Ipo

EXECUTIVE SUMMARY
After a hectic, but educative and enjoyable internships of two months at Karvy Stock
Broking Ltd., I have worked on a topic of Initial Public Offerings a.k.a. IPOs. It
turned out to be a very interesting topic. With this, I was able to learn the indepth of
what IPOs are and what they can do.
Even before starting my internship at Karvy, I had always been interested in the stock
market. I had done very little of trading before joining this firm, but interning there
made me reaize how much more there is to trading in the stock market, apart from just
the simple buying and selling of shares. There had to be an indepth study of that
particular company which had to be done in order for one to know in which direction
the stock prices were going to go. Also, data of that particular company would not be
the only company required, even the information on its compeditors would be
important to know the faith of a company.
Also, while interning at Karvy, Mahanagar Gas Ltd. had come out with an IPO, due to
which the topic of IPOs came into my interest. So, it was decided that I would want to
do my project on this very topic.
Before I had started researching on this topic, the only thing I knew about IPOs were,
was that it was the first step for companies to enter the stock market and sell their
shares to the common investers. But, there is a lot more to do know about Initial
Public Offerings, like there are particular criterias companies have in order for them
to successfully release its IPO into the market and various legal aspects which were to
be put into order. Also, IPOs do not always end up on the bighter side for the
company and/or the stockholders. Thus, companies have to think it through before
they launch IPOs into the market.
There are also various ways in which IPOs are priced. The three which I learnt of are
the “Book Building Process”, “Fixed Price Issue” and lastly, the “Dutch Auction”.
The detailed theory on Initial Public Offerings will be explained as we go ahead.
INDEX
Initial Public Offer (IPO)
Sr No Content Pg No
1 About Karvy 10
2 Introduction 13
3 History of IPOs 15
4 Advantages of IPOs 16
5 Dis-Advantages of IPOs 19
6 Types of IPO 23
7 IPO Valuation 28
8 IPO Analysis 30
9 Process for Release of an IPO 32
10 Eligibility for Release of an IPO 34
11 IPO Over-Subscription 38
12 IPO Under-Subscription 40
13 Investing in IPOs: Do’s and Don’ts 41

14 IPO Grading 43
15 IPO Scam 45
16 Marketing an IPO 56
17 Termnology used in relation to IPOs 58
18 10 Largest IPOs 66
19 Biblography 71
2
About Karvy
The Karvy Group is today a well diversified conglomerate. Its businesses straddle the entire
financial services spectrum as well as data processing and managing segments. Karvy’s
financial services business is ranked among the top-5 in the country across its business
segments. The Group services over 70 million individual investors in various capacities, and
provides investor services to over 600 corporate houses, comprising the best of Corporate
India.
The Group offers stock broking, depository participant, distribution of financial products
(including mutual funds, bonds and fixed deposits), commodities broking, personal finance
advisory services, merchant banking & corporate finance, wealth management, NBFC (loans
to individuals, micro and small businesses), Data management, Forex & currencies, Registrar
& Transfer agents, Data Analytics, Market Research among others.
Karvy Stock Broking Limited provides stock broking and research advisory services in India.
The company offers portfolio analysis, depository participant, and financial planning and
3
management services for individuals and institutional clients. It also provides a monthly
magazine, Finapolis, which provides up-dated market information on market trends,
investment options, and opinions. The company was founded in 1990 and is based in
Hyderabad, India. Karvy Stock Broking Limited operates as a subsidiary of Karvy
Consultants Limited.
Karvy Stock Broking Ltd., the stock broking arm of the Karvy group, was established in
1995. It has memberships in the cash and derivative segment of both NSE and BSE. In 1998,
the company became a DP with NSDL and CDSL. It also operates in the debt and currency
futures segments. Its offerings cover stock broking, demat services, distribution of financial
products, investment banking and advisory services. It also has a specialized private client
group that caters to HNI’s and institutional clients and offers financial planning and
management. As on Dec 31, 2009, Karvy Stock Broking had 785 offices in 642 locations
across the country.
What I Learnt
On the 2nd of May, 2016, was the first day of the internship when a few of my classmates and
myself. We were given various types of training sessions, like about Mutual Funds,
Commodity Trading, as well as how normal trading along with futures and options. We also
had a guest lecturer from Aegon Religare Life Insurance briefing us about the various types
of insurances.
In the training provided about Mutual Funds, we learnt about the various types of Mutual
Funds and how they work. The two main categories of Mutual Finds are open ended funds
and closed ended funds. Open ended funds are where an investor can make an investment and
withdrawal as per their our wish. But, when it comes to closed ended funds, after an investor
makes an investment, there is normally a time period after which the investment made is
automatically withdrawn.
Under each of them, there are again two types: Growth funds and Dividend funds (under
which there is a dividend payout option, where the dividend is transferred into the bank
account of the investor and the type being dividend re-investment, where the divided received
4
is re-invested into the fund. On the other hand, growth funds are where the fund amount is
invested in equity instruments only. They are more riskier than the dividend funds, but have a
much higher rate of return as well (with good growth in the market).
Coming to the commodity market, it is a market that trades in primary economic sector rather
than manufactured products. Soft commodities are agricultural products such as wheat,
coffee, cocoa and sugar. Hard commodities are mined, such as gold and oil. Investors access
about 50 major commodity markets worldwide with purely financial transactions increasingly
outnumbering physical trades in which goods are delivered. Futures contracts are the oldest
way of investing in commodities. Futures are secured by physical assets. Commodity markets
can include physical trading and derivatives trading using spot prices, forwards, futures, and
options on futures. Farmers have used a simple form of derivative trading in the commodity
market for centuries for price risk management.
As we already know, in a Derivative market, we can either deal with Futures or Options
contracts. An option gives the buyer the right to buy/sell the underlying asset at a
predetermined price, within, or at end of a specified period. He is, however, not obligated to
do so. The seller of an option is obligated to settle it when the buyer exercises his right.
A Futures Contract is a legally binding agreement to buy or sell any underlying security at a
future date at a pre-determined price. The Contract is standardized in terms of quantity,
quality, delivery time and place for settlement at a future date (In case of equity/index futures,
this would mean the lot size). Both parties entering into such an agreement are obligated to
complete the contract at the end of the contract period with the delivery of cash/stock. Each
futures contract is traded on a futures exchange (NSE and BSE in the case of India, and MCX
for commodities) that acts as an intermediary to minimize the risk of default by either party.
The Exchange is also a centralized marketplace for buyers and sellers to participate in Futures
Contracts with ease and with access to all market information, price movements and trends.
Bids and offers are usually matched electronically on time-price priority and participants
remain anonymous to each other. Indian equity derivative exchanges settle contracts on a
cash basis.
5
Introduction
Initial Public Offering (IPO), also known as a stock market launch is a type of public offering
in which shares of a company usually are sold to institutional investors that in turn, sell to the
general public, on a securities exchange, for the first time. Through this process, a privately
held company transforms into a public company. IPOs are mostly used by enterprises to raise
its capital, possibly to monetize the investments of early private investors, and to become
companies which are publicly traded on the stock exchanges. A company selling shares is not
required to repay the capital it gained to its public investors. After the IPO, when shares are
freely traded in the open market, money passes between public investors. Although IPO
offers many advantages, there are also significant disadvantages, chief among these are the
costs associated with the process and the requirement to disclose certain information that
could prove helpful to competitors. The IPO process is colloquially known as the company
going public.
Details of the proposed offering are disclosed to potential investors in the form of a legal
document known as a prospectus. Most companies undertake an IPO with the assistance of an
6
investment banking firm acting in the capacity of an underwriter. Underwriters provide

