Вы находитесь на странице: 1из 40

Chapter 1

Introduction

1.1 Background
1

A primary market is a financial market in which new issue issues of a security such as a bond or a stock, are sold to initial buyers by the corporation or government agency borrowing the funds. The primary markets for securities are not well known to the public because selling of securities to initial buyers often takes place behind closed doors. An important financial institution that assists in the initial sale of securities in the primary market is the investment bank. In Bangladesh, Investment Bank and Merchant Bank are used synonymously. Merchant Bank plays a key role in our Capital Market. Merchant Bank is primarily responsible for primary market making. Besides, they also perform some tasks such as secondary market making, trading, corporate restructuring, financial engineering, portfolio management, venture capital, underwriting, advisory services etc. In Bangladesh, Merchant Banks should perform all functions of Investment Bank and gain efficiency in primary market making process.

1.2 Objective
Primary objective of this report is to submit this report as course requirement. Secondary objectives of this report are: To know the corporate practice of Due Diligence Process. To know the procedure of Issue Management, Portfolio Management and underwriting done by Merchant Banks.

1.3 Methodology
This part comprises of the following heads: a. Data Source To complete this report, data are primarily collected from the Issue Managers office (AAA Consultants & Financial Advisers Ltd.) in which I have completed my Internship. Besides this, Ive collected data from Securities & Exchange Commission (SEC); Dhaka Stock Exchange (DSE); Chittagong Stock Exchange (CSE); United Airways (BD) Ltd. (Issuer); Ahmed Zaker & Co. (Auditor), Underwriters. b. Variables Material information for due diligence process are corporate information, products/services information, plant & property information, Financial information, Employees & Directors Information, Risk Assessment, Legal requirements and inspection of necessary papers and documents. These material information are considered as key variables in this report. 2

c. Analytical Approach To complete this report, due diligence process is monitored by selecting an Initial Public Offering of AAA Consultants & Financial Advisers Ltd by highlighting and analyzing potential material information.

1.4 Limitation
To complete this report following limitations are prominent: Few access to Underwriters and Directors Few access to Price Sensitive Information Inadequate information about Issues in Dhaka Stock Exchange (DSE) & Securities & Exchange Commission (SEC) Inadequate knowledge about Due Diligence Process.

1.5 Structure of the Report


This report is done in compliance with the all securities laws applicable in Bangladesh and other related rules. In chapter 2, basic information about the Company such as company background, key services, total issues, sector wise classification etc are given. A brief review of capital Market of Bangladesh is illustrated in Chapter 3. In Chapter 4, Due Diligence Process in Public issue Rules is given. The Main part of the report is given in chapter 5. Due Diligence process is illustrated by analyzing the material information of R. N. Spinning Mills Ltd. Summary of Findings & Policy Implication is given in Chapter 6 and it is followed by Conclusion.

***..

Chapter 2
A Brief Review of Capital Market of Bangladesh

2.1 Securities & Exchange Commission


4

In a market economy securities market is a vehicle through which surplus fund is invested in alternative investment opportunities. Robust capital market plays a pivotal for industrialization and economic development of a country. For increasing the depth and breadth of the markets attracting investors is important. This happens only when investors are confident that the securities market is transparent and efficient. The Securities & Exchange Commission (SEC) was established on June 8, 1993 as capital market regulator in Bangladesh through the Securities & Exchange Commission Act, 1993 (Act 15 of 1993). The commission ensures compliance of capital market related laws, rules and regulations etc. by the intermediaries and persons and institutions related with capital market. Basic laws of the capital market are as follows: a. Securities Act, 1920 b. Securities & Exchange Ordinance, 1969 c. Securities & Exchange Commission Act, 1993 d. Depository Act, 1999

