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Fixing Price Band and Marketing Issue

of IPO

Group MembersPreetha

Divya

Aparna

NancyGenga

Natasha

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Fixing the Price Band

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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 freshissue 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 issuers

securities. The sale of securities can be either through

book building or through normal public issue.

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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

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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.

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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.

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What isCut-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 iscalled 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.

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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.

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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 theterminals of the trading members participating in the

book building process.

In case the price band is revised, the bidding period shallbe extended for a further period of three days, subject to

the total bidding period not exceeding ten days.

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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.

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SKS MICROFINANCE

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Introduction

SKS Microfinance, an NBFCby legal constitution, is the

Indias 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 ofRs.10 each,

comprising of an offer for sale of 93.46 lakh shares by 4promoter entities and balance 74.45 lakh shares, through

a fresh issue.

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Contd.

The issue, priced betweenRs. 850 toRs. 985 per share, offersRs. 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 closeson 30th July for QIBs and on 2nd August for the retail andHNI category.

Recent trend in IPO pricing has been to keep a very close price

band, generally in the range of 6-8%, representing confidence onthe part of promoters.

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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 atRs. 850 per share thus having an effective cost to retail

investors atRs. 800 per share.

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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 areadvised to do so at the upper band, as otherwise they

may get left out.

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Marketing Issue IPO

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Introduction SEBI approved a proposal of marketing IPOs through

the secondary market

It proposes to use the existing infrastructure of stock

exchanges (terminals, brokers and systems), presentlybeing 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.

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Effect of marketing

An investment bankers marketing campaign

critical success or failure of IPO

The key is to stimulate investor demand for the stockso 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.

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PROCEDURE PRESSCONFERENCE

Promoters and Lead Managers call for press conferencein each major investment center. Reporters are briefed about the issue. They carry it as news-item in theirpapers.

INVESTORSCONFERENCE

The prospective investors are called by invitation. ThePromoters and Lead Managers give presentations. Theyreply to the questions of the investors to boost theirconfidence.

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ROAD-SHOW

This is like the investors conference but normally is

done abroad for marketing ADR/GDRissues. 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.

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NEWSPAPERADVERTISEMENT

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 investors decision for investment.

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PRINTING STATIONERY-PROSPECTUS

The company has to print approved prospectus and

provide enough copies to all intermediaries. If anyinvestor 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.

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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.

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Thank you