IPO Planning

7/29/2019 IPO Planning

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IPO (Initial Public Offering) / Listing

Planning

Presented by

Affan SajjadACACell # 03219400788


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Presenter Profile

Passed CA exams in December 2004

Became Associate Member of ICAP in November 2005

Completed Articles from Ernst & Young (FRSH) from August 2001 to October 2005. Served Ernst & Young as Assistant Manager Audit from November 2005 to April

2006

Served KPMG as Assistant Manager Audit from July 2006 to November 2006

Moved to Industry by joining Agritech Limited (Formerly Pak-American FertilizersLtd.) as Manager Corporate Finance in December 2006.

Achievements: Qualified during Articles

Seconded to EY Saudi Arabia and USA during articles

Due Diligence and acquisition of Hazara Phosphate

Project financing for the expansion project

Listing of Agritech

Restructuring of long term loans of more than PKR 20 Billion Due diligence of Agritech and Hazara by local and international investors

Merger of Agritech & HPFL

Acquisition of Agritech by Banks consortium under debt swap arrangement

Handling lender base of more than 70 investors including banks, financial institution, mutual funds,international investors, individuals.


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Index

Introduction to Listing

Strategic Issues to be considered before going for Listing

Activities / Procedure to complete listing activity


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Listing through

Initial Public Offering

Inviting general public for subscription of new shares through prospectus.

Offer for Sale

A person who holds more than 10% in a company may offer for sale such shares totally or part

thereof to the general public through offer for sale document.


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Issues to be considered

Purpose Why Listing

Raising Funds

Repayment of Debts / Lowering leverage

Possible Acquisition / Expansion

Funding for loan based project

Funding for Equity based project

Others

Repute

Local & international recognition

Availability of market / quoted price

Easy to attract private equity

Diversify investor base

Easy to sale and purchase shares for Public


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Shareholding

What is the current shareholding structure

Are you issuing new shares

Who is targeted investor Equity investors / Institution / Public

What is the minimum limit to be issued to Public

What will be post IPO shareholding structure

In case of offer of sale by existing shareholding Need to justify disinvestment

Possible effect on shareholding / directorship / control

Capital Structure

Existing Debt to equity ratio & WACC

What will be the impact on debt to equity ratio and WACC

Loan agreement restricting change in shareholding


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Price

What should be the Offer price. Three scenarios (Issue could be at DISCOUNT, PAR, PREMIUM)

Prepare financial model for pricing

Prepare Valuation on DCF and Market based methods

Need to convince underwriters on IPO price

Conditions under Capital issue rules on public issue at premium

Profitable operational record of at least one year

Premium shall not exceed the premium charged to private placements

Fully underwritten

Underwriters not being associated companies

Underwriters shall include at least two financial institution Due diligence report by underwriters providing justification of premium

Employees getting preferential allocation shall be charged with same premium

Shares allocated on preferential allocation at par shall not be saleable for two years

Sample Due Diligence reportDue Diligence report of EPL


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Price

In case of Premium, Justification for Premium (Quantitative and Qualitative)

Quantitative Valuation as compared to peers / sector justifying premium

Qualitative factors justifying premium

Management track record Brand Value

Sector preference

Growth story

Cost advantage / technology

Strategic location

Premium Justification in Prospectus (Quantitative & Qualitative)EFL Prospectus


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Applicable Laws

Listing Regulations of Stock exchange

The Companies (Issue of Capital) Rules, 1996

Companies Ordinance

Securities and Exchange Ordinance

Guidelines available at SECP site

Legal requirements after listing

Code of corporate governance

Additional disclosure requirements under 4th schedule of co. ordinance

Tight scrutiny by auditors, SECP and KSE

Quarterly reporting and accounts printing

Vulnerable to hostile takeover

Investor relations


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Advisors / Intermediaries

Lead

Financial ( For underwriting, placements & Marketing)

Corporate (For statutory approval from KSE & SECP)

Others

Legal Advisor

Underwriters

Share registrar

Balloter

Bankers to the issue

Book runner


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Initial - Cost

Initial Listing Fee of stock exchanges

Annual Listing Fee

SECP fee

Underwriting commission

Take-up commission

Ballotters and Share registrar charges

Commission to Bankers to issue

Brokerage to Members of the stock exchange Advisory fee of lead manager and book runner