2.2 Dhaka Stock Exchange


The Dhaka Stock Exchange was established in 1954 but its commercial operation started in 1956. Due to nationalization policy trading activities of DSE remained suspended during the post liberation period and resumed again in 1976. DSE is a self-regulatory not for profit organization. As a self-regulatory organization DSE supervises the functions of listed companies. Administration of DSE is run be the Dhaka Stock Exchange (Board and Administration) Regulations 2000. The board of directors consists of 24 members, 12 directors are elected by direct votes of DSE members and 12 directors are nominated by the elected members from non-DSE members with the approval of the commission. The Chief Executive Officer (CEO) of DSE is also a nonvoting Director. DSE hires the CEO of DSE which requires Commissions approval. The CEO conducts the daily affairs of DSE. Now, there are 234 members in DSE of which 194 members are registered by the SEC for conducting securities business. According to the rules every member must be a corporate body. Transaction and transfer of most of the securities listed on DSE are now executed in electronic form. At present DSE its on-line trading activities into the divisional and district towns of the country.

The major functions are: 5

- Listing of Companies.(As per Listing Regulations). - Providing the screen based automated trading of listed Securities. - Settlement of trading.(As per Settlement of Transaction Regulations) - Gifting of share / granting approval to the transaction/transfer of share outside the of the exchange (As per Listing Regulations 42) - Market Administration & Control. - Market Surveillance. - Publication of Monthly Review. - Monitoring the activities of listed companies. (As per Listing Regulations). - Investors grievance Cell (Disposal of complaint bye laws 1997). - Investors Protection Fund (As per investor protection fund Regulations 1999) - Announcement of Price sensitive or other information about listed companies through online. trading system

2.3 Chittagong Stock Exchange


The Chittagong Stock Exchange was set up in 1995. It is also a self-regulatory not for profit organization and its management structure is same as DSE. The Chittagong Stock Exchange (CSE) started first on line trading system in Bangladesh Capital market in 1998 and at present it is carrying out trading activities from Dhaka, Chittagong, Sylhet, Rajshahi, Barisal, Coxs Bazar and Khulna.

2.4 Trading of Securities in the Exchanges


In DSE and CSE trading of securities is done through automated system. As a result volume of transactions has increased substantially over the years. Now, trading is done in the following four market segments: a. Public Market b. Spot Market c. Block Market d. Odd-lot Market

2.5 Name of Industries & No. of Listed Companies in DSE & CSE
6

Name of Industry Bank Cement Ceramics Sector Corporate Bond Debenture Engineering Financial Institution Food & Allied Fuel & Power Insurance IT Sector Jute Miscellaneous Mutual Funds Paper & Printing Pharmaceuticals & Chemicals Services & Real Estate Tannery Industries Telecommunication Textile Treasury Bond

No. of Listed Companies 29 7 4 2 8 22 21 23 10 44 5 3 11 23 2 20 6 5 1 27 164

2.6 Statistics up to September 2010


Total Number of Listed Securities Total Number of Companies Total Number of Mutual Funds

463
246 28

Total Number of Debentures Total Number of Treasury Bonds Total Number of Corporate Bonds Total Issued Capital of : Total Market Capitalisation of: All Listed Securities All Listed Companies Shares All Listed Mutual Funds All Debentures All Listed Govt. T-Bonds All Listed Corporate Bonds

(Figure in mn Tk.) (Figure in mn Tk.) 3,020,194 2,578,559 32,931 576 404,313 3,815

8 179 2 (Figure in mn US$) (Figure in mn US$) 43,344 37,006 473 8 5,802 55

2.7 List of Registered Merchant Banks


No. of Registered Merchant Banks No. of Full-fledged Merchant Banks No. of Only Portfolio Manager No. of Only Issue Manager 31 28 01 02

2.8 Rules & Regulations related to Capital Market


S.L. No. 01. 02. 03. 04. 05. 06. 07. 08. 09. 10. Name of Rules & Regulations Securities and Exchange Ordinance, 1969 Securities and Exchange Rules,1987 Credit Rating Companies Rules, 1996 Margin Rules, 1999

Securities and Exchange Commission (Issue of Capital) Rules, 2001


Securities and Exchange Commission (Over-theCounter) Rules, 2001 Securities and Exchange Commission (Public Issue) Rules, 2006 Securities and Exchange Commission (Rights Issue) Rules, 2006

Notifications issued under the Ordinance

wmwKDwiwUR AvBb, 1993

GP

Kwgkb

11. 12. 13.

wmwKDwiwUR I GP Kwgkb (mfv msv) wewagvjv, 1994


wmwKDwiwUR I GP Kwgkb (Avcxj) cweavbgvjv, 1995

14.