several services, including help with correctly assessing the value of shares (share price) it
launches, and establishing a public market for shares (initial sales of stock). China has
recently emerged as a major IPO market, with several of the largest IPOs taking place in that
country. The Indian IPO which released whilst interning at Karvy Stock Broking was the
Mahanagar Gas IPO with a lot size of 35 shares and an issue price of INR 380-421 per equity
share, which were listed on both, the NSE as well as BSE. The stock, when listed on the
exchange, opened at a whooping price of approximately INR 520 per equity share.
7
After launching IPOs, if a company wishes to raise more capital through the stock market,
Further Public Offers (FPOs) too are an available option for them, where they can sell more
shares into the market. This way they gain their larger capital which they require, but they
would have to be careful and need to have a majority of the shareholdings with themselves,
as to keep control to themselves.
History of IPOs
Initial public offerings (IPOs) are a type of public offering, in which shares of the company
usually are sold to investors that in turn, sell to the general public, through a securities
exchange, for the first time. Through this process, a privately held company transforms into a
public held company. Initial public offerings are commonly used by companies to bring about
the expansion of capital, possibly to monetize the investments of early private investors, and
to become publicly traded enterprises. A company selling shares over an exchange, is never
required to repay the capital to its public investors. After the release of an IPO, when shares
trade freely in the open market, money passes between public investors. Although IPOs offer
many advantages, there are also a significant number of disadvantages, mainly among these,
are the costs associated with the process and the requirement to disclose particular
information that could prove helpful to the competitors of the particular company. The IPO
process is commonly known as going public.
Details of the proposed public offering are disclosed to potential purchasers in the form of a
lengthy document known as a “prospectus”. Most companies undertake an IPO with the
assistance of an investment banking firm acting in the capacity of an underwriter.
Underwriters (investment banking firm) provide several services, like helping with correctly
assessing the value of shares (share price) and establishing a public market for the initial sale
of the shares. Alternatively, other methods such as the Dutch auction can also be explored. In
terms of size and public participation, the most notable and simplest example of this method
8
is the Google IPO. China has recently emerged as a major market for IPOs, with several of
the largest IPOs taking place in that country.
Advantages of IPOs
Earlier there was no way for a particular management to keep track of the daily changes in
the value of its company. In a publicly listed firm, there is a stock price, which indicates the
value of the firm, and this keeps changing throughout the trading day. The management will
have to ensure that business decisions and company performance recurrently serve to enhance
shareholder value.
The following are the main advantages companies seek while deciding to list their ventures
on the stock exchanges:
1. Risk Capital Accessibility:
Most companies will find it difficult to raise equity from venture capitalists and other big
investors. It is not just about lack of availability of potential investors. There may be
investors available but they may not be willing to give a fair valuation to the entrepreneurial
venture. In such cases, it will be prudent to seek equity investment from the public who might
be willing to value the company more generously.
2. Increase in Public Image:
9
The public image of an enterprise also goes up once it has been publicly listed. It gets more
recognition from suppliers and customers. Also, it becomes easier to attract companies.
Moreover, banks will also be more willing to lend to listed companies than to closely held
firms.
3. Stock Options:
Labour laws in India permit issuing stock to employees even in the case of private limited
companies. But, the laws make it very cumbersome and procedures are not very well
designed to facilitate liquidity. In the case of public limited firms, it is very easy to set up
employee stock option plans and motivate your employees.
4. Facilitates Mergers and Acquisitions:
As a publicly listed company, it is much easier to carry out mergers and acquisitions. The
processes get simpler and valuations are largely market driven. As such valuation does not
remain an area of much concern.
5. Liquidation:
Listing gives an opportunity to entrepreneurs to liquidate a part of their holdings. Also, if the
venture has accessed venture capital in the past, listing gives an opportunity to venture
capitalists to liquidate all or part of their holdings.
5. Sharing Corporate Control:
The company can no longer be operated by the whims and fancies of the management of the
company. Now, there will be a board of directors, which will be responsible to the general
10
shareholders. Management of the company has to be carried out transparently and in the best
interests of the shareholders.
6. Sharing Financial Gain:
In a proprietorship, all profits go to the entrepreneur but in a publicly listed firm, the
entrepreneur cannot take all the profits home. Profits have to be shared with all other
shareholders through issue of dividends and bonus shares.
7. Managing Shareholder Value:
Earlier there was no way for the management to keep track of the daily changes in the value
of the company. In a publicly listed firm, there is a stock price, which indicates the value of
the firm, and this keeps changing throughout the trading day. The management will have to
ensure that business decisions and company performance continually serve to enhance
shareholder value.
11
Dis-Advantages of IPOs
The disadvantages brought about through the flotation of a company in an IPO are typically
perceived differently by different companies with different focuses and requirements.
There are the costs involved that include both the direct costs, in time and money, of the
flotation process as well as the opportunity costs of underpricing the offering and
subsequently the costs of increased disclosure to public shareholders.
The various dis-advantages of private companies going public are as follows:
1. Increased disclosure:
When a company moves from private ownership to public, it vastly increases the number of
people who have access to its financial records. This can be a huge shock to the existing
owners, not just the reporting of the company’s results, but the disclosure of management
salaries and perks that often piques the interest of newspaper editors on a slow day.
Companies are required by stock exchanges, securities commissions and regulators to
disclose information on a regular basis so that investors and potential investors can make buy,
sell or hold decisions. A much greater amount of information is required at the time of the
IPO and is included in the offering prospectus.
Disclosure requirements vary by country. Those countries with the largest stock markets,
12
relative to the economy, typically have the highest disclosure requirements (e.g. Australia,
Canada, UK, USA).
The development of efficient capital markets in Central and Eastern Europe has been
hindered partially by the reticence of corporate executives to disclose information about their
firm’s operations and performance.
2. Costs of IPOs:
Coming out with Initial public offerings isn’t cheap. Investment bankers take high
commissions of between 2 and 7 per cent of the total amount raised; lawyers and accountants
bill by the hour, when many hours are required. The ancillary costs, such as public relations,
printing, corporate advertising and others can add several hundred thousand more dollars,
euros or pounds.
In addition to the upfront costs of the IPO, there are the costs of maintaining a quote on the
stock exchange (stock exchange fees, management time, more extensive audits and reporting,
reconciliation of accounts to US GAAP if listed on a US exchange, etc.).
However, the direct costs of an IPO can pale beside the indirect cost of underpricing. Because
no cash is coming directly out of the issuer’s pocket, underpricing can sometimes be ignored
as a cost. It should not be. IPOs around the world are under priced compared with their short-
term performance. On average, an IPO will close at a price that is 15 to 20 per cent above its
issue price, although this varies by market and industry and over time. This means that selling
shareholders and the company are leaving significant sums of money on the table when they
go public.
The amount of money left on the table is calculated by subtracting the offer price from the
first day closing price and multiplying by the number of shares offered. For example, many
analysts believe Google left too much money on the table in its 2004 IPO.
3. Potential restrictions on management action:
13
In many private companies, the managers are the owners. Therefore there are few restrictions
on management action other than statutory and legal regulations and common sense.
However, this is not a problem as the linkage of ownership and control should lead to little
divergence of opinion about the appropriate course of action for the company.
In public companies, the managers are the agents of the shareholders – they should be acting
on behalf of the shareholders and in the shareholders’ best interests. In order to ensure that
they do, public companies have boards of directors who are meant to oversee management’s
actions on behalf of shareholders. In some circumstances a strong board of directors may

limit the actions of management.
4. Potential loss of control:
Not all IPOs are for more than 50 per cent of the issuer’s voting shares, in fact, the average is
around 30 per cent. So although control is not lost through the IPO, if the company requires
further equity to fuel its growth, existing shareholders will suffer dilution. For the majority of
companies, control will pass to public shareholders at some point in time.
5. Perceptions of short-termism:
One of the most common complaints of corporate management is that Wall Street or the City
are too ‘short-termist’. Short ‘termism’ outlines that investors and analysts focus exclusively
on the current quarter/reporting period, without giving due consideration to the long-term
impact of the company’s decisions. Shareholders generally judge management’s performance
in terms of profits and stock price.
Significant pressure exists to increase profits each period and to meet analysts’ expectations
and this pressure may cause management to emphasize near-term strategies instead of longer-
term goals (Garner, Owen and Conway, 1994).
In order to meet investors’ quarterly or semi-annual earnings expectations, a company may be
14
forced off the long-term strategy that was in place prior to the IPO. Managers may feel
compelled to follow strategies that support the share price in the short term, rather than over a
long time horizon.
6. Dealing with institutional investors:
Along with the above complaint about short-termism, many chief executives, often those
heading a company with badly performing stock prices, complain that the stock market
doesn’t understand entrepreneurs, and that entrepreneurial decision making and creativity are
stifled by the men in blue pinstripe suits.

Additionally, dealing with shareholders, financial analysts and the press is time consuming.
The CEO and CFO/Finance Director should expect to expend, on average, at least one day
per month meeting with and discussing the company’s strategy, performance and operations.
Those companies that do not establish good relationships with the financial community can
find themselves without friends in times of need, such as when faced with a hostile take-over.
Whilst many believe the advantages of company going public outweigh the disadvantages,
every year dozens of companies voluntarily leave the stock market in what is called a ‘public
to private transaction’. These transactions are typically management buy-outs and leveraged
buy-outs of the public shareholders and come after extended periods of a depressed share
price.
15
Types of IPOs
An initial public offering (IPO) is a way in hich a firm goes public and sells a large number of
shares to raise finances. It is one of the investing basics of how a company can raise funds for
its functionings. There are three types of IPOs: Book Building, Fixed Price and Dutch
Auctioning. A company can use any of the three types. By participationg in an IPO, an
investor can buy shares before theuy are even available in the exchange for the general public
to invest in.
1. Book Building Process:
Offer Price: The issuer within which investors are allowed to bid and the final price is
determined by the issuer offers a 20 % price band only after closure of the bidding.
Demand: Demand for the securities offered, and at various prices, is available on a
real time basis on the BSE website during the bidding period.
Payment: 10 % advance payment is required to be made by the qualified institutional

buyers along with the application, while other categories of investors have to pay 100
% advance along with the application.
Reservations: 50 % of shares offered are reserved for qualified institutional buyers, 35

% for small investors and the balance for all other investors.
Book Building is essentially a process used by companies raising capital through

Public Offerings-both Initial Public Offers (IPOs) or Follow-on Public Offers ( FPOs)
16
to aid price and demand discovery. It is a mechanism where, during the period for
which the book for the offer is open, the bids are collected from investors at various
prices, which are within the price band specified by the issuer. The process is directed
towards both the institutional as well as the retail investors. The issue price is
determined after the bid closure based on the demand generated in the process.
The Process:
 The Issuer who is planning an offer nominates lead merchant banker(s) as 'book
runners'.
 The Issuer specifies the number of securities to be issued and the price band for the
bids.
 The Issuer also appoints syndicate members with whom orders are to be placed by the
investors.
 The syndicate members input the orders into an 'electronic book'. This process is
called 'bidding' and is similar to open auction.
 The book normally remains open for a period of 5 days.
 Bids have to be entered within the specified price band.
 The bidders can revise bids before the book closes.
 On the close of the book building period, the book runners evaluate the bids on the
basis of the demand at various price levels.
 The book runners and the Issuer decide the final price at which the securities shall be
issued.
 Generally, the number of shares is fixed; the issue size gets frozen based on the final
price per share.
 Allocation of securities is made to the successful bidders. The rest get refund orders.
17
BSE's Book Building System
 BSE offers a book building platform through the Book Building software that runs on
the BSE Private network.
 This system is one of the largest electronic book building networks in the world,
spanning over 350 Indian cities through over 7000 Trader Work Stations via leased
lines, VSATs and Campus LANS.
 The software is operated by book-runners of the issue and by the syndicate members,
for electronically placing the bids on line real-time for the entire bidding period. In
order to provide transparency, the system provides visual graphs displaying price v/s
quantity on the BSE website as well as all BSE terminals.
2. Fixed Price Process:
Offer Price: Price at which the securities are offered and would be allotted is made
known in advance to the investors
Demand: Demand for the securities offered is known only after the closure of the
issue.
Payment: 100 % advance payment is required to be made by the investors at the time
of application.
Reservations: 50 % of the shares offered are reserved for applications below Rs. 1
lakh and the balance for higher amount applications.
The concept of Book Building is relatively new in India. However it is a common