Legal Fees

Printing and Publication cost (prospectus, Application form, Informationmemorandum, Notice)

Marketing Expenses

After Listing -Cost

Fee of stock exchanges & SECP

Quarterly Printing cost

Newspaper cost for notice and ads

Arrangement of AGM & EOGM Cost of meeting Code of corporate governance requirements


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Internally

Develop project team

Appoint Financial and Corporate advisor

IPO responsibility

Prospectus responsibility

Timetable Consideration

IPO marketing

Timelines

Nearly six months exercise containing various steps / approvals

Consider Proposed project / acquisition funding timelines


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Pivotal Milestones to complete Listing process

Underwriting agreements

Issuance of Prospectus (newspaper)


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Audited

Accounts Date

Not more than

6 months

Prospectuspublished in

newspaper

Subscription

Dates7 to 30 days

Pivotal Timelines to complete Listing process

June 30, 2011 Dec 31, 2011 Jan 30, 2012

Dec 31, 2011 June 30, 2012 July 30, 2012

Technical Knockout Point:

Audited accounts disclosed in prospectus should not be older than six (6) months from thedate of publication of prospectus (KSE listing regulation)


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Eligibility for Listing

Any public limited company or body corporate having minimum paid upcapital of two hundred million rupees (Rs.200 million) may apply for listing on

a stock exchange in Pakistan. (KSE listing regulation Chapter IV)

Section 2 of the Ordinance prohibits private limited companies to invitegeneral public for subscription of their securities including shares.

A foreign company having place of business in Pakistan can also apply forlisting on a stock exchange in Pakistan subject to approval of Federal

Government.

Technical Knockout Point:

No company shall be listed unless it has made public issue which is subscribed by not lessthan 500 applications. (KSE listing regulation chapter IV)


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Issue Size and Allocation of Capital (KSE listing regulations Chapter III A)

The size of issue and allocation to various categories of investors has been set as under:

In case post issue paid-up capital of the issuing company is up to Rs.500million, at least 50% of such capital shall be offered to the general public; and

In case capital of the issuing company is beyond Rs.500 million, public offershall be at least Rs.250 million or 25% of the post issue paid-up capital,

whichever is higher.

In case of offer for sale of shares by an existing shareholder, the offer size

shall be at least Rs. 100 million or 25% of the paid up capital of the companywhichever is lower.

Upto 5% of the issue size can be allocated to employees of the issuingcompany.

Upto 20% of the issue size can be allocated to overseas Pakistanis.

In case of Modarabas at least 70% of the issue size shall be allocated to

general public/retail investors. Keeping in view the appetite for IPOs, the offer price, nature of business of

the issuer and issuer's pattern of shareholding, the requirement of minimum

allocation to retail investors can be relaxed as deemed appropriate by SECP.

Allocation of shares to

(i) Sponsors in excess of 25% &

(ii) Under Pre IPO placement including employees of company / group companies


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Methods of Offering Shares

Fixed Price Method

Under this method the offer price is set by the issuer or the Offerer

Independent institutions / underwriters provide comfort to the prospective investors as far asthe offer price is concerned.

The basis of issue price is disclosed in the prospectus where the issuer gives detail about thequalitative and quantitative factors justifying the issue price.

Investors subscribe for the shares at the price already decided by the issuer.

Book Building Process

Book-Building is a mechanism of price determination through which indication of interest forinvestment in the shares offered by an issuer/Offerer is collected from Institutional Investors

and High Net worth Individual Investors through making of bids and a book is built which gives

a picture of demand for the shares at different price levels.

Floor Price is decided by the Issuer/ Offerer in consultation with the Book Runner

Strike Price is determined at the end of the bidding period on the basis of bids receivedthrough the Dutch Auction Method.

Under the Dutch Auction Method, Strike Price is the price at which bids for the entire sharesoffered for sale are made. Book Building portion of the offer is underwritten by the Book

Runner.