15.

16.

17.

18. 19.

20.

21.

22. 23. 24.

wmwKDwiwUR I GP Kwgkb (myweavfvMx eemv wbwlKiY) wewagvjv, 1995 wmwKDwiwUR I GP Kwgkb Gi KgPvix PvKzix cweavbgvjv, 1995 wmwKDwiwUR I GP Kwgkb (gvPU evsKvi I cvUdvwjI gvbRvi) wewagvjv, 1996 wmwKDwiwUR I GP Kwgkb (K-wWjvi, K-evKvi I Abygvw`Z cwZwbwa) wewagvjv, 2000 wmwKDwiwUR I GP Kwgkb (evRvi mwKvix) wewagvjv, 2000 wmwKDwiwUR I GP Kwgkb (wgDPzqvj dv) wewagvjv, 2001 wmwKDwiwUR I GP Kwgkb (DjLhvM msLK kqvi ARb, AwaMnY I KZZ MnY) wewagvjv, 2002 wmwKDwiwUR I GP Kwgkb (wmwKDwiwU KvwWqvj mev) wewagvjv, 2003 wmwKDwiwUR I GP Kwgkb (m` wfwK wmwKDwiwU Bmy) wewagvjv, 2004 wWcwRUwi AvBb, 1999 wWcwRUwi cweavbgvjv, 2000 wWcwRUwi (eenvwiK) cweavbgvjv, 2003
***. 9

Chapter 3
A Brief Review of Capital Market of India

10

3.1 Securities & Exchange Board of India (SEBI)


The Securities and Exchange Board of India was established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992. The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto

3.2 Bangalore stock exchange Limited(bgSE)


The Bangalore Stock Exchange Limited (BgSE) is a self regulatory organisation located in the garden city of India. The Exchange is managed by the Governing Board consisting of members nominated by Securities Exchange Board of India (SEBI), Public Representatives, Elected members and an Executive Director. The Exchange has been serving the investor community continuously since its inception in the year 1963. Over the decades, it has been a journey of progress to the Exchange from the pith to the pinnacle, from the alcove to the acme and, has emerged as a premier Exchange in India.

3.3 Calcutta Stock Exchange


The inception of Calcutta Stock Exchange emerges from a get together under a "Neem Tree" way back in the 1830s, and from then the Calcutta Stock broking fraternity has come a long way. Though the once famous shelter for Calcutta Stock brokers no longer exists, the roots laid in the last century have dug themselves deep into the city and the region. The North-Eastern region, today plays a crucial role in the countrys capital market, while the Calcutta Stock Exchange has emerged as the second largest bourse in the country. The investors from the Eastern Zone are also at the forefront today. The origin of stock broking in India goes back to a time, when shares, debentures and bonds representing titles to property were first issued on the condition of transfer from one person to another. The earliest record of dealings in securities in India is the East India Companys loan securities.
11

The building at 7, Lyons Range, Calcutta which was constructed in 1928 and has been the office of the Stock Exchange for the last 70 years. At the time of incorporation in 1908, the Stock Exchange had 150 members. Today the total membership has risen to more than 900, which contains several corporate and institutional members. The number of companies listed on the Exchange is more than 3,500. The Annual turnover of the Exchange in 1997-98 was to the tune of Rs, 1,78,779 crores. The Calcutta Stock Exchange has been granted permanent recognition by the Central Government with effect from April 14, 1980 under the relevant provisions of the Securities Contracts (Regulation) Act, 1956, with a view to render useful service to investors.