practice in most developed countries.
An issuer company is allowed to freely price the issue. The basis of issue price is
disclosed in the offer document where the issuer discloses in detail about the
qualitative and quantitative factors justifying the issue price. The Issuer company can
mention a price band of 20% (cap in the price band should not be more than 20% of
18
the floor price) in the Draft offer documents filed with SEBI and actual price can be
determined at a later date before filing of the final offer document with SEBI / ROCs.
3. Dutch Auction Process:
A Dutch auction is a type of auction in which the auctioneer begins with a high asking
price which is lowered until some participant is willing to accept the auctioneer's
price, or a predetermined reserve price (the seller's minimum acceptable price) is
reached. The winning participant pays the last announced price. This is also known as
a clock auction or an open-outcry descending-price auction.
This type of auction is convenient when it is important to auction goods quickly, since
a sale never requires more than one bid. The Dutch auction guarantees that the best
possible price is obtained, in contrast to a traditional auction where the winning bidder
may have been prepared to bid considerably more.
In a Dutch auction, the item being sold is initially offered at a very high price, well in
excess of the amount the seller expects to receive. Bids are not sealed, as they are in
some types of auctions. The price is lowered in decrements until a bidder accepts the
current price. That bidder wins the auction and pays that price for the item. For
example, suppose a business is auctioning off a used company car. The bidding may
start at $15,000. The bidders will wait as the price is successively reduced to $14,000,
$13,000, $12,000, $11,000 and $10,000. When the price reaches $10,000, Bidder A
decides to accept that price and, because he is the first bidder to do so, wins the
auction and has to pay $10,000 for the car.
Dutch auctions are a competitive alternative to a traditional auction, in which bids of
increasing value are made until a final selling price is reached, because due to ever-
decreasing bids buyers must act decisively to name their price or risk losing to a lower
offer.
The introduction of the Dutch auction share repurchase in 1981 allows firms an
alternative to the fixed price tender offer when executing a tender offer share
repurchase. The first firm to use the Dutch auction was Todd Shipyards. A Dutch
19
auction offer specifies a price range within which the shares will ultimately be
purchased. Shareholders are invited to tender their stock, if they desire, at any price
within the stated range. The firm then compiles these responses, creating a supply
curve for the stock. The purchase price is the lowest price that allows the firm to buy
the number of shares sought in the offer, and the firm pays that price to all investors
who tendered at or below that price. If the number of shares tendered exceeds the
number sought, then the company purchases less than all shares tendered at or below
the purchase price pro rata to all who tendered at or below the purchase price. If too
few shares are tendered, then the firm either cancels the offer (provided it had been
made conditional on a minimum acceptance), or it buys back all tendered shares at the
maximum price.
Above (in the picture) is a brief explanation of the fixed price method, book building method,
20
and a combination of the two methods together.
IPO Valuation
The price of a financial asset, in this case an IPO, traded on the market, is set by the forces of
supply and demand. Newly issued stocks are no exception to this rule - they sell for whatever
prize a person is willing to pay for them. The best analysts are experts at evaluating stocks.
They figure out what a stock is worth, and if the stock is trading at a discount from what they
believe it is worth, they will buy the stock and hold it until they can sell it for a price that is
close to, or above, what they believe is a fair price for the stock. Conversely, if a good analyst
finds a stock trading for more than he or she believes it is worth, he or she moves on to
analyzing another company, or short sells the overpriced stock, anticipating a market
correction in the share price.
Initial public offerings (IPOs) are unique stocks because they are newly issued. The
companies that issue IPOs have not been traded previously on an exchange and are less
thoroughly analyzed than those companies that have been traded for a long time. Some
people believe that the lack of historical share price performance provides a buying
opportunity, while others think that because IPOs have not yet been analyzed and scrutinized
by the market, they are considerably riskier than stocks that have a history of being analyzed.
A number of methods can be used to analyze IPOs, but because these stocks don't have a
demonstrated past performance, analyzing them using conventional means becomes a bit
21
trickier.
If you're lucky enough to have a good relationship with your broker, you may be able to
purchase oversubscribed new issues before other clients. These tend to appreciate
considerably in price as soon as they become available on the market: because demand for
these issues is higher than supply, the price of oversubscribed IPOs tends to increase until
supply and demand come into equilibrium. If you're an investor who doesn't get the first right
to buy new issues, there's still an opportunity to make money, but it involves doing a
substantial amount of work analyzing the issuing companies.
Here are some points that should be evaluated when looking at a new issue:
i. Why has the company elected to go public?

ii. What will the company be doing with the money raised in the IPO?
iii. What is the competitive landscape in the market for the business's products or
services? What is the company's position in this landscape?
iv. What are the company's growth prospects?
v. What level of profitability does the company expect to achieve?
vi. What is the management like? Do the people involved have previous experience
running a publicly traded company? Do they have a history of success in business
ventures? Do they have sufficient business experience and qualifications to run the
company? Does management itself own any shares in the business?
vii. What is the business's operating history, if any?
This information and more should be found in the company's S-1 statement, which is required
reading for an IPO analyst. After reading the company's S-1, you should have a pretty good
understanding of the characteristics of the business and the operations at the company. Given
these characteristics, find out what you believe to be a reasonable valuation for the company.
Divide this number by the number of shares on offer to find out what's a reasonable price for
the stock. Other valuation strategies could include comparing the new issue to similar
companies that are already listed on an exchange to determine whether or not the IPO price is
justified.
22
IPO Analysis
IPO analysis observed several trends in the IPO market in the last couple of years. Not all
companies listed on the exchange succeeded though. The article below highlights the trends
in the IPO market in the last few years. /5535731/blog-MOI-300x250-content
Experts reviewing the markets have kept a close watch on the initial public offerings. IPO
analysis has indicated that there are many companies, awaiting their listing on the stock
exchange. On the other had, there were few companies who had their timelines extended and
also lessen their price points.
In general, if the IPO market is “frothy”, a “temporary” or “intermediate market top” is

implied. Another expert view suggests that the promoters as well as the merchant bankers
were sailing in the same boat. It is felt that investors need to weigh the pros and cons prior to
taking the plunge. The investors ought to avoid listing prices of the “grey market”, which
may be anomalous due to manipulation.
Studies reveal that the year 2004 was a year when several IPOs were seen. In fact, statistical
data proved that in the same year (2004) as many as 242 initial public offerings were
launched. This figure in fact far outnumbered the IPOs of the previous years, 2001 to 2003
taken together. The returns from the stock offerings were also handsome and proved to be
advantageous for the investors who dared to invest in the turbid waters. Statistics imply that
majority of the companies, which were listed on the stock exchange in the year 2004 had a
yearly sales record below $50 million.
23
However, things were not the same for all the companies. There were certain companies,
which did not make enough profit. It was found in the year 2004, that about 4 out of the 10
companies, which became listed on the stock exchange, approximately, 39% of them did not
earn profits. This situation was however better than the days of 1999-2000, when the 74% of
new publicly listed companies lost.
Another trend, which has been observed from IPO analysis, indicates that there are certain
drug making companies (pharmaceutical companies), which have a tendency to get listed on
the stock exchange even before they start earning profits. The reason may be attributed to the
fact that these companies usually take longer period for manufacturing medical equipments
and medicines. This is in sharp contrast to majority of the companies, which usually manifest
profitability for a period of 6 months (at least) prior to trading on the stock exchange.
24
Process for Release of an IPO
Once a company decides to go public, it typically goes through the following steps leading up
to its IPO:
 Hiring the Bank:

The first step in the IPO process is hiring an underwriter, or the investment bank that
will help guide the company through its IPO. The company and the underwriter will
figure out the company’s financial needs and how much money it hopes to raise in the
IPO. Typically, a company will bring on more than one bank helping to guide its IPO.
 Submitting documents to the SEC:

To go public, a company needs to register its IPO with the Securities & Exchange
Commission (SEC). The SEC is the U.S. federal agency that regulates stock trading
and stock exchanges, enforces industry regulations and protects investors. The
registration statement, or S-1, is the formal document that explains the company’s
business, potential risk factors, ways it will use the money raised in the IPO, and
current ownership of the company’s stock. The SEC looks over the registration
statement to determine if the company has provided enough information for potential
investors.
 Handing out the Preliminary Prospectus:

Next, those involved in the IPO can hand out the preliminary prospectus to seek
25
interest in the IPO from potential investors. This document lists the estimated price
range for one share of the company’s stock and other important information about the
offering. This first version of the prospectus is also known as a "red herring" because
the first page has a red warning that the prospectus is not final.
 Going on the Road Show:

The road show is an event where a company’s management team travels to seek
interest in its IPO. During the roadshow, management will make live presentations to
potential investors, usually large institutional investors. If prospective investors want
to invest in the IPO, underwriters can take conditional offers or reservations for
shares.
 Finalizing the IPO:

At the end of the road show and right before IPO pricing, the company asks the SEC
to declare the registration statement effective so that purchases can be made. After
getting an idea of demand for the IPO, the company and underwriters determine the
share price of the company’s stock, which is listed in the final version of the
prospectus.
Distributing IPO Shares: After the IPO price is finalized, the underwriters and others involved
in the IPO decide how many shares each investor will receive. This last step in the IPO
typically occurs just before the stock begins trading on the stock market.
A much more detailed process is given in brief in the picture below:
26
Eligibility for Release of an IPO
Qualifications for listing Initial Public Offerings (IPO) are as below:
1. Paid up Capital:
The paid up equity capital of the applicant shall not be less than Rs. 10 crores and the
capitalization of the applicant's equity shall not be less than Rs. 25 crores
For this purpose, the post issue paid up equity capital for which listing is sought shall
be taken into account.
For this purpose, capitalization will be the product of the issue price and the post issue
number of equity shares. In respect of the requirement of paid-up capital and market
capitalization, the issuers shall be required to include, in the disclaimer clause of the
Exchange required to put in the offer document, that in the event of the market
capitalization (Product of issue price and the post issue number of shares) requirement
of the Exchange not being met, the securities would not be listed on the Exchange.
27
2. Conditions Precedent to Listing:
The Issuer shall have adhered to conditions precedent to listing as emerging from
inter-alia from Securities Contracts (Regulations) Act 1956, Companies Act 1956,
Securities and Exchange Board of India Act 1992, any rules and/or regulations framed
under foregoing statutes, as also any circular, clarifications, guidelines issued by the
appropriate authority under foregoing statutes.
3. At least three years track record of either:
o the applicant seeking listing; or
o the promoters/promoting company, incorporated in or outside India or

o Partnership firm and subsequently converted into a Company (not in existence
as a Company for three years) and approaches the Exchange for listing. The
Company subsequently formed would be considered for listing only on
fulfillment of conditions stipulated by SEBI in this regard.
For this purpose, the applicant or the promoting company shall submit annual
reports of three preceding financial years to NSE and also provide a certificate
to the Exchange in respect of the following:
i. The company has not been referred to the Board for Industrial and
Financial Reconstruction (BIFR).
ii. The net worth of the company has not been wiped out by the
accumulated losses resulting in a negative net worth. (Provided this
criteria shall not be applicable to companies whose proposed issue size
is not less than Rs.500 crores)
iii. The company has not received any winding up petition admitted by a
court.
4. The applicant desirous of listing its securities should satisfy the exchange on the
following:
No disciplinary action by other stock exchanges and regulatory authorities in past
28
three years
There shall be no material regulatory or disciplinary action by a stock exchange or

regulatory authority in the past three years against the applicant company. In respect
of promoters/promoting company(ies), group companies, companies promoted by the
promoters/promoting company(ies) of the applicant company, there shall be no
material regulatory or disciplinary action by a stock exchange or regulatory authority
in the past one year.
o Redressal Mechanism of Investor grievance
The points of consideration are:

 The applicant, promoters/promoting company(ies), group companies,
companies promoted by the promoters/promoting company(ies) track
record in redressal of investor grievances
 The applicant's arrangements envisaged are in place for servicing its
investor.
 The applicant, promoters/promoting company(ies), group companies,
companies promoted by the promoters/promoting company(ies) general
approach and philosophy to the issue of investor service and protection
 defaults in respect of payment of interest and/or principal to the
debenture/bond/fixed deposit holders by the applicant,
promoters/promoting company(ies), group companies, companies
promoted by the promoters/promoting company(ies) shall also be
considered while evaluating a company's application for listing. The
auditor's certificate shall also be obtained in this regard. In case of defaults
in such payments the securities of the applicant company may not be listed
till such time it has cleared all pending obligations relating to the payment
of interest and/or principal.
o Distribution of shareholding
The applicant's/promoting company(ies) shareholding pattern on March 31 of

last three calendar years separately showing promoters and other groups'
shareholding pattern should be as per the regulatory requirements.
o Details of Litigation
The applicant, promoters/promoting company(ies), group companies,
29
companies promoted by the promoters/promoting company(ies) litigation

record, the nature of litigation, status of litigation during the preceding three
years period need to be clarified to the exchange.
o Track Record of Director(s) of the Company
In respect of the track record of the directors, relevant disclosures may be

insisted upon in the offer document regarding the status of criminal cases filed
or nature of the investigation being undertaken with regard to alleged
commission of any offence by any of its directors and its effect on the business
of the company, where all or any of the directors of issuer have or has been
charge-sheeted with serious crimes like murder, rape, forgery, economic
offences, etc.
30
IPO Over-Subscription
Investment bankers for years have bragged about how many times their initial public
offerings are oversubscribed, but in the current rough market environment that measure of
investor demand is attracting more scrutiny.
Whether a deal is said to be two times or 10 times oversubscribed, only one thing is certain:
No one outside the lead underwriting bank really knows how accurately that reflects investor
interest.
"What does an oversubscription number really mean without being able to see the order
books? It's hard to independently verify," said Jonathan Crane, chairman of KeyBanc Capital
Markets' equity-underwriting committee.
At a very basic level, oversubscription is supposed to reflect investors' appetite for an IPO by
comparing the number of shares they want to the number of shares that are actually available.
Most bankers take a broad look at buyers' so-called indications of interest ahead of the
pricing, which are preliminary orders that show how many shares each investor is asking for.
However, investors routinely inflate their indications of interest, especially on hot deals,
anticipating they will receive only a portion of what they request. And during volatile
markets, when investor sentiment can swerve from upbeat to negative overnight, deals that
appear oversubscribed on paper ahead of a pricing can take a nose dive once they begin
trading in real life.
"Generally, when a stock is oversubscribed, you would expect to see it trade up at least for
the first few hours. People who ostensibly wanted more shares than they were allocated
would be inclined to buy more in the secondary market," said Thomas Conaghan, a partner at
the law firm of McDermott Will & Emery and co-author of "The Public Company Primer."
"When there is no correlation between the oversubscription rate and price performance, it's
possible the deal was priced too high."
Facebook Inc. 's IPO was said to be five times oversubscribed by institutional investors, and
the actions the company and its bankers took ahead of its pricing reflected that belief: They
bumped up both the number of shares sold and the price range, normally telltale signs that
31
there are high indications of interest. But that interest didn't hold up much past pricing, with
the stock ending its first day of trading essentially flat before falling sharply in subsequent
days; it closed Friday down 21% from its $38 IPO price.
A range of issues affected Facebook's offering, including technical glitches at the Nasdaq
stock exchange, lower analyst forecasts during its "roadshow" investor presentations, and its
mammoth size—it raised $16 billion—at a time when the broader market was declining. At
the heart of the deal's flop, however, was a very basic problem: Too many shares were sold at
too high a price to too many investors who weren't committed to holding it for very long.
That's partly because when a deal is for a consumer name that is attracting a lot of individual
investors, there is the risk of drawing in people who don't have any long-term ownership
goals, say bankers and attorneys who work on IPOs.
When the frenzy for a hot deal gets too hectic, it can be very difficult to price accurately for
demand, said Paul Deninger, a senior managing director in the corporate advisory practice at
Evercore Partners Inc., an investment bank that wasn't involved in the Facebook offering.
32
IPO Under-Subscription
There are two situations, viz. the non-underwritten public issues, and the underwritten ones:
1. In the former case, if the company does not receive the minimum subscription of 90 per
cent of the issued amount on the date of closure of the issue, or if the subscription level falls
below 90 per cent after the closure of issue on account of cheques having being returned
unpaid or withdrawal of applications, the company shall forthwith refund the entire
subscription amount received. "If there is a delay beyond eight days after the company
becomes liable to pay the amount, the company shall pay interest as per Section 73 of the
Companies Act 1956," points out SEBI. Dr S. Kannan, a company law expert, draws attention
to Section 69, which prohibits allotment unless minimum subscription is received.
What happens if the issue has been underwritten? "If the company does not receive the
minimum subscription of 90 per cent of the net offer to public including devolvement of
underwriters within 60 days from the date of closure of the issue, the company shall forthwith
refund the entire subscription amount received." Here too, there is the stipulation about
interest as per Section 73.
Section 73 of the Companies Act 1956
2. Where the permission has not been 6[applied under sub-section (1)] 7[or, such permission
having been applied for, has not been granted as aforesaid], the company shall forthwith
repay without interest all moneys received from applicants in pursuance of the prospectus,
and, if any such money is not repaid within eight days after the company becomes liable to
repay it, 8[the company and every director of the company who is an officer-in-default shall,
on and from the expiry of the eighth day, be jointly and severally liable to repay that money
with interest at such rate, not less than four per cent and not more than fifteen per cent, as
may be prescribed, having regard to the length of the period of delay in making the
repayment of such money.
33
Investing in IPOs: Do’s and Don’ts
An Initial Public Offering (IPO) is when a company issues shares to the general public for the
first time. By doing so, a private company becomes a public limited company. Its shares get
listed on the stock exchange after the IPO. The idea is to raise funds from the market and
have more cash in hand. The money, then, can be used to fund its projects, expansion plans or
improve the existing infrastructure.
IPOs are issued in the primary markets. This is where new securities are issued directly to
investors. On the other hand, secondary market deals with the trading of securities that were
already issued in the primary market.
An IPO of a good company can usually guarantee you great returns. However, it does come
with its own share of risks that you must be aware of. Here are some dos and don’ts for
investing in IPOs:
Dos:
 Check the valuation of the IPO and the ratings assigned to the company. Every
company floating an IPO is graded by SEBI-registered credit rating agencies. The
grade is assigned after assessing the company’s financial health and market conditions
in comparison to other listed companies. It is issued on a five-point scale; higher the
score, stronger is the company.
 Keep track of the underwriters involved in the IPO process. Also, try to select a
company that is backed by a strong underwriter. An underwriter is an investment
bank, or a group of banks that are hired by the company to handle the IPO. The
underwriter purchases a part or whole of the new issue before the IPO. They, then, try
to resell the stock to the investors at a price close to the IPO price. It, thus, acts as an
intermediary between the company and investors. Moreover, if the IPO is
undersubscribed, the underwriter buys the balance shares.
34
 Research the company properly before purchasing its IPO. Make it a point to read the
company’s draft prospectus and risk factors. The prospectus, which you can access
from SEBI's web site, provides information about the company’s financials,
promoters, tentative issue price and so on. Since IPOs are floated by a private
company, not much data would be available in public domain. So, a prospectus can
come handy here.
 You can wait for the lock-up period of an IPO to end before subscribing to it. A lock-
up period is a legal contract between the underwriters and company insiders that
restricts them from selling their stock. The period ranges from three to 24 months.
Once the period ends, both the parties can sell their shares. It can lead to a sharp drop
in the stock’s value. This can be an ideal time to the buy the stock. The thumb rule in
investing is: Buy low, Sell high.
Don’ts:
 Do not buy an IPO just because of media frenzy or a good word of mouth. Opt for a
company with strong fundamentals.
 Do not fall prey to discounts that some IPOs offer. Remain skeptical and make an
informed decision. Discounts should be treated as add-ons only.
 Do not blindly buy government-sponsored IPOs. Opt for them when the overall
macro-economic conditions are strong. You will get a value for your money.
35
IPO Grading
It is a rating assigned by the Securities and Exchange Board of India-registered credit rating
agencies to initial public offerings of various firms. The grade indicates an assessment of
business fundamentals and market conditions in comparison to other listed equities at the
time of the issuance. These ratings are generally assigned on a five-point scale, with a higher
score indicating stronger companies. IPO grading can be done either before filing the draft
offer documents or thereafter. However, the red herring prospectus must have the grades
given by all the rating agencies.
A company which has filed the draft offer document for an IPO on or after May 1, 2007, must
be rated by at least one agency. Companies cannot reject the grade. If dissatisfied, they can
opt for another agency. But, all grades obtained for the IPO must be disclosed to the regulator
and the investors.
Why is it important?
IPO grading was introduced to make additional information about unlisted companies or
those without any track record of their performance available to the investors, helping them
assess the issue before investing and burning their fingers. Grading is additional investor
information and assistance to enable informed investment decisions and more realistic pricing
of shares. It helps issuing companies in that if they are given a higher score — indicating
stronger fundamentals — they command a higher premium for their issue.
Which factors determine the grade?

