Fund Raising IPO EETs 18.11.08

7/31/2019 Fund Raising IPO EETs 18.11.08

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Fund Raising

&

Overview of IPO

Sharing NTPC Experience18th November 2008


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Capital Creation

What are the sources Promoters Capital Equity

Preference Shares

Private Equity

Venture Capital

FCDs & PCDs Borrowings


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Capital Creation

Sources for a newly formed company is

Promoters Capital

Equity Capital Preference Shares have a preferential claim overEquity Share - in respect of Dividend & Liquidation

Borrowings from Commercial BanksShort term OD

Medium term ( Cash Credits , Bridge Loans etc)


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Capital Creation Sources of BorrowingsCommercial Banks

Development Banks having specific agenda

Capital MarketsMulti national- Bilateral credits

External Commercial Borrowings

Syndicated loans

FCCB

MTNs etc


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Capital Creation

Commercial BanksShort Term OD facility

Cash Credit & Commercial paper ( fund based &

non- fund based limits ) LC , BGs etc

Bridge loans

Medium Term Loans

Available to established companiesLong term Loans Only to very high quality Borrowers


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Capital Creation

Major Terms of loanSecurity

Short Term loan on the basis of

hypothecation

Medium term and long term

- Mortgage of title and creation of charge

English Mortgage with POA With negative lien and financial covenants

available to very high quality borrowers


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Capital CreationMajor Terms of loan

Interest rate Fixed rate with a review clause

Floating rate with or without spread

Periodicity of Service

Repayment Moratorium

Installments

Other terms Upfront fee Prepayment fee

Commitment fee for non- drawal

Penalty rate delayed payment


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Capital CreationCapital Market Debt Instruments

FD scheme under section 58 A of Companies Act ,1956 Bond / Debentures

Fully Convertible Partly Convertible Fully redeemable

Terms To be rated by two rating agencies To be secured by asset cover of 1.25 times Debenture trustee to be appointed

Other terms

Bullet payment Gradual redemptionCall/ put option Fixed/ Floating coupon rate / zero coupon bonds Public/ Private placement


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Capital Creation

Long term investment plans form the base

Issues to be addressed are

How to fund ?

Whether equity or debt ?

Why to borrow ?

Which structure to follow ?

What should be the gearing ? What will be the impact of gearing ?


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Capital Creation

Why to borrow ?Comparative cheapness , due to

lower pre- tax rate of interest than the

return expectations of the shareholders

Interest is a charge against the profit for

tax computation

Lower Issue & Administration Cost than

equity


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Capital Creation

Debt is thus an attractive optionHow much to borrow ?

What is the optimum level up to which

company can borrow ?

How to choose the debt equity ratio ?

Select a D E ratio , which maximizes the value of the firm


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Capital Gearing

Capital Gearing ( CG) is the ratio of all longterm liabilities to the shareholders funds asshown in the Balance Sheet

CG = LTLShareholders funds

How Capital Gearing ( CG) impacts the

returns to the shareholders?Let us examine with an example


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Bad ( p =0.25) Neutral ( p =0.50) Good ( p =0.25)

Net Operating Income before interest 5 20 35

Zero Gearing ( Rs. 100 mln , Rs.0 mln )

Interest 0 0 0

Shareholders' earnings 5 20 35

Return on Equity 5% 20% 35%

25 % Gearing ( Rs. 75 mln , Rs. 25 mln)

Interest on 10 % 2.5 2.5 2.5

Shareholders' earnings 2.5 17.5 32.5


50 % Gearing ( Rs.50 mln , Rs. 50 mln )

Interest on 10 % 5 5 5

Shareholders' earnings 0 15 30


CG v The Business Scenario


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Capital Gearing

Returns to the shareholders is differentunder various CapitalGearing ( CG) ratios

In Scenario A the shareholders earnings are completelywiped out , due to interest charge .Thus any higher gearing

in this scenario will lead to negative earnings to theshareholders .

So more reliable the earning stream more is the borrowingcapacity

Return expectations of the shareholders also changes withthe gearing , due to change in the risk perception.


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Raising EquityRaising Equity

There are may rules and regulationssurrounding the process of raising equity

The company can either issue a newsecurity to the Public or can sell it as

private issue

Public issues is of two kinds : Offer to the general Public

Rights offer ,ie to existing shareholdersThe first public issue is known as IPO


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Raising EquityRaising Equity Broad procedure

Approval BOD/Shareholders

Appointment of Lead Managers

Appointment of Legal Counsel

Due Diligence Exercise

Appointment of Registrar/Bankers to Issue/Printers

Filing Draft Red Herring Prospectus/Due Diligence Certificate with SEBI


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Clearance of DRHP from SEBI

Deciding Price Band and Issue Opening/Closing dates

File Red Herring Prospectus with ROC

In Principle approval from NSE/BSE

Agreement with NSDL/CDSL

Approval from RBI/FIPB

Opening of Issue

Closing of Issue


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Deciding the Issue Price

Updating of Prospectus & file with ROC

Finalisation of Basis of Allotment

Allotment of Shares by BOD

Dispatch of allotment/Refund Orders within 15 days of

closing of Issue


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Regulatory FrameworkRegulatory Framework