3.4 Bombay Stock Exchange


Bombay Stock Exchange is the oldest stock exchange in Asia What is now popularly known as the BSE was established as "The Native Share & Stock Brokers' Association" in 1875. Over the past 135 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient capital raising platform. Today, BSE is the world's number 1 exchange in the world in terms of the number of listed companies (over 4900). It is the world's 5th most active in terms of number of transactions handled through its electronic trading system. And it is in the top ten of global exchanges in terms of the market capitalization of its listed companies (as of December 31, 2009). The companies listed on BSE command a total market capitalization of USD Trillion 1.28 as of Feb, 2010. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first Exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE OnLine trading System (BOLT). Presently, we are ISO 27001:2005 certified, which is a ISO version of BS 7799 for Information Security. The BSE Index, SENSEX, is India's first and most popular Stock Market benchmark index. Exchange traded funds (ETF) on SENSEX, are listed on BSE and in Hong Kong. Futures and options on the index are also traded at BSE.

BSE continues to innovate:


12

Became the first national exchange to launch its website in Gujarati and Hindi and now Marathi Purchased of Marketplace Technologies in 2009 to enhance the in-house technology development capabilities of the BSE and allow faster time-to-market for new products

Launched a reporting platform for corporate bonds christened the ICDM or Indian Corporate Debt Market

Acquired a 15% stake in United Stock Exchange (USE) to drive the development and growth of the currency and interest rate derivatives markets

Launched 'BSE StAR MF' Mutual fund trading platform, which enables exchange members to use its existing infrastructure for transaction in MF schemes.

BSE now offers AMFI Certification for Mutual Fund Advisors through BSE Training Institute (BTI)

Co-location facilities for Algorithmic trading BSE also successfully launched the BSE IPO index and PSU website BSE revamped its website with wide range of new features like 'Live streaming quotes for SENSEX companies', 'Advanced Stock Reach', 'SENSEX View', 'Market Galaxy', and 'Members'

Launched 'BSE SENSEX MOBILE STREAMER'

3.5 The National Stock Exchange of India Limited


The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges. It recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country.

13

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000. The following years witnessed rapid development of Indian capital market with introduction of internet trading, Exchange traded funds (ETF), stock derivatives and the first volatility index IndiaVIX in April 2008, by NSE. August 2008 saw introduction of Currency derivatives in India with the launch of Currency Futures in USD INR by NSE. Interest Rate Futures was introduced for the first time in India by NSE on 31st August 2009, exactly after one year of the launch of Currency Futures. With this, now both the retail and institutional investors can participate in equities, equity derivatives, currency and interest rate derivatives, giving them wide range of products to take care of their evolving needs.

3.6 Dseindia Stock Exchange


Dseindia Stock Exchange is provide information related to financial institutions, stock exchange glossary, latest stock news, list of various stock exchanges, reference articles, links to various other important sites.

3.7 Rules & Regulations related to Capital Market

14

Chapter 4
Due Diligence Process (DDP) in Bangladesh

4.1 What is Due Diligence Process?


15

Preparation of the issuance involves a number of steps. First, the investment banker must perform a very thorough investigation of the issuer. This is called a Due Diligence Investigation. The Securities & Exchange Commission Ordinance, 1987 and Securities & Exchange Commission Rules, 2006 require that a firm offering its securities to the public make a reasonable effort to disclose to potential investors all material information or be held liable for its absence. The responsibility for the due diligence investigation, together with financial ability, extends to the underwriters as well. To perform due diligence process, issue manager has to communicate with the following parties: Issuer Underwriter Bankers to the Issue Auditor Legal Authorities Securities & Exchange Commission (SEC) Dhaka Stock Exchange (DSE) Chittagong Stock Exchange Central Depository Bangladesh Limited (CDBL) Bangladesh Bank etc. To perform Due Diligence Process, R.N.Spinning Mills is selected. Due Diligence Process is shown below in compliance with the Securities & Exchange Commission (Public Issue) Rules, 2006.