IPO grading covers both internal and external aspects of the issuing company. Internal factors
include the competence of the management, promoters’ profile, marketing strategies, growth
prospects, competitive edge, technology, operating efficiency, liquidity and financial
flexibility, asset quality, accounting quality, profitability and hedged risks. External factors
would be the industry and economic, or, business environment for the company. It does not
take into account the issue price. Therefore, investors needs to make an independent
judgement on the subscription price.
36
Where can one see IPO grades in the offer document?

All grades, along with a description of the same, can be found in the issue prospectus,
abridged prospectus and the issue advertisement. Further, the grading letter of the credit
rating agency, which contains the detailed rationale for assigning the grade, is included with
the documents available for inspection.
How does it help?

IPO grading by a professional credit rating agency informs investors about the issuing
company after analysing factors like business and financial prospects, management quality
and corporate governance practices etc. The grade is not a recommendation to subscribe to
the IPO. It needs to be read with the disclosures, including risk factors.
37
IPO Scam
Case - I
When the Securities Exchange Board of India (SEBI) started scanning an entire spectrum of
IPOs launched over 2003, 2004 and 2005, it ended digging up more dirt and probably
prevented a larger conspiracy to hijack the market.
Here is a lowdown on the IPO scam:
What is the scam?
It involved manipulation of the primary market—read initial public offers (IPOs)—by

financiers and market players by using fictitious or benaami demat accounts. While
investigating the Yes Bank scam, SEBI found that certain entities had illegally obtained IPO
shares reserved for retail applicants through thousands of benaami demat accounts. They then
transferred the shares to financiers, who sold on the first day of listing, making windfall gains
from the price difference between the IPO price and the listing price.
What is an IPO?
An IPO is the first sale of an entity’s common shares to public investors. When an entity
wants to enter the market, it makes its share available to common investors in form of an
auction sale. Each application for an IPO has to be within a cut-off figure, which is eligible
for allotment in the retail investors’ category. But in this case, financiers and market players
illegally cornered these retail investors’ shares.
When was the scam detected?
The IPO scam came to light in 2005 when the private ‘Yes Bank’ launched its initial public
offering. Roopalben Panchal, a resident of Ahmedabad, had allegedly opened several fake
38
demat accounts and subsequently raised finances on the shares allotted to her through Bharat
Overseas Bank branches.
The SEBI started a broad investigation into IPO allotments after it detected irregularities in
the buying of shares of YES Bank’s IPO in 2005.
What triggered the SEBI probe?
On October 10 last year, an Income Tax raid on businessman Purushottam Budhwani

accidentally found he was controlling over 5,000 demat accounts. SEBI finds this suspicious.
On December 15, SEBI declared results of its probe, how a few people cornered a large
chunk of YES Bank IPO shares.
On January 11 this year, SEBI discovered huge rigging in the IDFC IPO Roopalben Panchal
was found to be controlling nearly 15,000 demat accounts.
It was found that once they obtained these shares, the fictitious investors transferred them to
financiers. The financiers then sold these shares on the first day of listing, reaping huge
profits between the IPO price and the listing price. The SEBI report covered 105 IPOs from
2003-2005.
The Sebi probe covered several IPOs dating back to 2005, 2004 and 2003 to detect misuse.
These included the offerings of Jet Airways, Sasken Communications, Suzlon Energy, Punj
Lloyds, JP Hydro Power, NTPC, PVR Cinema, Shringar Cinema and others. A lot more
dubious accounts across several IPOs are expected to tumble out in the next few days.
It also detected similar irregularities in the IDFC IPO, in which over 8 per cent of the
allotment in the retail segment was cornered by fictitious applicants through multiple demat
accounts.
Who is Roopalben Panchal?
Roopalben Panchal of IndiaBulls Securities is allegedly the mastermind of the scam. Finance
39
Ministry officials are expected to act against her soon.
How is this different from Harshad Mehta’s scam?
The securities scam involved price manipulation in the secondary market, read stocks.
Whereas in this case, the manipulation happened in the primary market—even before the
shares (IPOs) entered the stocks market.
This time, fraudsters targeted the primary market to make a quick buck at the expense of the
gullible small investors. Direct Participants (DPs) used retail applicants’ shares for reaping
benefits in the stock market.
How big is the scam?
Apart from the YES Bank fraud, Sebi reportedly has definite data about two IPOs where
retail allotments were rigged, but market observers believe the scam is far bigger. The Yes
Bank and IDFC cases are only a tip of an iceberg, say analysts.
The SEBI probe has identified more operators and some market intermediaries involved in
the misuse of the initial allotment process in public offerings dating back to ’04-05.
The Income-Tax Department in Ahmedabad has found that two major accused, Panchal and
Sugandh Investments, have together made Rs 60.62 crore in 18 months.
Role of Depository Participants
Suzlon Energy IPO: Rs 1,496.34 cr (September 23-29, 2005)
Key operators used 21,692 fictitious accounts to corner 3,23,023 shares which is equal to
3.74 per cent of the total number of shares allotted to retail individual investors.
Jet Airways IPO: Rs 1899.3 crore (Feb 18-24, 2005)
Key operators used 1,186 fake accounts for cornering 20,901 shares which is equal to 0.52
per cent of the total number of shares allotted to retail investors.
40
National Thermal Power Corporation IPO Rs 5,368.14 crore (Oct 7-14, 2004).
12,853 afferent accounts were used for cornering 27,50,730 shares representing 1.3 per cent
of the total number of shares allotted to retail investors.
Tata Consultancy Services IPO: Rs 4,713.47 crore
14,619 ‘benami’ accounts were used to corner 2,61,294 shares representing 2.09 per cent of
the total shares allotted to retail individual investors.
Well the story goes that in Ahemdabad , a man can do anything for his 2% and this is were
the crux of whole matter evolves. Ipo financing and dabba trading are those jargons that we
have always heard. But till this scam was unearthed, we never knew how they use to operate.
Some unfortunate things that I have noticed, that people do all these trading or IPO scam in
the name of their wife, Son, etc.
Our story this time evolve around Dhaval Mehta and Himani patel , both have been convicted
for cornering of share in IPO of Suzlon and IDFC in case of Dhaval and Suzlon in case of
Himani. The names of the accused haven’t been changed and are as same as the source i.e
SAT order.
In case of Himani Patel , She claims and is a IPO financer, for which is not registered under
any law and or any provisions. She funded 61 benami applicant who intake had 635 different
demat A/c and they made 645 multiple application for 96shares amounting Rs. 48960/- ,
interestingly the reason the amount was kept 50,000 is that the formality of giving PAN
CARD can be evaded. The money for the same was routed through 22 different bank
accounts in which Himani Patel was the first holder. On the basis of the allotment each
application got 16 shares total numbering 10160 shares of Suzlon. . These These shares were
off market transferred to Himani Patel’s demat a/c prior to listing . the shares were sold for
more than Rs.839/- compared to the IPO price of Rs.510/-. Rs. 33,52,636/- amount was
illegally earned by her.
41
SEBI post investigation asked her to disgorge the above amount and also leveled a penalty of
55 lakhs.
In case of Dhaval Mehta , was a bigger than Himani as such as stated by him he borrowed a
sum of 16 crores from Ashmi Financial Consulancy pvt ltd at X% rate. ( as I had mentioned
earlier its all about this 2% interest , that every person wants to earn in Ahemdabad). Well he
lent this money to 4580 applicant out which 3870 applied for shares of Suzlon and 719
applied for IDFC. In some case 100% funding was arranged and in some case 50% was
arranged and in some case rest was arranged by Centurian Bank. Similar, to the earlier case
all the applicant applied below Rs.50,000 so that they don’t need to comply with certain
documentation requirement. Similarly, the shares were off –market transferred to Dhaval’s
account. The illegal gains made by him was Rs.1,43,67,775/- Well strangely the whole time
member of SEBI , asked him to disgorge Rs.72 lacs. We should really ask him what happened
to the rest of the amount. Wasn’t that illegal too, or he still has reservation.
Well here is similarity and here is some food for thought for SEBI. 1st both are IPO operators
and their preliminarily aim to accumulate as many shares as possible or retail share holders.
They were held guilty on the a/c that there were cornering shares illegally and that this was
against fair market policy. The worst part was that the transaction were completed in 2005
and 2006 and they realized it in late 2006. Both these people were just intermediaries and
were just out there to make their 2% interest in case of Dhaval Mehta. Similarly, the irony
was that the disgorged amount was nearly 50lacs less in case of Dhaval. Was this used to
betterment of investor, I have no clue on that. But finally something which was validly
argued by appellant side and that was that there is no explicit law that bars multiple
applications. If you actually read the DRHP all it states that retail applicants can only make 1
application and multiple would be rejected. So on a plain read, what you understand is that if
multiple application is made , they would be rejected.
Still multiple application were made and shares were allotted. This shows the fact the
registrar of the IPO doesn’t have any provision to scrutinize in case the same address is being
repeated. In both the case the Address used by the benami application were same, the only
thing that changed was if her name is himani patel. The second application would have H.
42
Patel , Himani P. H.P, etc . So this shows the fact that the registrar has no facility to block
any of the same.
Most of money lending happens on oral contract and the system in Ahemdabad is intact and
no1 messes with the other person. So there is model code which is existent still and you could
see that in the shares of ATLANTA.
Welcome to post IPO scam Sophistication. Now this happens in much legal ways and there is
no way you can stop the same. Remember the last cycle of IPO’s like the power of the world.
So how does it happen? Big time financer transfers 1lakh each to the a/c of the multiple
applicants. Who in all terms would apply for the shares in IPO worth 1 lac. Then the deal is
simple to sell on listing or on his request / given price. Once the money is credited the
applicant issues a check and to financer after deducting Rs. 2000/- as his commission to apply
for the same. Now though the shares may list at premium the financer would be obliged to
pay Rs.2000/- to the applicant for his effort/ risk. This method is fool proof and don’t find
any loop hole as such legally, But as retail applicant I am still losing my shares and there is
till cornering.
The writer has interest in stock market and enjoys reading about various scams that happen
and spread the knowledge to investors. The source of his blog is SAT orders and SEBI orders.
If there is any discrepancy in the may have happened inadvertently.
43
Case - II
Sebi had found irregularities in 21 IPOs between 2003 and 2005. Eleven years on, while 80%
of scam-hit investors have been fully compensated, more than 50% of the sum is yet to be
distributed, finds N Sundaresha Subramanian.
In July, 2016, the Supreme Court passed a judgment quashing a tribunal order against the
Securities and Exchange Board of India (Sebi) in the matter of Opee Stock Link, an
Ahmedabad-based operator.
Over the next few weeks, the regulator would take steps to recover the disgorged illegal gains
of about Rs 14 lakh from Opee and its director, Ashok Bagreecha. The order was a small step
forward for the capital market regulator in its endeavour to compensate retail investors hit by
what has come to be known as the ‘IPO scam’ or the ‘demat scam’.
In its first-ever disgorgement effort, that stretched over several years, the regulator has
reallocated unlawful gains of about Rs 41.34 crore to some 1.27 million investors. “The
remaining amount to be recoverable from the persons directed to be disgorged is either
pending in litigation or in the process of recovery. As and when further disgorgement amount
is recovered by Sebi, reallocation will be made in future to the remaining 260,000 investors
who have already been paid up to Rs 800 (each) in the above distribution,” the Sebi
spokesperson said in a detailed response to queries by Business Standard. “All the 1.27
million investors are benefitted in the said IPO refund exercise and 80 per cent of the said
investors have been fully paid by Sebi,” he added.
The regulator still has to distribute a little over Rs 50 crore. “Even though Sebi has passed
orders, directing the violators to disgorge the illegal gains, recovery of money from them
involves a tedious and time-consuming process and Sebi shall continue to take best efforts in
the interest of investors,” the regulator added.
M S Sahoo, former whole-time member of Sebi, who now holds the same position at
44
Competition Commission of India, said, “This was the first-ever disgorgement order in India,
first-ever compensation to investors from disgorgement. SEBI and every economic regulator
should make all-out efforts to seek disgorgement of unlawful gains from the miscreants, in
addition to other permissible penal action, and endeavour to identify victims of the
misdemeanour and disburse the disgorged amount to them.”
Sahoo, who was with SEBI between 2008 and 2011, said the cases could be broadly
classified into four.
First, through settlement, wherein the entities which made unlawful gains came forward and
paid the amount. Sebi passed settlement orders on these.
About Rs 30 crore was realised in this manner. Second, disgorgement orders passed against
entities which did not come forward for settlement, which were upheld by the Securities
Appellate Tribunal (SAT).
Almost in all cases, the parties went for appeal and each one of them was upheld by the
Supreme Court. However, in many of these cases, the disgorged sums remained unrealised as
the SEBI could not do recovery.
After getting new powers in 2014, it started recovering some of these sums.
Third, there were orders set aside by SAT. SEBI appealed against such orders and these are
being quashed by the Supreme Court. Opee Stock Link was one such case.
Fourth are those cases sent back to the SEBI by the SAT for reconsideration. In the parallel,
the adjudicating officer was passing orders on the monetary penalty. The scam exposed weak
links in the system but also led to sweeping changes, effects of which are felt till date.
B Narasimhan, former member of council, Institute of Company Secretaries of India, said,

