IFLR India Awards 2011 - "Team of the Year" in the Indian Investment Banks category

Primary and Secondary Issuance Process

May 2012

2

Table of Contents

Section 1 Capital Markets – Overview

Section 2 Trends in Primary Markets

Section 3 Trends in Secondary Markets

Section 4 Challenges and Way Forward

33

Section 1

Capital Markets – Overview

4

India – Household Financial Assets OverviewUSD BN

Source: Reserve Bank of India

Note : INR has been converted into USD at 46.67 INR per USD. Stock position has been calculated as the sum of net inflows

since 1970

52% 53% 56% 57%

8% 6% 6% 4%

30% 29% 29% 30%

10% 13% 9% 8%

0%

25%

50%

75%

100%

2001 2007 2009 2011

Deposits Shares (incl. MF) Life Insurance & PF Claims on Government Others

Total Financial Assets 987 1,301

41%15%

42%17% 18%

24%

21%

23%

18% 18%

10% 10% 11%

15%32%

18%32% 32%

17% 21% 15% 22% 21%

2%2%

0%

25%

50%

75%

100%

China - 2007 USA - 2007 China - 2009 USA - 2009 USA - 2011

Deposits Shares Mutual Funds Insurance & pension Others

Global OverviewUSD BN

Total Financial Assets 45,488 42,467

Source: People’s Bank of China, US Federal Reserve

137.4

20.0

0

50

100

150

China India

% ofpopulation 10.2% 1.6%

Trend in Individuals Holding(% of Free Float Market Cap)

29% 23% 22% 20%

18% 18% 20% 18%

53% 59% 58% 62%

0%

25%

50%

75%

100%

2001 2007 2009 2011

Individuals Other Non Institutional Institutional

Individuals Holding (Rs Cr) 73,915

Free Float Mkt. Cap (Rs. Cr)

264,098

254,681 1,186,774

Trading AccountsNo. of Accounts in Mn

Source: CDSL, NSDL, China Securities Depository and Clearing Corporation Ltd. Source: Capital Line

663,720

2,836,239

2,0071,825413 1,769 43,427

520,380

2,602,607

Overview of Domestic Asset Allocation and Market Penetration

5

24%

12%

9%7%5%

5%4%

4%

4%

3%

3%

1%20%

FIG

Oil & Gas

IT

Telecom

Capital Goods

Steel

Realty

PG & D

Infrastructure

Pharmaceuticals

Auto

FMCG

Others

59,084142,065 210,198

368,539564,935

1,018,894

385,721

807,127

1,070,476 981,965 941,703

54,514

0

300,000

600,000

900,000

1,200,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Holding in Equity Markets

Global Recognition of India and its Markets

Analysis of FII Holding(Rs. Crores)

21%Holding as a % of Freefloat M.Cap

21% 26% 30% 34% 36% 36% 32% 33% 35%

254,681 Free Float M.Cap(Rs. Crores)

280,937 548,192 697,388 1,070,811 1,550,883 2,836,239 1,213,262 2,451,612 3,053,898

Sector Wise Break up Holdingin Equity Markets – 2001

25%

15%

14%13%

8%

6%

4%

3%

12%

IT

Oil & Gas

FIG

FMCG

Pharma

Telecom

Tobacco

Auto

Others

Sector Wise Break up Holdingin Equity Markets – 2004

Sector Wise Break up Holdingin Equity Markets – 2007

Sector Wise Break up Holdingin Equity Markets – 2010

22%

19%

16%

7%6%

4%

3%

3%

3%

2%15%

FIG

IT

Oil & Gas

Pharma

Auto

Telecom

Power

FMCG

Capital Goods

Steel

Others

28%

12%

9%7%4%

4%3%

3%3%

3%

3%

21%

FIG

IT

Oil & Gas

Auto

Pharma

Steel

Power

Capital Goods

Infra

Telecom

FMCG

Others

Source: Capital Line Source : Capital Line Source : Capital Line Source : Capital Line