4.2 What is Material Information?


As the name implies, Due Diligence is nothing but investigation of the issuer in respect of all potential material information for the greater interest of common shareholders. For, R.N. Spinning Mills Ltd. the following heads are termed as material information: Corporate Information Products/Services Information
16

Customers and Suppliers Information Plant & Property Information Employees and Directors Information Financial Information Risk Assessment Legal Requirements Inspection of Necessary Papers & Documents The above heads are illustrated below in compliance with the Securities & Exchange Commission (Public Issue) Rules, 2006:

4.3 Due Diligence Checklist of Bangladesh


Due Diligence Process (DDP) entails thorough investigation of the issuer in respect of material information. According to the Securities & Exchange Commission (Public Issue), 2006, the following information are considered as material information and should be checked cautiously by the issue manager:

DUE DILIGENCE CHECKLIST


SL. No. Material Information Reference to Public Issue Rules, 2006 1. CORPORATE INFORMATION 1.1 1.2 1.3 1.4 1.5 Date of Incorporation Date of Commercial Operation Authorized & Paid Up capital structure Nature of the Business Associates, Subsidiary/Related Holding Company 1.6 Miscellaneous Information 2. PRODUCTS/SERVICES INFORMATION 2.1 Principal Products 8(B) (5) (b) (1) 17 8(B) (5) (a) 8(B) (5) (a) 8(B) (5) (a) 8(B) (5) (a) 8(B) (5) (b) (3) Description of Business Name of Head under which it is published in the prospectus

2.2 2.3

Market of the Products Relative contribution of the Services contributing more than 10% of total revenue

8(B) (5) (b) (1) 8(B) (5) (b) (2)

2.4 2.5

Distribution of Products/Services Production Capacity and Current utilization

8(B) (5) (b) (4) 8(B) (5) (b) (12) Description of Business

3. CUSTOMERS AND SUPPLIERS INFORMATION 3.1 3.2 Competitive Conditions in the Business Sources and availability of Raw Materials and the Name of the Principal Suppliers 3.3 Name of the customer(s) who purchase 10% or more of the Companys product/services 3.4 Contract with Principal Suppliers/Customers 8(B) (5) (b) (9) 8(B) (5) (b) (8) Description of Business 8(B) (5) (b) (5) 8(B) (5) (b) (6)

4. PLANT & PROPERTY INFORMATION 4.1 4.2 4.3 4.4 Location of the Principal Plants & Property Ownership of the Property Mortgage/Lien Status Lease Status 8(B) (6) (a) 8(B) (6) (b) 8(B) (6) (c) 8(B) (6) (d) Description of Property

5. EMPLOYEES AND DIRECTORS INFORMATION 5.1 5.2 Employees Position Directors Involvement/interest in other companies 5.3 5.4 Family Relationship among the Directors Family Relation between Directors & Officers 5.5 CIB Report 8(B) (8) (f) 18 8(B)(8)(d) 8(B) (8) (d) Directors and Officers 8(B) (5) (b) (11) 8(B)(8)(a) Description of Business

5.6

Remuneration paid to top five (05) salaried Executives

8(B)(11)(a) Executive Compensation 8(B)(11)(b)

5.7

Aggregate Amount of Remuneration paid to Directors & Officers

5.8

Beneficial Owners Holding Shares 5% or Above

8(B)(15)(a) + 9

Ownership of the Companys Securities

6. FINANCIAL INFORMATION 6.1 6.2 Key Financial Highlights Ratio Analysis 8(B)(20)(c) Financial Statement Requirements 6.3 6.4 6.5 6.6 6.7 Internal and External Sources of Cash Capital Expenditure Status Material Change from period to period Future Contractual Liabilities Lease Status 8(B)(7)(b)(1) 8(B)(7)(b)(2) 8(B)(7)(b)(3) 8(B)(7)(b)(8) 8(B)(7)(b)(11)+ 8(B)(7)(b)(12) 6.8 6.9 6.10 Loan Status Revaluation Status Allotment of Shares to Promoters other than for cash 6.11 Financial Structure 8(B)(18)(d) Description of Securities Outstanding or Being Offered 7. RISK ASSESSMENT 7.1 Risk Factors 8(B)(3) Risk Factors and Managements Perception about the Risks 8. LEGAL REQUIREMENTS 8.1 VAT and Customs Duty Status 8(B)(7)(b)(10) 19 8(B)(7)(b)(12) 8(B)(7)(b)(15) 8(B)(7)(b)(18) Plan of Operation and Discussion of Financial Condition