“The infirmities in the system were exploited to the maximum by the operators. Whatever
was not proper (in the system) these people took advantage of it. Subsequently, SEBI has
taken several steps to improve the system. Permanent Account Number (PAN) was (made)
mandatory for all applications and compulsory ASBA (Applications Supported by Blocked
45
Amount) for all bidders was introduced.”
The time between allotment and listing has also come down and there has not been a scam of
that size since, added Narasimhan, who has worked with the Karvy group in the past.
How the scam surfaced
In 2005, SEBI’s surveillance system started picking up unusual off-market transfers of shares
in huge quantities. These were shares of companies about to be listed on the stock
exchanges. This evoked the curiosity of the sleuths in SEBI. Usually, an initial public offering
(IPO) of equity provides an opportunity for allottees to make a decent profit and exit.
Therefore, someone who gets an allotment in an IPO either exits on the listing day itself or
holds on for the long term.
But, why were these shares changing hands before the price could be discovered?
When investigated, a pattern emerged wherein shares from several hundred demat accounts
moved to a handful of accounts, from where these were offloaded on listing day. Some
market sources said the tip-off actually came from the income tax department, which had
randomly picked up the income tax returns of one of the operators.
“Once a return is picked up for scrutiny, it is almost compulsory for the tax official to find
something wrong with it. In this case, it was not very difficult,” said a person familiar with
the scam.
The tax official allegedly found capital gains tax being paid on a huge amount of shares.
When he looked into the allotment details of IPOs, the official found that the entity had
applied in the retail (individual) category and had not received any shares in the allotment or
received much less than what it paid the capital gains taxes for.
Then, he wrote to SEBI about something fishy he smelt, triggering detailed investigations.
In all, SEBI had investigated and found irregularities in 21 IPOs between 2003 and 2005.
46
Penal action and settlement
Action was taken by SEBI against several intermediaries such as the depositories, depositary
participants, registrars and brokers.
“The systems of NSDL and CDSL were strengthened to eliminate multiple demat accounts.
The proper Know Your Customer (KYC) framework was put in place. The scam also helped
regulator equip itself better internally in terms of surveillance and investigation capacities,”
said a former SEBI official. Some Karvy entities were debarred from operating in the
market.
In addition, the Reserve Bank of India passed orders against errant banks. Fines of Rs 5 lakh
to Rs 20 lakh were imposed on BOB, Citibank, HDFC Bank, ICICI Bank, Indian Overseas
Bank, Standard Chartered Bank and Vijaya Bank for violation of anti-money laundering
norms. BOB was eventually merged with Indian Overseas Bank.
After deciding on the disgorgement, the next big question for SEBI was who would get the
compensation. It was not easy. A committee under the chairmanship of ex-judge D P Wadhwa
worked out a formula. It recommended the procedure of identification of persons who were
deprived in the said IPOs and the manner in which reallocation of shares to such persons
should take place.
An administrator was appointed to look into the refund process to the eligible investors.
The administrator identified 1,275,000 lakh investors as eligible ones for distribution of a
total amount of Rs 92 crore, the regulator said.
After initial rounds of recovery of amounts from some of the persons directed to be
disgorged, in April 2010, SEBI distributed Rs 23.3 crore. Of these, 799,000 investors were
paid the full eligible amount and 476,000 investors who were eligible for a reallocation
amount of more than Rs 300 were paid a sum of Rs 300 each, according to SEBI. The
regulator added the newly conferred recovery powers under the Securities Laws
(Amendment) Act, 2014 helped in recovery from more operators.
The sums so recovered went into the Tranche-II distribution initiated by SEBI in December
47
2015. About Rs 18.06 crore was distributed to 463,000 investors in this phase.
“Keeping in view the cost involved, no distribution was made to 12,000 investors eligible for
a reallocation amount of Rs 30 or less. Of 463,000 investors, 203,000 investors were paid the
full eligible amounts and remaining 260,000 investors, who are eligible for a reallocation
amount of more than Rs 500, were paid a sum of Rs 500 each,” the Sebi spokesperson added.
48
Marketing an IPO
The role of marketing, and particularly promotion, in the pricing and trading of Securities is
fairly limited
PRELIMINARY REQUIREMENTS
The company has to complete all legal requirements, appoint all intermediaries and once they
get SEBI card (approval), the process of marketing of IPO can commence.
TIMING OF IPO
This the most important factor for the success of IPO. If, secondary market is depressed, if
there is political unrest, if serious international problems are prevailing then it is considered to
be negative factors for timing of IPO’s. If these factors are favorable then the Company must
find out about the timing of other prestigious IPO’s. This year more than 29 companies are
coming with IPO’s. Around Rs.25, 000-30,000crore of capital is going to be raised this year.
Marketing initial public offers (IPO’s) through the secondary market SEBI approved a
proposal of marketing IPO’s through the secondary market. It proposes to use the existing
infrastructure of stock exchanges (terminals, brokers and systems), presently being used for
secondary market transactions, for marketing IPO’s with a view to get rid of certain inherent
disadvantages faced by issuers and investors like tremendous load on banking and postal
system and huge costs in terms of money and time associated with the issue process.
THE EFFECTS OF MARKETING ON IPO’s

