An individual investor can use the book building
facility to make an application.
SKS MICROFINANCE
Introduction
• SKS Microfinance, an NBFC by legal
constitution, is the India’s largest micro finance
institution, in terms of value of loans outstanding,
borrowers and number of branches.
• SKS Microfinance is entering the capital market
through a public issue of 1.68 crore equity shares
of Rs.10 each, comprising of an offer for sale of
93.46 lakh shares by 4 promoter entities and
balance 74.45 lakh shares, through a fresh issue.
Contd….
• The issue, priced between Rs. 850 to Rs. 985 per share, offers
Rs. 50 discount to investors applying under the retail category
• The issue represents 21.6% of the fully diluted post issue paid-
up capital of the company, opens on 28th July 2010 and closes
on 30th July for QIBs and on 2nd August for the retail and HNI
category.
• Recent trend in IPO pricing has been to keep a very close price
band, generally in the range of 6-8%, representing confidence
on the part of promoters.
Contd…
• But in this case, the 16% range between the lower
and upper end of the price band is quite large,
considering the high issue price, in absolute terms.
• On pure economics of business and fundamentals,
issue is looking expensive, but still may evoke good
response, which may result in listing gains.
• It would have been better to see book getting
discovered at Rs. 850 per share thus having an
effective cost to retail investors at Rs. 800 per share.
Contd..
• But element of premium looks to have built in
its pricing due to first mover advantage and
good hype.
• Generally, those who are looking to go for it
are advised to do so at the upper band, as
otherwise they may get left out.
Marketing Issue IPO
Introduction
• SEBI approved a proposal of marketing IPO’s
through the secondary market
• It proposes to use the existing infrastructure of
stock exchanges (terminals, brokers and systems),
presently being used for secondary market
transactions,
• Overcomes disadvantages like load on banking
and postal system and huge costs in terms of
money and time associated with the issue process.
Effect of marketing
• An investment banker’s marketing campaign –
critical – success or failure of IPO
• The key is to stimulate investor demand for the
stock so that, the demand will exceed the supply.
• The underwriter attempts to create an imbalance in
the supply/demand equation for the issue, so that
there are more buyers than sellers when the stock
is finally released for sale to the public.
PROCEDURE
• PRESS CONFERENCE
Promoters and Lead Managers call for press conference in
each major investment center. Reporters are briefed about
the issue. They carry it as news-item in their papers.

• INVESTORS CONFERENCE
The prospective investors are called by invitation. The
Promoters and Lead Managers give presentations. They
reply to the questions of the investors to boost their
confidence.
• ROAD-SHOW

This is like the investors conference but


normally is done abroad for marketing
ADR/GDR issues. It is an expensive process
and requires a lot of legal compliances. The
company has to observe the rules of the
concerned country. However, road shows are
becoming more and more popular in India.
•NEWSPAPER ADVERTISEMENT

The company releases statutory advertisements in leading newspapers. The

company has to publish abridges prospectus in leading newspapers. It is the

responsibility of the promoters to ensure that the issuing company and their group

companies should not release any commercial advertisement, which may

influence the investor’s decision for investment.


• PRINTING STATIONERY-PROSPECTUS

The company has to print approved prospectus and


provide enough copies to all intermediaries. If any
investor asks for a copy of prospectus it must be
provided to him without any fees. Sufficient quantities
should be maintained at the registered office of the
company and with the Lead Managers.
• PRINTING APPLICATION FORMS

Sufficient number of application forms must be


printed much before the opening of the issue.
Each form must contain abridged prospectus in
SEBI approved format.
Thank you

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