Indian Public Offerings, IPO, Fixed Price Issue, Price Discovery – Abans Group


What is an IPO?

When an unlisted company makes either a fresh issue of securities or offers its existing securities for sale or both for the first time to the public, it is called an IPO - Initial Public Offering. This paves the way for listing and trading of the issuer's securities in the Stock Exchanges.

What types of instruments' Initial Public offerings are offered generally?

Initial Public offering of the following financial instruments are offered

What is the difference between "Fixed price issue" and "Book Built issue"?

On the basis of Pricing, an issue can be further declassified into Fixed Price issue or Book Built issue. Fixed Price Issue: When the issuer at the outset decides the issue price and mentions it in the Offer Document, it is commonly known as "Fixed price issue". Book built Issue: When the price of an issue is discovered on the basis of demand received from the prospective investors at various price levels, it is called "Book Built issue".

What is a price band?

The price band is a band of price within which investors can bid. The spread between the floor and the cap of the price band shall not be more than 20%. The price band can be revised. If revised, the bidding period shall be extended for a further period of three days, subject to the total bidding period not exceeding thirteen days.

What is a bid lot?

A Bid-lot is the pre-determined number of shares which have to be applied for by an investor. It is different for each issue. There is a minimum lot size which is pre-decided by the company and mentioned in the application form. Eg: Minimum bid lot in IPO of XYZ co. - 10 Bid-lot Multiples of 10 Price Band - 100-120. It means that a retail investor cannot apply for less than 10 shares in that particular issue. The application for more than 10 shares has to be in multiples of 10 like 20, 30, 40, etc

What is price discovery?

Based on demand at various prices the Issuer Company, in consultation with Book Running Lead Managers (BRLMs) decides the final price of the offer. The price thus finalized is called the discovered price.

Who is a Syndicate Member/Broker?

A Syndicate Member/Broker is a member of the Stock Exchange to whom the investor has to submit the IPO Bid/Application form. The Syndicate Member / Broker receives the bid and uploads the same on to the electronic book of the stock exchange. Bids which are not uploaded into the electronic book are not considered for the purpose of allotment. The Syndicate Member/Broker then submits the bid with cheque to the bankers. In case of online application, the Syndicate Member/Broker generates the electronic application form and submits the same to the registrar with proof of having paid the bid amount

What are the different types of investor categories?

Investors are broadly classified under following categories:

Retail individual Investor (RIIs), Non Institutional Investors (NIIs), and Qualified Institutional Buyers (QIBs)
"Retail individual investor" means an investor who applies or bids for securities for a value of not more than Rs. 2, 00,000.

What is the difference between an Initial Public issue (IPO) and a follow-on public offer (FPO)?

IPO - Initial Public Offering comprises of an offer for subscription made by such company whose shares are not listed on any stock exchange for trading, whereas an FPO is offer made by already listed company to issue additional securities. For an already listed company, the investor may decide to buy from the market or subscribe to the offer made by the Company

What is cut-off price?

A retail investor can bid at any price within the price band or can bid at cut-off. "Cut-off price" means the investor is ready to pay whatever price is decided by the company at the end of the book building process. While making the application at Cut off, the investor is required to pay the amount at the highest price band. The excess amount, in case the price discovered is lower, is refunded. Cut-off option can be exercised only by Retail Investors and Employees of the issuing company applying in the Employee Category.

Why is your Demat Account No. (DP-ID & Client-ID) important?

The DP-ID + Client ID, is the definitive identification of the applicant. Demat account fed into electronic bid file, is used to credit shares as well as remit refund. The Registrar is required to process an application based on bid file and in absence of any other possible validation, a wrong but valid demat account can lead to a wrong refund / credit of shares. Thus it is very important that the Demat Account Number is stated correctly in the application form.

Who is a registrar to the Issue?

Registrar to an Issue is a SEBI-registered entity, qualified to act as such, and who electronically processes all the applications and carries out the allotment process, as per the rules/prospectus. The Registrar is responsible for complying with the time deadlines of updating the electronic credit of shares to the successful applicants, dispatching/uploading of refunds and attending to all investor related queries after the issue is completed. Usually, the Registrar continues to work with the company, even after the IPO, as its Registrar and Transfer Agent.

What is “ASBA”?

ASBA means “Application Supported by Blocked Amount”. ASBA is an application containing an authorization to block the application money in the bank account, for subscribing to an issue. If an investor is applying through ASBA, his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized, or the issue is withdrawn/failed.

What is the procedure of applying in IPO through ASBA?

Applying through ASBA facility has the following advantages:

  • The investor continues to earn interest on the application money as the same remains in the bank account.
  • The investor does not have to bother about refunds, as in ASBA only that much money to the extent required for allotment of securities, is taken from the bank account only when his application is selected for allotment after the basis of allotment is finalized.

Is it NOW mandatory to apply through ASBA only?

It is mandatory for all public issues opening on or after January 01, 2016

Where should I submit my Application Supported by Blocked Amount (ASBA)?

Investor may submit application form to his trading member or to a SCSB List of Self Certified Syndicate Banks (SCSBs) and their designed branches i.e. branches where ASBA application form can be submitted, is available on the websites NSE and on the website of SEBI. The list of SCSB would also be given in the ASBA application form.

Whether my bank account will be blocked or only the amount to the extent of application money is blocked?

No. the entire bank account will not be blocked. Only the amount to the extent of application money authorized in the ASBA will be blocked in the bank account. The balance money, if any, in the account can still be used for other purposes.