Source : Capital Line

33%

2,939,203

36%

2,602,607

6

Accessing Capital Markets

Capital Market Issuances

Primary Secondary

DebtEquity Equity

IPPOFSPrivate

PlacementPublic Issue

FPO / IPPIPOQIP /

Preferential Issue

Rights Issue

77

Section 2

Trends in Primary Markets

8

Regulatory Milestones in Primary Markets

• Auction method allowed for

public issues

• 100% margin for QIBs

• Dilution of 25% minimum in

IPO

• At least 10% dilution in case

post issue market cap to be

greater than Rs 4,000 Crores

subject to Company increasing

its public holding to 25% within

three years of listing

• Introduction of ASBA to

institutional shareholders and

HNIs

2010

• Introduction of discretionary allocation to

Anchor Investors in public issues

• New Fund raising opportunities

– IDR

• Introduction of ASBA for retail investors

in rights issue

2009

• New Fund raising

opportunities

– QIP

2006

• Electronic Book Building

Process in public issues

• Discretionary allocation

allowed to QIBs

• No margin required for QIBs

2001

• Legal status granted to SEBI

• Free Pricing regime

1992

• Validity of SEBI

observations extended to

1 year from 3 months

• QIP floor price revised to

2 weeks average

• Introduction of ASBA for

retail investors in IPOs

2008

• Discretionary allocation to

QIBs discontinued

• QIBs to pay 10% margin

on application amount

2005

• IPO at fixed price

• Proportionate allotment

1992-1999

• Before 1992 companies have

to take permission from CCI

to decide timing, quantum

and price of New Issue

Pre 1992

Regulators are proposing introduction of e-IPO system for investor participation

• Introduction of listing day volatility

mechanism

• Filing of offer document upto Rs.

500 crs (USD 100 mn appx.) with

SEBI regional office

2012

9

Primary Market – Size

2,954 3,361 4,436

45,337

58,53565,012

139,580

54,415

87,560

115,543

29,260

17,233

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 CY 2006 CY 2007 CY 2008 CY 2009 CY 2010 CY 2011 CY 2012

Source : Prime Database

Amount RaisedRs. Crs.

No. of Intl. Issues

4 5 12 33 100 109 104 25 37 50 25 2

No. of Dom. Issues

27 16 33 62 103 145 175 72 96 152 68 19

10

Primary Market – Mix

10%

59%

38%

29%

17%

31%24%

31%

22%

32%

20%

6%

11%

38%

22%

7%

8%

27%

28%

78%

3%

6% 17%

7%

40%

23%

12%

4%

13%

10%

16%

7%

7%

4%

6%

55% 4%

8%

26%

18%22%

23%

30%

38% 23%

4%

14%

5%

6%

7%

3%

13% 13%

17%

12%

7%

4%

11%

5%9%

74%

8%

15%9%

2%

2% 2%

0%

20%

40%

60%

80%

100%

CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 CY 2006 CY 2007 CY 2008 CY 2009 CY 2010 CY 2011 CY 2012

IPO - Equity FPO - Equity Offer For Sale Institutional Placement Programme QIP - Equity Rights - Equity FCCB GDR/GDS ADR/ADS

Source : Prime Database

Mix of IssuancesSince 2001

1111

Section 3

Trends in Secondary Markets

12

Regulatory Milestones in Secondary Market

• Launch of 15-minute

special pre-open

trading session

• Trading to

commence from

9 AM

2010

• T+ 3 Settlement

2002

• “T+5” Settlement

process

• Commencement of

trading in Index &

Stock Options and

stock futures

2001

• NSE Derivatives

(Index Futures)

Segment commenced

• Commencement of

Internet Trading in

India

2000

• Set-up of Trade

Guarantee Fund

1997

• Dematerialisation of

securities

1996

• BOLT (BSE Online

Electronic Trading

Platform)

– Handles 8 million

trades/day

1995

• NSE Capital Market

commences trading

• Launch of automated

trading (NEAT) by

NSE

1994

• T+2 Settlement

2003• Introduction of Offer for Sale through Stock

Exchanges and Institutional Private

Placement to enable companies to comply

with rule 19(2)(b) and 19 A of SCRR

2012

13

0

100

200

300

400

500

600

1-Jan-01 15-Jun-02 27-Nov-03 10-May-05 22-Oct-06 4-Apr-08 16-Sep-09 7-Apr-11

Dow Jones 20% FTSE -11% Nikkei -34% Straits 47% Sensex 317% Hang Seng 34% Shanghai 17%