An investment banker’s marketing campaign for an IPO is critical. This campaign, as much as
anything that precedes or follows it, will determine the success or failure of the IPO. The key
is to stimulate investor demand for the stock so that, the demand will exceed the supply.
49
Through the marketing effort, the underwriter attempts to create an imbalance in the
supply/demand equation for the issue, so that there are more buyers than sellers when the stock
is finally released for sale to the public.
The reputation of an investment banker could expand a firm’s investor base at a lower cost
than the firm can, since the promotional efforts of an investment banker on behalf of the firm
would be more creditable. The efforts of an investment banker to promote an IPO through
increased media coverage will increase retail interest in that stock.
The effects of an investment banker’s promotional efforts are not only important for explaining
the initial returns of some IPO’s, but also for explaining the rankings of investment bankers
Promoting an issue sufficiently to insure a run-up in its early aftermarket prices attracts further
investor interest catches the interest of analysts and helps to maintain or expand the investor
base of the stock.
If the sole motivation of a road show were to sell IPO’s to their regular institutional investors
and if those investors were to hold onto these stocks, then there would be no motivation for an
investment banker to do more than a minimal amount of promotion since there would be no
need to attract retail investors in early aftermarket trading.
50
Termnology used in relation to IPOs
 Add-on Offering : When a publicly traded company issues additional shares to the
public
 Allocation : The amount of stock in an initial public offering (IPO) that is sold to a
customer
 Amendment : Additional registration document that is filed by the issuer with the SEC
that has additional information regarding the proposed offering for that company
 American Depositary Receipts (ADRs) : Securities offered by non-U.S. companies

who want to list on an American exchange; each ADR represents a certain number of
a company’s regular shares
 Best efforts : arrangement whereby investment bankers acting as agents agree to do

their best to sell an issue to the public; instead of buying the securities outright, these
agents have an option to buy and an authority to sell the securities
 Book : List of all indications of interest for a new issue offering put together by the
lead underwriter
 Calendar : Refers to upcoming IPOs and secondary offerings; Fidelity maintains

equity, bond, and municipal calendars
 Cancellation : When an IPO or secondary issue has difficulty getting investor interest
to raise the desired capital, the company issuing the shares may cancel the offering in
favor for some other form of financing
 Co-manager : Underwriters for the initial public and secondary offerings who are not
the lead manager controlling the offering; names of these underwriters appear on the
51
bottom of the front page of the prospectus, with the most important manager
appearing on the top left, and the co-managers arrayed from left to right in order of
importance
 Common Stock : Units of ownership in a public company for which the holders can
typically vote on matters pertaining to the company and receive dividends from the
company’s growth; common stockholders are the last to receive assets if the company
liquidates
 Cooling off period : Time period, usually about 20 days, between the filing of the
registration statement with the Securities and Exchange Commission (SEC) and the
offer of those securities to the public; during the cooling off period, the syndicate and
selling group members distribute tombstone notifications announcing the new issue,
send preliminary prospectuses to qualified investors for review, and take indications
of interest from customers
 Covered non-public company : Any non-public company satisfying the following

criteria: income of at least $1 million in the last fiscal year or in two of the last three
fiscal years and shareholders’ equity of at least $15 million; shareholders’ equity of at
least $30 million and a two-year operating history; or total assets and total revenue of
at least $75 million in the latest fiscal year or in two of the last three fiscal years
 Due diligence : Reasonable investigation conducted by the parties involved in

preparing a disclosure document to form a basis for believing that the statements
contained therein are true and that no material facts are omitted
 EDGAR – Electronic Data Gathering, Analysis, and Retrieval : Securities and

Exchange Commission (SEC) computer database system that allows issuers to file
reports with the SEC by computer instead of having to file physical documents; this
data is available to the general public via the Internet
52
 Effective Date : The day a newly registered security can be offered for sale
 Final Prospectus : Prospectus that is printed after the deal has been made effective
and can be offered for sale; it contains the information not available in preliminary
prospectus, such as number of shares issued and the offering price
 Firm Commitment : Arrangement whereby investment bankers make outright

purchases from the issuer of securities to be offered to the public
 Flipper : Investor who has acquired shares of an IPO at its offering price and sells it
immediately—which Fidelity currently defines as within 15 calendar days following
pricing
 Float : Number of a company’s shares which are available for trading
 Go Public : Process by which a privately held company first offers shares of stock to
the public; this is done via an initial public offering (IPO)
 Green Shoe : Part of the underwriting agreement which, in the event the offering is
oversubscribed, allows the issuer to authorize additional shares (typically 15%) to be
distributed by the syndicate; also called the overallotment option
 Gross Spread : Difference between the offering price and the net proceeds given to
the company; the difference is made up of various fees charged to the issuer, including
the selling concession, manager’s fees, underwriting fees, and reallowance
 Holding Company : Company that owns enough shares of another company to

secure voting control
 Hot Issue : IPO that trades at a significantly higher price on the secondary market
than its initial offering price—this usually occurs when demand of the issue far
53
exceeds the supply; the Securities and Exchange Commission (SEC) defines an issue
as hot when it trades 5% higher than its offering price in the secondary market
 Insiders : Persons such as management, directors, and significant stockholders who

are privy to information about the operations of a company that is not known to the
general public; insiders are subject to various restrictions and or limitations regarding
equity stock offerings
 Issue Price : Price at which a new security will be distributed to the public prior to
the new issue trading on the secondary market; commonly referred to as offering price
 Lead Underwriter : Underwriter who, among other things, is in charge of organizing

the syndicate, distributing member participation shares, and making stabilizing
transactions; the lead underwriter’s name appears on the left side of a prospectus
cover
 Lockup period : Time period after an IPO when insiders at the newly public
company are restricted by the lead underwriter from selling their shares in the
secondary market
 Market Capitalization : Method of calculating the value of a company that is equal

to the number of shares outstanding multiplied by the price of each share of the stock
 New Issue : A security publicly offered for sale for the first time
 Offering Date : The first day a security is publicly offered for sale
 Offering Price : Price for which a new security issue will be sold to the public; also
known as “issue price”
 Offering Range : Price range at which the company expects to sell its stock in a
public offering
54
 Outstanding shares : Number of shares that have been issued by the company that
are held by the insiders and the general investing public
 Overallotment : Part of the underwriting agreement which, in the event the offering
is oversubscribed, allows the issuer to authorize additional shares (typically 15%) to
be distributed by the syndicate; also called the green shoe
 Oversubscribed : Situation in which investors have expressed an interest in buying

more shares of a new security than will be available; under this condition, the price of
the security has a greater likelihood of opening higher in the secondary market than is
the offering price
 Pipeline : Supply of new issues that are tentatively scheduled to come to market;
pipeline is also referred to as “visible supply”
 Postponement : When an offering that had a tentative “pricing” date is pushed back
in timing to a later date; postponement may occur when market conditions threaten
the viability of the offering; extremely adverse market conditions could lead to
cancellation of the offering
 Preliminary prospectus : Offering document printed by the issuer containing a

description of the business, discussion of strategy, presentation of historical financial
statements, explanation of recent financial results, management and their backgrounds
and ownership; the preliminary prospectus has red lettering down the left-hand side of
the front cover and is sometimes called the “red herring”
 Premium : If the opening price of an IPO in the secondary market is higher than its
offering price, the difference would be the premium
 Price range : Price range at which the company expects to sell its stock in a public
offering; also referred to as “offering range”
55
 Private placement : Investment in a company by a group of private investors—the

offering is limited both by the amount of shares or units and the number of investors;
recipients receive restricted stock from the issuer
 Privately held : Company whose shares have never been offered publicly for sale
 Quiet period : Time period in which companies are forbidden by the Securities and
Exchange Commission (SEC) to promote or hype the offering; starts the day a
company files a registration statement and lasts up to 25 days after a stock starts
trading
 Red Herring : Another name for the preliminary prospectus; the offering document
printed by the issuer containing a description of the business, discussion of strategy,
presentation of historical financial statements, explanation of recent financial results,
management and their backgrounds, and ownership
 Registration : Procedure by which a company who would like to go public files a

registration statement with the SEC which contains a description of the company, its
management, and its financials; the material is reviewed by the SEC for its
completeness, amount of disclosure, and its presentation of accounting information
before the SEC declares the registration effective, which allows it to be traded to the
public
 Risk factors : Considerations that are disclosed in the preliminary prospectus that
might materially affect the company’s financials, stock price, or reputation in a
negative way
 Road show : Also called the “dog and pony show,” a tour taken by a company
preparing for an IPO in order to attract interest in its securities; attended by potential
buyers, including institutional investors, analysts, and money managers by invitation
only—members of the media are forbidden to attend
56
 SEC : Securities and Exchange Commission, a federal government agency that

regulates and supervises the securities industry; the commission administers federal
laws, formulates and enforces rules to protect against malpractice, and seeks to ensure
that companies provide full disclosure to investors
 Secondary Offering : Public sale of previously issued securities held by large

investors, usually corporations or institutions
 Selling Concession : Commission paid to brokers to help distribute a public securities

offering
 Selling group : Group of broker/dealers that helps an underwriting syndicate

distribute securities of a public offering
 Settlement date : Date on which an executed trade of securities must be paid for
 Shareholder : Any person who owns shares of a company’s stock
 Shelf filing : Securities and Exchange Commission rule which allows a company to
register a public offering with the SEC which will be made available for sale at some
unspecified future date
 SIC code : Standard Industrial Classification is a four-digit code that identifies the
sector specific industry that a company is a member of
 Spinoff : Conversion of a subsidiary or division of an existing company into a stand-

alone entity
 Syndicate : Group of underwriters who assist the lead manager or syndicate manager
in distributing a new securities issue
57
 Syndicate Manager : Also referred to as the lead underwriter or managing

underwriter who, among other things, is in charge of organizing the syndicate and
distributing member participation shares to other members of the syndicate
 Tombstone : Advertisement placed in print media that serves as an official advisory

of a securities offering having been completed for a company; it lists all the managers
and co-managers who participated in the event
 Tranche : French word used to describe segments of the IPO being sold in different
countries; a multi-tranche distribution is commonly used for large U.S. and foreign
IPOs where there is demand both in the U.S. and in their home country
 Treasury Stock : Stock a company issues then buys back, at which time it is placed
in the company’s treasury, where it earns no dividends and carries no voting privileges
 Underwriter : Brokerage firm that raises money for companies using public equity
and debt markets; underwriters are financial intermediaries that buy stock or bonds
from an issuer and then sell these securities to the public, a process which is highly
regulated by the SEC and the National Association of Securities Dealers
 Use of proceeds : How the company plans to use the monies it generated from an IPO
or secondary offering
 Venture Capital : Source of money for start-up companies, typically raised by