Detail procedure of issue/offer of shares through Book Building is given in the Appendix-4 ofthe Listing Regulations of the Stock Exchanges.


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Listing Incentives

Tax credit for enlistment: Where a taxpayer being a company opts forenlistment in any registered stock exchange in Pakistan, a tax credit equal to

15% of tax payable shall be allowed for the tax year in which said company is

enlisted. (sec 65C of income tax ordinance)

Government of Pakistan through the Finance Act, 2011 has announced a taxholiday for five years (till June 2016) for newly established industrial

undertakings, BMR and expansion provided such projects are financed

entirely through equity. For detail Sections 65D and 65E of the Income Tax

Ordinance, 2001 may be consulted. To be benefitted of this incentive, the

companies may raise equity through the capital market for financing their

projects.


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Activities / Procedures to Complete IPO

/ Listing Activity


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Steps to Complete IPO / Listing Activity (I)

1. Preliminary work on Scheme / structure of transaction.

2. Creating Financial Model showing future financial performance and position andimpact of this transaction.

3. Company Valuation on the basis of Financial Model. Also finalizing the issue pricewith the transaction advisor.

4. Preparing Teaser for the transaction

5. Holding BOD meeting for passing resolution for IPO / listing

6. Underwriting

7. Private placements / Pre IPO placements

8. Appointment of bankers to issue for collecting of subscription money andapplications

9. Appointment of Balloter and Share Registrar


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Steps to Complete IPO / Listing Activity (II)

10. Obtaining clearance from CDC and NCCPL and ensuring declaration of thecompany shares as an Eligible Security

11. Prepare Offer for Sale document / prospectus

12. Due Diligence report by underwriter

13. Audited Accounts and certificates from Auditors

14. Filing of listing application with KSE with relevant documents

15. Filing of application with SECP with relevant documents

16. Approval of OFSD / prospectus and listing application by KSE and SECP

17. File application with KSE and SECP for obtaining clearance for date of publicationof OFSD / prospectus and date of opening and closing of subscription list


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Steps to Complete IPO / Listing Activity (III)

18. Publication of OFSD / prospectus

19. Presentation to KSE members

20. Printing of Share certificates and application forms

21. Subscription dates

22. File necessary return as to subscription received with the KSE, SECP and bankersto issue within 3 working days of closure of subscription

23. Balloting within 10 days of closure of subscription

24. Determination of successful applicants and filing of Ballot register with the KSE,SECP and bankers to issue

25. Call a board meeting immediately after ballot to approve the allotment toapplicants determined successful in the ballot


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Steps to Complete IPO / Listing Activity (IV)

26. Refund of subscription money to the rejected and unsuccessful applicants within

10 days of ballot and transfer subscription money of successful applicants to thecompanys main account.

27. File return of allotment with the Registrar of Companies within 30 days ofallotment

28. Transfer of shares to successful candidate within 30 days of closure of subscriptionlist.


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Timelines

Audited

Accounts Date

Not more than

6 months

Prospectuspublished in

newspaper

Subscription

Dates7 to 30 days

Activities during thisperiod

IPO MarketingPrinting of Application forms &

other requisite documents

Activities during thisperiod

Appointment of Financial &

Corporate advisor

Preparation of Financial Model

,Valuation, IM, Prospectus

Underwriting Agreements

Private placementsDue diligence report

Audited AccountsAuditors Certificates

Appointment of Banker to

issue, Balloter & Share

registrar

Approval from KSE & SECP


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Application to KSE (I)

List of documents to be filed to KSE is given in Appendix 1 of Listing regulations. Summary

of documents are given below

Copy of the

certificate of incorporation

certificate of commencement of business.

conversion certificate from private to public company; if applicable.

certificate for change of name of the company, if applicable.

Board resolution Feasibility report of new project

Information memorandum

Material contracts (underwriting, placements, projects, financing)

Title deeds of land

CDC eligibility

Printed share certificate

Soft copy of draft prospectus

Scanned copy of MOA & AOA

Scanned copy of audited accounts last 5 years


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Application to KSE (II)

List of documents to be filed to KSE is given in Appendix 1 of Listing regulations.