Plan of Operation and 8.2 Income Tax Status 8(B)(7)(b)(10) Discussion of Financial Condition 8.3 Involvement of Directors and Officers in Legal proceedings 8(B)(9) Involvement of Directors and Officers in Legal proceedings 9. INSPECTION OF NECESSARY PAPERS & DOCUMENTS 9.1 Exhibits 18 Exhibits

..***..

Chapter 5
Due Diligence Process (DDP) in India

20

5.1 Due Diligence Checklist in India (Pre and On going Issue)


Due Diligence Process (DDP) entails thorough investigation of the issuer in respect of material information. According to the Securities & Exchange Commission Board of India(SEBI)(Issue of Capital and disclosure requirements ) Regulations 2009, the following information are considered as material information and should be checked cautiously by the issue manager:

DUE DILIGENCE CHECKLIST (Pre and On going Issue)


SL. No. Material Information Reference to Issue of Capital and disclosure requirements ) Regulations 2009, 1. GENERAL INFORMATION 1.1 1.2 1.3 1.4 1.5 Date of Incorporation Date of Commercial Operation Authorized & Paid Up capital structure Nature of the Business Associates, Subsidiary/Related Holding Company 1.6 Miscellaneous Information 21 General Information Name of Head under which it is published in the prospectus

2. BUSINESS INFORMATION
2.1 Details of the Business of the issuer (a) Location of the project (b) Plant, machinery, technology, process, etc (c) Collaborations (d) Infrastructure facilities for raw materials and utilities like water, electricity, etc. (e) Products or services of the issuer (f) 2.2 Business Strategy (a) A brief statement about business strategy. (b) A brief statement about future prospects, including capacity and capacity utilisation 2.3 2.4 2.5 Intellectual Property Rights Purchase of Property Land Business Overview Business Overview

3. ISSUE INFORMATION
3.1 3.2 3.4 3.5 3.6 3.7 Objectives of the Issue Requirement of Funds Funding Plan (Means of Finance) Appraisal Schedule of Implementation Deployment of Funds Issue Details

22

3.8

Interim Use of Funds

4. HISTORY AND CORPORATE STRUCTURE INFORMATION


4.1 (a) History and main objects and present business of the issuer including date of incorporation, date of commencement of business, date of conversion of partnership into limited company or private limited company to public limited company, dates on which names have been changed, changes in registered offices of the issuer and reasons dates on which the Memorandum of Association of the issuer

History and Corporate Structure Information

(b) Details of the major events in the history of the issuer, including Capacity/facility creation, location of plant, products, marketing, Competition, Raising of capital in form of equity or debt, Negative features like time / cost overrun, defaults and lock out /strikes etc (c) Complete details of the subsidiaries and holding company, (d) Corporate profile of the issuer (e) The technology, market, managerial competence and capacity built-up. (f) Details regarding acquisition of business/undertakings, mergers, amalgamation, revaluation of assets etc, (g) The number of members/ shareholders of the issuer. 23

4.2

Main objects as set out in the Memorandum of Association

4.3

Details regarding subsidiary(ies) of the issuer including: (a) Name of the subsidiary; (b) nature of business; (c) capital structure; (d) shareholding of the issuer; (e) amount of accumulated profits or losses of the subsidiary(ies) not accounted for by the issuer; History and Corporate Structure Information

4.4 4.5 4.6 4.7

Shareholders Agreements Other Agreements Strategic Partners Financial Partners History and Corporate Structure Information

5. MANAGEMENT INFORMATION
5.1 Board of Directors (a) Name, age, qualifications, Director Identification Number, experience, address, occupation and date of expiration of the current term of office of manager, managing director (b) The nature of any family relationship between any of the directors. (c) Any arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which of the directors was selected as a