venture capital firms who invest in private companies that need capital to develop and
market their products; in return for this investment, the venture capitalists generally
receive significant ownership of the company and seats on the board
 Volatility : Characteristic of a security which rises or falls sharply in price within a

short time period
 Withdrawal : when a company decides to not continue with its proposed offering of
securities
58
10 Largest IPOs
Alibaba Group’s staggering initial public offering of $25 billion shattered all records and
became the largest IPO ever. But, let us see how Alibaba fared as compared to other huge
IPOs which have been released.Here is a list compiled of the top 10 IPOs of all time. The list
may surprise you. Only one U.S.-based company made it in the top five, and it wasn’t
Facebook, as many would expect. Among the top five IPOs, there are three Chinese
companies.
Top 10 Global IPOs:
i. Alibaba Holdings Group (NYSE: BABA). A diversified online e-commerce company

based in China, had gone public in September, 2014 at a whooping $21.8 billion.
After four days, the underwriters exercised an option to sell off more shares, bringing
up the grand total of the IPO to $25 billion. Altough technology companies
traditionally get listed on NASDAQ, Alibaba chose to get listed on the NYSE for its
debut and used underwriting primarily from Credit Suisse.
ii. ABC Bank, also known as the Agricultural Bank of China, which is one of China’s
five largest banks. It is listed on the Shanghai Stock Exchange as well as the Hong
Kong Stock Exchange. ABC Bank had gone public in 2010, July, raising a sum of
$19.23 billion. There was a follow-on greenshoe offering from underwriter Goldman
Sachs Asia which brought the total to over a sum of $22 billion.
iii. ICBC Bank, or industrial and Commercial Bank of China, which is listed on the
Shanghai Stock Exchange and the Hong Kong Stock Exchange, went public in
October 2006 fetching a total of $19.1 billion. At that time. ICBC Bank was the
largest bank in mainland China and the third largest bank to go public.
iv. NTT DoCoMo (NYSE:DCM), a Tokyo-based telecommunication industry, went

public in October, 1998 and went on to raise $18.1 billion. It was underwritten by
Goldman Sachs Asia and this IPO launched NTT to the third largest market cap for a
59
Japanese company.
v. Visa Incorporation (NYSE:V) falls into the top 5 of the largest IPOs. This card
processing company, both debit and credit, got its self into the public market in March
2008 and raised itself a capital of $17.86 billion – even during the period of global
financial crisis. For a USA-based company, it is the largest IPO the country has ever
seen.
vi. AIA, a Hong Kong- based investment-cum-insurance company went public in

October,2010. It raised $17.81 billion and became the third Hong Kong-based
company in the top 10 largest IPO list in the world.
vii. Eneal S.P.A. is listed on the NYSE in November 1999 after it raised $16.45 billion.
This Italian company competes in the electric and gas market in America and Europe.
It is the only utility company to make a mark in the top 10 largest IPOs in the world.
viii. Facebook (NASDAQ: FB) was one of the most over-hyped IPOs in the world’s
history. It was listed on the 1st of May 2012 and it raised an amount of $16 billion. It
became the largest tech IPO is the history of U.S.A. in-spite of the company’s launch
being riddled with trading issues and its questionable information-sharing accusations.
ix. General Motors, after emerging from bankruptcy in 2009, got itself listed on the
NYSE in November 2010. It is a U.S. based car manufacturing company which raised
$15.77 billion in its IPO launch.
x. Nippon Tel, a Tokyo- based telecommunication provider, is the oldest IPO on this list.
The company raised $15.3 billion in its IPO launch in February, 1987.
60
About Alibaba’s IPO
China's e-commerce giant Alibaba began trading its shares Friday on the New York Stock
Exchange. Here are ten things to know about Alibaba, and why its initial public offering
made history:
The Biggest
Alibaba raised $21.8 billion in its debut, making it the biggest U.S.-listed IPO in history after
the IPO of credit card processing company Visa in 2008. If Alibaba's investment banks were
to exercise their option to sell an additional 48 million shares, it could make Alibaba's IPO
the biggest in the world, beating out the $22 billion IPO of Agricultural Bank of China in
2010.
Don't Forget Yahoo
It may have been a big day for Alibaba and its founder Jack Ma, but Yahoo's investors are
feeling pretty good after Alibaba's IPO. Yahoo was an early investor in Alibaba, paying $1
billion for a stake in the company in 2005. Yahoo likely made $8.3 billion to $9.5 billion in
Alibaba's IPO, and will still own a 16 percent stake in the company worth $37.7 billion.
Alibaba Eclipises Silicon Valley
Alibaba now has a market capitalization of roughly $219.8 billion, according to FactSet. That
makes the company bigger than some of the U.S. technology industry's most successful
names, such as Facebook, eBay, and even Amazon.com.
All In One
Investors are interested in Alibaba because the company dominates many businesses in China
that, here in the U.S., are run by individual companies. Alibaba owns the websites Tmall and
Taobao, which are similar to Amazon.com and eBay, respectively. The company also earns
money from transaction fees related to its various businesses through Alipay, which is like
61
PayPal. That's just three of Alibaba's many subsidiaries.

BIG PROFITS: Unlike the U.S. e-commerce giant Amazon, Alibaba has been consistently
profitable. The company had $8.5 billion in sales in its latest fiscal year ending in March,
with net income of $3.8 billion. The year prior, Alibaba had $5.4 billion in sales and $1.4
billion in profits. In comparison, Amazon sold $74.4 billion in goods in 2013, but made only
$274 million in profits that year. In 2012, Amazon reported a net loss of $39 million.
Risks
If Alibaba does well for investors, it will be the exception to what has been the trend for
Chinese companies. When Chinese companies have listed stocks on American markets, their
shares have lost an average 1 percent a year for the next three years, compared with an
average 7 percent annual gain for other U.S. IPOs, according to research by Jay Ritter, a
finance professor at the University of Florida.
Second Time Around
This isn't Alibaba's first time going public. Alibaba took its online shopping portal
Alibaba.com public in 2007 in Hong Kong. Alibaba.com was a publicly traded company only
for a few years. Alibaba took Alibaba.com private in 2012.
Solid Gold
Jack Ma, who started Alibaba in 1999 in his apartment in the Chinese city of Hangzhou, is
now among the richest people in the world. Ma's ownership in the company is worth roughly
$18.2 billion, based on Alibaba's closing share price Friday. That doesn't include the shares he
sold in the IPO, which are worth another $867 million, and his other investments. Bloomberg
put his entire net worth at $21.9 billion, making him the 34th richest person in the world.
62
Big Win For Nyse
Alibaba chose to list its shares on the New York Stock Exchange, making it the second A-list
technology company to go public on the Big Board in less than a year. The NYSE handled
Twitter's IPO last year. NYSE's competitor, the Nasdaq Stock Market, has struggled to win
the business of big tech companies since Facebook's IPO in 2012, which was plagued with
technical problems.
63
Biblography
www.managementparadise.com
www.investopedia.com
www.wikipedia.com
www.businesstoday.in
http://wordpress.com
64

Ipo

Загружено:

Сведения о документе

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Ipo

Загружено:

Авторское право:

Доступные форматы

EXECUTIVE SUMMARY

13 Investing in IPOs: Do’s and Don’ts 41

17 Termnology used in relation to IPOs 58

investment banking firm acting in the capacity of an underwriter. Underwriters provide

1. Risk Capital Accessibility:

2. Increase in Public Image:

4. Facilitates Mergers and Acquisitions:

5. Sharing Corporate Control:

6. Sharing Financial Gain:

7. Managing Shareholder Value:

The various dis-advantages of private companies going public are as follows:

3. Potential restrictions on management action:

actions on behalf of shareholders. In some circumstances a strong board of directors may

4. Potential loss of control:

6. Dealing with institutional investors:

stifled by the men in blue pinstripe suits.

1. Book Building Process:

Payment: 10 % advance payment is required to be made by the qualified institutional

Reservations: 50 % of shares offered are reserved for qualified institutional buyers, 35

Book Building is essentially a process used by companies raising capital through

BSE's Book Building System

2. Fixed Price Process:

The concept of Book Building is relatively new in India. However it is a common

3. Dutch Auction Process:

and a combination of the two methods together.

i. Why has the company elected to go public?

In general, if the IPO market is “frothy”, a “temporary” or “intermediate market top” is

Process for Release of an IPO

 Hiring the Bank:

 Submitting documents to the SEC:

 Handing out the Preliminary Prospectus:

 Going on the Road Show:

 Finalizing the IPO:

A much more detailed process is given in brief in the picture below:

Eligibility for Release of an IPO

Qualifications for listing Initial Public Offerings (IPO) are as below:

2. Conditions Precedent to Listing:

3. At least three years track record of either:

o the applicant seeking listing; or

o the promoters/promoting company, incorporated in or outside India or

No disciplinary action by other stock exchanges and regulatory authorities in past

There shall be no material regulatory or disciplinary action by a stock exchange or

o Redressal Mechanism of Investor grievance

The points of consideration are:

The applicant's/promoting company(ies) shareholding pattern on March 31 of

The applicant, promoters/promoting company(ies), group companies,

companies promoted by the promoters/promoting company(ies) litigation

o Track Record of Director(s) of the Company

In respect of the track record of the directors, relevant disclosures may be

Section 73 of the Companies Act 1956

Investing in IPOs: Do’s and Don’ts

Which factors determine the grade?

Where can one see IPO grades in the offer document?

How does it help?

Here is a lowdown on the IPO scam:

What is the scam?

It involved manipulation of the primary market—read initial public offers (IPOs)—by

When was the scam detected?

What triggered the SEBI probe?

On October 10 last year, an Income Tax raid on businessman Purushottam Budhwani

Who is Roopalben Panchal?

Ministry officials are expected to act against her soon.

How is this different from Harshad Mehta’s scam?

How big is the scam?