Company can issue IPO providedCompany is not prohibited from accessing thecapital market under any order or direction passedby the SEBI

Company has applied for listing of those securitieswith a recognized Stock Exchange

Company complying with norms stipulated inSEBI(DIP) Guidelines in addition to those specifiedin Companies Act

Unlisted companies have to get grading of IPO atleast from one Credit rating agency and disclosethe same


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Requirements of SEBI (DIP) Guidelines, 2000Requirements of SEBI (DIP) Guidelines, 2000

Eligibility Requirement

Promoters contribution and lock-in

requirements Procedural requirements

Disclosure requirements

Other miscellaneous requirements


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Eligibility requirements- Unlisted Companies

The 2nd set of eligibility requirements

At least 15% participation by FIs/SCBs ,of which

at least 10% comes from the appraiser(s).

In addition ,at least 10% of the issue size shall

be allotted to the QIBs. Post issue paid-up capital is at least Rs.10 crore


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Eligibility Requirements Contd.Eligibility Requirements Contd.

The issuer not satisfying the aboverequirements can still issue an IPO,

provided:

The issue is made through book-building process, withat least 50% of the issue size allotted to the Qualified

Institutional Buyers( QIBs)

Post issue paid-up capital is at least Rs.10 crore


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Eligibility Requirements Contd.Eligibility Requirements Contd.

Other Eligibility requirements

Filing of offer document with SEBI

Application for listing

Issue of securities in dematerialised form

No outstanding warrants or financial instruments

No partly paid-up shares


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Promoters contribution and lock-in RequirementsPromoters contribution and lock-in Requirements

Promoters contribution:

At least 20% of the post issue capital

Lock-in Requirement

Min Promoters contribution lock-in of 3 years from thedate of allotment

Rest of the pre-issue paid-up capital will be locked-infor a period of one year


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All issues to be managed by at least one merchant banker

functioning as Lead Merchant Banker.

As per SEBI (DIP) Guidelines, 2000 , no Company to make an

issue of security unless a Memorandum of Understanding enteredbetween Lead Merchant Banker and Company.

MOU to specify the mutual rights, liabilities and obligations

relating to the Issue and the same are to be clearly demarcated for

each Merchant Banker.

Appointment Of Lead Managers And Other Agencies


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Other intermediaries include :Registrar to the Issue

Bankers to the Issue

Legal Counsel (Domestic and International) to the

IssueBrokers / Syndicate members

All intermediaries to be appointed by Company in consultation

with the Lead Merchant Banker.

Lead Merchant Banker to independently assess the

capability and capacity of various intermediaries.

Appointment Of Lead Managers And Other Agencies


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Contents of the Offer Document

The contents of the Offer document have beenprescribed in the DIP guidelines The Offer document shall contain all material

information which shall be true and adequate so

as to enable the investors to make informeddecision on the investments in the Issue; such as

Utilisation of Issue Proceeds , Project Cost, Means

of Financing, Appraisal etc

Company, Management and ProjectPromoters and Their BackgroundKey Managerial Personnel


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INITIAL PUBLIC OFFER

BY

National Thermal Power Corporation

Limited


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Employees Portion 2.17 times

Retail Portion 3.73 timesNIB Portion 11.93 times

QIB Portion 19.54 times

Overall 13.14 times

Subscription Pattern


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Basis of allotmentBasis of allotment

I. Retail Portion :No. of shares Allotment

applied

100 shares 100 shares to 11 out of 39 applicants



400 to 800 shares No.of shares applied X 26.81%


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II.NIB Portion:

No. of shares Allotment

applied




1200 shares & above No. of shares applied X 8.38%

III. QIB Portion: Discretionary Basis

IV. Employees Portion: No. of shares applied X46.08%, all

employees were allotted shares

Basis Of AllotmentBasis Of Allotment


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Post Issue Shareholding PatternPost Issue Shareholding Pattern

Government 89.5%

Employees 0.25%

QIBs 5.13%

NIBs 2.56%Retail Investors 2.56%

100%

Number of Shareholders

after Issue 1246232


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NTPC IPO A Success StoryNTPC IPO A Success Story

Issue gets oversubscribed within 3 minutes of

opening

Highest ever number of applications received for

a book built offer - over 14.68 lacs offers received

Employee category gets oversubscribed by 2.17times

The first company whose securities started trading in bothcash and Futures / Options Segments immediately on listing

The first company to be ranked third by Market Capitalisation

on the day of Listing


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Capital Creation

PromotersEquity

Loan

BankOD

Cash CreditFund Based

Non- Fund BasedBridge Loan

Term Loan

Capital Markets

Documents

Fund Raising IPO EETs 18.11.08