An issuer who intends to raise capital by way of an Initial Public Offer (“IPO”) of securities is required to comply with the provisions of the SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018 (“ICDR, 2018”). In this step-by-step guide, the author will walk you through every step of IPO process from preliminary check to listing of securities and beyond. The process can take anywhere between 6 to 8 months.
Preliminary check for IPO
First and foremost step to opt for an IPO is to run a preliminary check to make sure that the issuer is eligible to offer shares to the public. The following table consists of all the key points which makes an issuer eligible to go public:
|Sr. No.||Regulation No.||Particulars|
|1.||5(1)||The issuer, its promoters/directors, promoter group are not debarred from accessing the capital market by SEBI.
The issuer, its promoters/directors are not wilful defaulters.
The promoters/directors of the issuer are not: –
|2.||5(2)||There are no outstanding convertible securities except:
(a) outstanding options granted to employees
(b) fully paid-up outstanding convertible securities which are required to be converted on or before the date of filing of the red herring prospectus.
|3.||7(1)(c)||All the specified securities held by the promoters are in dematerialized form prior to filing of the offer document.|
|4.||7(1)(d)||All the existing partly paid-up equity shares have been fully paid-up.|
|5.||7(1)(e)||The issuer has made firm financial arrangements of 75% of the stated means of finance (excluding funds to be raised through the proposed issue or internal accruals).|
|6.||7(2)||The amount for general corporate purposes shall not exceed 25% of the amount being raised by the issuer.|
Eligibility norms for making an IPO
After the preliminary check, it is pertinent to determine the mode of issue i.e., Fixed Price or Book Building Issue. If first four conditions given hereunder are satisfied, the Issuer is eligible for Fixed Price Issue.
|Sr. No.||Regulation No.||Topic||Particulars|
|1.||6(1)(a)||Net tangible assets||Net tangible assets of at least Rs. 3 crores (consolidated), in each of the preceding 3 full years, of which not more than 50% are held in monetary assets.|
|2.||6(1)(b)||Operating profit||Average operating profit of at least Rs. 15 crores (consolidated), during the preceding 3 full years, with operating profit in each of these preceding 3 years.|
|3.||6(1)(c)||Net worth||Net worth of at least Rs. 1 crore in each of the preceding 3 full years (consolidated)|
|4.||6(1)(d)||Revenue, in case of name change in the last 1 year||At least 50% of the revenue (consolidated), for the preceding 1 full year has been earned from the activity indicated by the new name.|
|5.||6(2)||In case of non-satisfaction of the above conditions||– The issue shall be made through the book-building process.
– At least 75% of the net offer be allotted to Qualified Institutional Buyers (QIBs)
– Full subscription money shall be refunded if it fails to do so.
Promoters have influence over the company which many a times may not be in the interest of all the stakeholders. Therefore, it becomes all the more important to regulate their contribution, lock-in etc. which is depicted below in brief:
Who is Promoter?
In family-owned companies, it is easier to identify promoters. However, in non-family owned and new age companies, we do not come across distinctly identifiable promoters. Therefore, below chart will be beneficial in identifying the promoter of the company:
What is Promoter Group?
Upon listing, it is essential to capture the holdings by a common group of persons/entities and disclosing the interrelationships within a group. Here’s the definition of Promoter group for easy reference:
Minimum Promoters’ Contribution
– Promoters shall satisfy the following requirements at least 1 day prior to the opening of issue.
IPO process flow with indicative timeline
|Step No.||Regulation No.||Particulars||Remarks||Indicative timeline (days)|
|1.||Companies Act, 2013||Board Resolutions to approve the issue||Conduct a Board Meeting to:
· Approve the issue
· Constitute sub-committee
· Appoint intermediaries and a compliance officer
· Terms of offer
· Adopt new Memorandum and Articles of Association
|2.||Regulation 23 (1)-(3)
read with Schedule I, II
|Appoint one or more merchant bankers as lead manager(s) to the issue||· At least one lead manager shall not be an associate of the issuer.