Performance of Sensex vis-à-vis Global MarketsSince 2001 till date

Outperforming Global Markets

Source Bloomberg

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20122011

14

0

100

200

300

400

500

600

700

800

1-Jan-01 28-Oct-01 24-Aug-

02

20-Jun-03 15-Apr-04 9-Feb-05 6-Dec-05 2-Oct-06 29-Jul-07 24-May-

08

20-Mar-09 14-Jan-10 10-Nov-10 6-Sep-11

BSE Sensex 317% BSE 100 325% BSE 500 390%

2.27 3.55 6.27 11.73 10.99 13.34 21.95

1.50 1.90 2.58 4.44 4.30 4.36 4.23

280 386 546 816 1,815 637 1,301 1,629112 130

NA

0.97

0.31

0.79

1.22

1.13

Broad based Expansion of Domestic Market

Sensex, BSE 100 and BSE 500Since 2001

Source Bloomberg, Prime Database, BSE

Avg DailyTrading Turnover –Cash market (USD BN)

Avg. DailyTrading Turnover –Derivatives market (USD BN)

Mkt. Cap USD BN

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012

24.26

3.04

1,111

2011

27.97

3.03

1,005

15

Source Broker Research Estimates, Bloomberg, SEBI, AMFI,NSDL, Economic Survey 2010-11, Capital Line, RBI

Notes1. As on March,2000 , December 2007, March 2008 and March 2011, March 2012 (E)

2. As on March,2000 , December 2007, December 2008 and 31 March 2011, 31 March 2012

3. As on March,2000 , December 2007, December 2008 and December 2011, 08 May 2012

4. As on March,2000 , December 2007, December 2008 and December 2011, March 2012

Evolution of Capital Markets

GDP(1) (US$ Bn)GDP(1) (US$ Bn)

Market Capitalization(2) (US$ Bn)Market Capitalization(2) (US$ Bn)

Mkt Cap / GDPMkt Cap / GDP

# of Registered FIIs(3)# of Registered FIIs(3)

Value of FII Holding(3) (US$ Bn)Value of FII Holding(3) (US$ Bn)

MF AUMs(4) (US$ Bn)MF AUMs(4) (US$ Bn)

# of Demat Accounts(3) (Mn)# of Demat Accounts(3) (Mn)

Cos. with M.Cap US$ 1- US$ 10 BnCos. with M.Cap US$ 1- US$ 10 Bn

2000(Beginning ofNew Decade)

2000(Beginning ofNew Decade)

451451

209209

46%46%

555555

13.413.4

2222

00

2727

22

2011(Turnaround)

2011(Turnaround)

1,5911,591

1,5331,533

96%96%

1,7671,767

223223

115115

19.0119.01

155155

3232Cos. with M.Cap of >=US$ 10 BnCos. with M.Cap of >=US$ 10 Bn

2008(Meltdown)

2008(Meltdown)

1,0991,099

637637

58%58%

1,3161,316

8686

9292

11.5711.57

129129

2525

2007(Last Peak)

2007(Last Peak)

1,1111,111

1,8151,815

163%163%

1,1471,147

226226

122122

7.97.9

155155

2828

2012 YTD2012 YTD

1,8471,847

1,2191,219

66%66%

1,7641,764

176176

115115

20.0120.01

152152

2121

1616

Section 4

Challenges and Way Forward

17

Current Primary Issue Process

Merchant Banker Syndicate Member Sub-syndicate

ASBA Bank Bidding Centre

Investor

Issuer

Appoint

Appoint Appoint

Submitting

Bid file for

allotment

Banking

ASBA

Application

Submit direct

ASBA Applications

Submitting

Bid file for

allotment

Issue Proceeds

Refund of Application money

Allotment of

Shares

Transfer of

Application

Forms

Submit syndicate

ASBA/Non-ASBA

Applications

Banking Non-ASBA

Applications

1A 2

1B

4A 4B

3A 3B

5A

5B

5C

6A

6B

6C

Escrow Bank

Registrar

18

IPO Process Timeline

Week 1Week 1 Week 2Week 2 Week 3Week 3 Week 4Week 4 Week 7Week 7 Week 8 Week 8 -- 1414 Week 15Week 15 Week 16Week 16 Week 17Week 17Week 5Week 5 Week 6Week 6 Week 18Week 18 Week 19Week 19