Summary of documents is given below

Auditor Certificate

On private placements

U/s 53 read with clause 28(1) of sec 2 of past 1 of 2nd schedule (Profit& Loss, Asset & liabilities, Rate of dividend of 5 years, subsidiary also)

On EPS for last 5 years

On break up value on the basis of latest audited accounts

Consents / NOC of the

Underwriters

Balloter to issue (should not be associated company)

Auditors

Experts / legal advisor

CEO, Director, Company Secretary

Bankers to issue


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Application to KSE (III)

List of documents to be filed to KSE is given in Appendix 1 of Listing regulations.

Summary of documents is given below

CIB reports of

Sponsors, Directors (Not nominee directors)

Company

Associated companies (on the basis of director ship)

List of

Directors / shareholders subscribing under private placement

Employees allocated share out of current issue

Persons allocated share on account of preferential treatment, whereshares issued at premium (Not saleable for two years.)

All documents should be certified by Company Secretary & CEO.

Documents relating to regulatory authorities should by certified from regulatory authorities.


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A company which owns a loan based project and purposes to raise capital

through public offer for the first time shall comply with the following conditions.

The size of capital to be issue shall be in accordance with financialplan approved by an institution financing the project

The company's auditors shall certify that sponsors subscription hasbeen received in full and at least eighty per cent therefore has been

utilized in the project

The stock exchange concerned shall verify that at least thirty percentof the plant & machinery has been installed and last consignment of

P&M, where required has been shipped to the company

The sponsor shall, at all times retain at least 25% of the capital of the

company

Loan based project (Capital Issue rules sec 3)


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A company which owns an equity based project and purposes to raise capital

through public offer for the first time shall comply with the following conditions.

The fixed capital expenditure shall be entirely financed by equity

The project shall be appraised by the financial institution or commercialbank or investment bank

The appraisal report shall be accompanied by a certificate from thecompany auditors confirming that

The capital allocated to sponsors, foreign and local investors, if anyhas been fully paid

The land for the project has been acquired, LC have been establishedand shipment schedule of P&M have been finalized by the suppliers

The issue shall be fully underwritten and the underwriters, not beingassociated companies, shall include at least two financial institutions,

including commercial bank & investment bank and the underwriters shall

evaluate the project in their independent due diligence report.

The sponsor shall retain at least 25% of the capital of the company for aperiod of 5 years form the date of public subscription.

Equity based projects (Capital issue rules sec 3)


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List of documents to be filled with application to SECP.

Clearance letter from Stock exchange Hard & Soft copy of Prospectus / OFSD with last page signed by directors

Affidavit from CEO & CFO on accuracy of disclosure certified by oathcommissioner

Processing Fee

Undertaking from Balloter, Transfer agent & Underwriter that they fulfill

conditions of rule 4 of Balloter, transfer agent & underwriters rules 2001

Consent of Pre IPO investors

Undertaking regarding no buy back agreement from underwriters

Certified Form 29

Confirmation that issued capital does not consist of shares issued againstintangible assets

Affidavit from CEO, Directors, Company secretary, CFO that they havedisclosed all legal proceedings

Application to SECP


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Documents / Publications in IPO / Listing

Teaser

Information Memorandum (IM)

Financial Model containing impact of IPO

Underwriting Agreements

Pre IPO placement Agreements

Due diligence report

Prospectus

Abridged Prospectus

Application in English and Urdu

Notice

Ad in Newspaper


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Teaser

Opportunity Introduction Business overview Summary of Financial history Future growth plan Pakistan economy and sector insight

Investment Highlights Contact details


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Information Memorandum (IM)

Term Sheet Executive summary Pakistan economy insight Sector insight Company business overview Investment Highlights

Equity Market Historical financials Financial projection Valuation & offer price Analysis on key variables Risk factors and there mitigants


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Due Diligence report ( to be issued by underwriters)

Background Transaction summary Company & Business overview BOD & management profile Justification of premium Financial overview

Valuation Market based DCF based

Underwriting rationale Investment highlight


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Thank you

In case of any question / feedback, feel free to contact.

Affan Sajjad

Cell # 03219400788

[email protected]@hotmail.com