· If any of the lead manager is an associate of the issuer, it shall disclose itself as an associate and its role shall be limited to marketing of the issue.
|X + 30|
|3.||Regulation 23(4)-(7)||Enter into Agreement with the intermediaries||Appoint below intermediaries, in consultation with the lead manager(s) who shall independently assess the capability of other intermediaries to carry out their obligation:
|4.||Regulation 23(8)||Appoint a compliance officer||The compliance officer shall be responsible for monitoring the compliance of the securities laws and for redressal of investors’ grievances.||X + 60|
|5.||Regulation 24(3), 25(2)(b)||Due diligence
|The lead manager(s) shall exercise due diligence, satisfy themselves about all aspects of the issue and prepare Due-diligence certificate.||X + 90 = Y|
Process as per ICDR, 2018
|6.||Regulation 25(1), (2) read with Schedule III, IV||Filing of the draft offer document with SEBI||File 3 copies of the draft offer document with SEBI, through the lead manager(s).||Y+1|
|7.||Regulation 25(3)||Filing of the draft offer document with SE||File the draft offer document with the Stock Exchange (SE) where the specified securities are proposed to be listed|
|8.||Regulation 7(1)(a) read with Schedule XIX||Apply for in-principle approval from SE||Apply for in-principle approval from the recognized SEs on which the issuer proposes to get its specified securities listed||Y + 2|
|9.||Schedule XIX||Receipt of in-principle approval from SE.||The SE shall grant an in-principle approval or reject the application for in-principle approval within 30 days from the later of the following dates:
||Y + 32|
|10.||Regulation 25(4)||Final observations of SEBI||SEBI shall provide observations or changes to be made to the DRHP within 30 days of later of the following:
||Y + 42|
|11.||Regulation 25(5) & (6) read with Schedule XVI, III||Filing of the updated offer document with SEBI||Submit an updated draft offer document after complying with the observations issued by SEBI and highlighting all changes made in the draft offer document.||Y + 52|
|12.||_||Grant of SEBI approval||_||Y + 55|
|13.||Section 26, 32 of Companies Act, 2013||Filing of the offer document with ROC||_||Y + 58|
|14.||Regulation 25(7), (8) & (9)||Filing of the offer document with SEBI & SEs||Copy of the offer documents shall also be filed with SEBI and the stock exchange(s) through the lead manager(s) promptly after filing the offer documents with ROC.
The draft offer document and the offer document shall also be furnished to SEBI in a soft copy along with the following:
|Y + 58|
|15.||Regulation 26(1)||Draft offer document shall be made public||The draft offer document filed with SEBI shall be made public for comments, if any, for at least 21 days from the date of filing, by hosting it on the website of:-
||Y + 59|
|16.||Regulation 26(2)||Public announcement in newspapers||Make a public announcement in
disclosing the fact of filing of the draft offer document with SEBI and inviting the public to provide comments to SEBI, issuer, or lead manager(s).
|Y + 60|
|17.||Regulation 26(3)||File public comments with SEBI||After expiry of 21 days, file the details of the comments received from the public, on the draft offer document, and the consequential changes, if any, that are required to be made in the draft offer document.||Y + 80|
|18.||Regulation 43 read with Part A of Schedule X||Pre-issue advertisement||The issuer shall, after filing the red herring prospectus (in case of a book built issue) or prospectus (in case of fixed price issue) with ROC, make a pre-issue advertisement in:-
||Y + 80|
|19.||Regulation 29(4)||Publication of the price band advertisement||The issuer shall announce the floor price or the price band at least 2 working days before the opening of the issue in the same newspapers in which the pre-issue advertisement was released or together with the pre-issue advertisement||Y + 80|
|20.||Regulation 44||Opening of the IPO||IPO may be opened within 12 months from the date of issuance of the observations by SEBI.
IPO shall be opened after at least 3 working days from the date of filing, the red herring prospectus (in case of a book built issue) and the prospectus (in case of a fixed price issue) with ROC.
|Y + 82|
|21.||Regulation 46||Closing of the IPO||IPO shall be kept open for at least three working days and not more than ten working days.||Y + 85|
|22.||Regulation 49||Finalization of the basis of allotment||Ensure that the basis of allotment is finalized in a fair and proper manner in accordance with the procedure as specified in Part A of Schedule XIV.||Y + 90|
|23.||Regulation 55 read with Schedule V & XVII||Post-issue report||Submit a final post-issue report along with a due diligence certificate within 7 days of the date of finalization of basis of allotment or within seven days of refund of money in case of failure of issue.||Y + 92|
|24.||Regulation 51||Post-issue advertisements||Advertisement shall be released within 10 days from the date of completion of the various activities in one English, Hindi, regional language daily newspaper||Y + 94|
|25.||Regulation 45, 50 and Section 29 of Companies Act, 2013||Allotment of shares||
||Y + 95|
|26.||Section 39(4) of Companies Act||Filing of return of allotment||File with ROC a return of allotment in Form PAS-3||Y + 98|
|27.||Regulation 7(1)(a)||Application for final listing and trading approvals||Every issuer desirous of listing its securities on a stock exchange shall execute a listing agreement with such a stock exchange||Y + 100|