Appoint Bankers/

Lawyers

Issue Structuring & Planning

File Draft

Prospectus

Print Red Herring Prospectus

Comments received

SEBI Review

Pricing

Roadshow/ Bookbuilding

Issue launch

Investor Education

Final

Approval

Drafting & Due Diligence

Publish Research

Initial Public Offering (IPO)

Week 20Week 20

Post Issue Activities

Listing

Allotment

& Refund

Finalise

price band

1919

Regulatory FrameworkKey Regulators

• All the regulators and their

respective framework are

closely aligned to achieve

issuance of securities

Registrar of Company (“RoC”) / Depository

• Filing of Offer Document with Registrar

of Companies

• Handles corporate action for credit of

shares to investor

• Lock-in of shares (as applicable)

Securities and Exchange Board of India (“SEBI”)

• Provides the disclosure standard and

coverage for preparing offer document

– SEBI (Issue of Capital and Disclosure

Requirements) Regulations, 2009

• Significant interface in the offering

process including observations in the

offer document

Reserve Bank of India (“RBI”)

• Provides the policy framework for

– Issuance at same price to NR

investor as to domestic investor i.e.

avoid differential pricing to NR

– Repatriation of issue proceeds

Stock Exchanges

• Provides the framework for listing and

trading of Equity Shares

– The Listing Agreement outlines the

applicable continuous compliance &

reporting obligations for the Issuer

• Finalization of basis of allotment with the

Designated Stock Exchange

• Approval for listing and trading

Equity

20

Towards E-IPO ProcessCENTRAL HUB

WEB

- LMs

- DP Participant

BROKERS

INVESTOR

STOCK

EXCHANGE

SYSTEM

10Intimation and

generation of a unique

number

ABroker inputs data – DP ID

and PAN /

Undertakes to

make payment

FClearing corporation

sweeps the

broker account

1Investor

chooses to

participate

through one of

the intermediary

CENTRAL DATABASE

DEPOSI-TORY /

UCC

DATABASE

X

Updating

at Regular

Intervals

3 Online

verification

of the dataB

5Investor / Broker inputs

his bid – Price

and Quantity

2 Investor / Broker

inputs his DP ID

and PAN

number

D

PAYMENT

GATEWAY

ESCROWBANK

6Investor

chooses one of the

payment

mechanism7

Verification

and debiting

of the investor a/c

Confirmation

of the

debit

8

Acceptance

of the Bid /

Rejection of

Bid in case of failure

9

E

BANKS

4

C

Confirmation

and provision of

information

11

Transfer to an

Escrow Account

ADMINISTRATOR

• SEBI had set up a Group

on Review of Issue Process

which submitted its report in

February 2008

• The Group recommended

with implementation of e-

IPO process, the primary

markets will be automated

• Two modes of making an

application will be available

to the investor

– Independently, or

– Through a broker

• Central database will be

maintained which will have

all the information related to

KYC

• Investor / Broker will have

to input DP ID and PAN

number which will be

verified with the information

maintained in the Central

Database

• This process will

significantly reduce the post

issue timelines

21

Key Challenges and Way Forward

Participation of retail investors

Participation of retail investors

Key ChallengesKey Challenges

Uniformity of initial and continual disclosures

Uniformity of initial and continual disclosures

Multiple regulatory framework v/s unified

regulator

Multiple regulatory framework v/s unified

regulator

Enhancing the depth of primary and secondary

markets

Enhancing the depth of primary and secondary

markets

Improvement and integration of market

infrastructure especially in primary markets

Improvement and integration of market

infrastructure especially in primary markets

Corporate Governance and Insider Trading

issues

Corporate Governance and Insider Trading

issues

11

22

33

4455

77

Integration with global practices and markets

Integration with global practices and markets

66

Effective implementation and robust regulatory framework will mitigate challenge