Management Information

24

director or member of senior management. (d) Details of service contracts entered into by the directors with the issuer providing for benefits upon termination of employment and a distinct negative statement in the absence of any such contract. (e) Details of borrowing powers. 5.2 5.3 5.4 5.5 5.6 Compensation of Managing Directors/ Whole time Directors Interest of Directors Corporate Governance Key Management Personnel Employees Management Information

5.7

Promoters/Principal Shareholders

6. DIVIDEND INFORMATION
6.1 (a) Dividend policy of the issuing company (b) Rate of dividend and amount of dividend paid for the last five financial years (c) Regulatory framework in the country of incorporation/share listed concerning dividends (d) Details of arrangement with the depositories for payment of dividend to the IDR holders (e) Information about changes, if any, in dividends announced and dividends paid and time gap between the dividends announced and dividends paid. 25

Dividend Policy

(f) Information about dividend yield. (g) Taxation aspects of dividend distribution.

7. FINANCIAL STATEMENT INFORMATION


7.1. Selected Consolidated Financial and Operating Data (a) Consolidated Financial Statements issued by the Institute of Chartered Accountants of India (b) All the notes to the accounts, significant accounting policies as well as the auditors qualifications shall be incorporated. Financial Statement Information

7.2

Financial Information of the issuer (a) profits and losses and assets and liabilities,
(b) the rates of dividends for each of the five

financial years immediately preceding the issue of the offer document, (c) Brief terms and conditions of the term loans including re-schedulement, prepayment, penalty, default, etc. (d) Age-wise analysis of sundry debtors (e) Aggregate book value of quoted investments as well as aggregate market value of quoted investments (f) All significant accounting policies and standards followed in the preparation of the financial statements
(g) Related Party Transactions: Information with

Financial Statement Information

respect to transactions or loans between the issuer 26

and
(i) enterprises that directly or indirectly through

one or more intermediaries,


(ii) associates, individuals owning, directly or

indirectly, an interest in the voting power of the company, key managerial personnel, (iii) enterprises in which a substantial interest in the voting power is owned, directly or indirectly (h) Accounting and Other ratios (i) Earnings per Share and Diluted Earnings Per Share: This ratio shall be calculated after excluding extra ordinary items. (ii) Return on net worth: This ratio shall be calculated after excluding revaluation reserves and extra-ordinary items. (iii) Net Asset Value per share. This ratio shall be calculated excluding revaluation reserves.
(i) A Capitalisation Statement showing total debt,

net worth, and the debt/ equity ratios before and after the issue (j) Break-up of total outstanding unsecured loans taken by the issuer (k) Break-up of the total outstanding unsecured loans taken [from the issuer] by the promoters, group companies, related parties, material associate companies and others

8. LEGAL AND OTHER INFORMATION


8.1 Outstanding Litigations and Material

27

Developments (a) Outstanding litigations involving the issuer (b) Outstanding litigations involving the promoter and group companies: (c) Material developments since the last balance sheet date. (d) Government Approvals or Licensing Arrangements such as Investment approvals, technical approvals, all government and other approvals (e) Authority for the issue and details of resolution passed for the issue. (f) No prohibition by the board or other authorities (g) Eligibility of the issuer to enter the capital market. Legal and Other Information

9. PRICING INFORMATION
9.1 (a) Earnings Per Share and Diluted Earnings Per Share, pre-issue, for the last three years (as adjusted for changes in capital). (b) Price Earning ratio pre-issue. (c) Average Return on Net Worth in the last three years. (d) Minimum Return on Increased Net Worth required to maintain pre-issue Earnings Per Share. (e) Net Asset Value per share based on last balance sheet. (f) Net Asset Value per share after issue and comparison thereof with the issue price. Basis for Issue

10. RISK FACTORS


28

10.1

Risk Factors such as Interest Rate risk, market risk, industry risk, operational risk etc.

