post 9
Dated10/5/2020
Bunty’s Listing
snippet Today we will see How bunty can Register his company with Stock Exchange

In the previous post we saw that Bunty raised his capital for his company form his friends and acquitances (this selling of shares to less than 50 investors is called Private Placement). But now Bunty’s Company has grown more and he needs more capital for Expansion of his company. Well he can now get his company listed on the stock exchange to sell shares to common public instead of just selling to his friends.
The issuing of Shares in market for the first time for general public is called IPO or Initial Public Offering this is done in Primary market.Stock market is divided into two parts :- Primary Market and Secondary market. The first issues are released in The Primary Market and the trading is done in secondary Market.

So to generate an IPO Bunty has to follow a proceedure and has to obey several norms, Let’s see

IPO can be released Through either Prospectus or by offer for sale

Let’s see the first one

  1. Company hires a Merchant Banker or a manage for underwriting the issue (drafting the prospectus )
  2. Bunty negotiates a deal with the underwriter on basis of the amount to be raised and other aspects of the underwriting document
  3. Once the deal is final the merchant Banker and company prepares the document (prospectus) for registeration with SEBI.
  4. Once Sebi approves the issue then the date is set and prospectus is released.

Role of SEBI

  1. Company trying to get listed needs to submit a draft offer document with sebi.
  2. Draft Document is the Prospectus at a draft stage.
  3. SEBI publish the draft for 21 days for public opinion. Final changes are undertaken by merchant banker..

But what is the Offer Document

It is an offer document that describes company’s agenda and functioning along with the fundamental cash flow statements and balance sheets for evaluation. It also has the issue date and issue Price range.
Without the Issue date and price draft is called as red herring

Now Bunty eagerly waits for Book Building (The process to decide the issue price of IPO)
under Book Building the merchant banker calculates a price band and the upper limit of this band is called cap and the lower limit is called floor . the Book remains open for three days for investors to place bids and based on the data of bids and the willingness of investors a price is released called Cut off price,, Again based on Demand and Supply.
Now a lot of investors may apply to purchase Bunty’s shares, but most of the time the number of shares released is less then the whole demmand. In this case the merchant banker decides about who will be alloted shares and who wouldn’t be.

Let’s see the other way around if I want to subscribe an IPO of Bunty’s company, I was required to pay the amount before the allocation of shares, and the money was deducted form my account. Now if I dont get the allocation the money would be refunded, but it took time and I lost interest on money in meanwhile.
Hence SEBI came up with a Unique Idea called ASBA Application Supported by Blocked amount. Here the amount would be blocked in my account itself and I would be paid interest also, There won’t be issue of refund as on failure of allocation, The amount would be unblocked, In case of sucessful allocation, amount would be deducted…

Let’s see the other method called offer for sale

  1. Bunty or the issuing company sells the whole lot to an intermediary at an agreed price
  2. The intermediary sells these shares to Public at a price with his margin, here the issuiong company is saved from a tedious porcess as described above but has to agree on a margin grabbed by the intyermediary

    Now our own Bunty has become a Big man and if his IPO is subscribed sucessfully then his shares will enter the Secondary market to trade..

    But what if Bunty fails to enter the market ???
    well there are 22 regional exchanges where he can get listed for local or OTC placement. Hence the limit is the Sky, All we need is to fly !!!

Happy Investing