8(B)(3) Risk Factors

11. INSPECTION OF NECESSARY PAPERS & DOCUMENTS 11.1 Disclosures 18 Disclosures

5.2 Due Diligence Checklist in India (Post Issue) DUE DILIGENCE CHECKLIST (Post Issue)
SL. No. Material Information Reference to Public Issue Rules, 2006 Name of Head under which it is published in the prospectus

1. INITIAL POST ISSUE REPORT


1.1 General Information: (a) Name of the Issuer (b) Issue opening date (c) Earliest closing date (d) Actual closing date (e) Date of filing prospectus with RoC General Information

1.2

Issue Details: (a) Nature of specified securities (b) Offer price per security for different categories (c) Amount per security on application for different categories (d) Issue size: (i) Promoters' contribution (ii) Date of submission of auditors' certificate 29

to the Board for receipt of promoters' contribution : (iii) Amount through offer document (including reserved categories and net public offer) (iv) Reserved Category Amount reserved on competitive basis (Rs lakhs) (v) Net Public Offer 1.3 Provisional Subscription Details:

(i) Total amount to be collected on application (ii) Amount collected on application (iii) % subscribed i.e. % of (ii) to (i) (iii) Amount subscribed by the reserved categories

2. FINAL POST ISSUE REPORT


2.1 In Case of Subscribed Issue: (i)Name of the issuer (ii) Issue opening date (iii) Actual closing date (iv) Issue Details (as per the prospectus) : (a) Nature of instrument (b) Offer price per instrument (c) Amount per instrument on application (d) Issue Size (v) 3-Day Report (a) Due on : (b) Submitted on : 30

(vi) No. of collecting banks : (Also specify no. of bank branches) (vii) Bank-wise names of branches which did not submit final consolidated certificates from closure of issue and mention the dates when they actually submitted (viii) Subscription Details : (a) Public Offer (Net) (Including unsubscribed portion of reserved category added back to net public offer) (i) No. of applications recd. (ii) No. of instruments applied for (iii) Amount of subscription received : Rs. (iv) No. of times issue subscribed Actual Date of finalisation of Basis of Allotment (enclose copy) (10) Allotment Details (a) No. of successful allottees per 1 lakh shares (b) No. of unsuccessful allottees (8) Actual Date(s) of completion of despatch of Refund Orders (b) Certificates/Allotment Letters : (c) Reasons for delay in despatch, if any : (d) Whether interest paid for delayed period, if so, for which period : (9) Amount of refund due : Rs.

31

(10) Refund Banker(s) (Name and Address) : (11) Date of transfer of refund amount to Refund Banker, if any : (12) Date of completion of despatch of refund orders : (13) Name of Designated Stock Exchange : (14) Names of other stock exchanges where listing is sought : (15) Date on which application was filed with each stock exchange for listing of instruments : (16) Date when listing and trading permission given by each stock exchange (Enclose copies of permission letters of stock exchanges) (17) Reasons for delay in listing for trading, if any : 2.2 In Case of Undersubscribed Issue: (a) If the issue is underwritten, mention the amount of issue underwritten : (b) Extent of under subscription on the date of closure of the issue: (i) Percentage (ii) Amount (c) Total no. of underwriters (d) If devolvement notices had not been issued, mention how the shortfall was met (e) No. of underwriters to whom devolvement notices had been issued (f) Date of issue of devolvement notices (g) No. of underwriters who did not pay devolvement (Please give names, amount 32 8(B) (5) (a)

underwritten and reasons for not paying) (h) In case of default from underwriters, mention how the shortfall was met (i) In case where FIs/ MFs had subscribed to make up shortfall not as underwriter : (i) Name of FI/MF (ii) No. of securities applied for (iii) Amount received

Chapter 6
Comparison of Due Diligence Process in Bangladesh and India

33

As Due Diligence Process means material information related to the issue, all related parties have to disclose these information. In Bangladesh, these information are necessary to be considered as material information: Corporate information Product/services information Risk factors Directors information etc. For India these are considered as material information: General information Business information
34

Issue information History and corporate structure information Dividend information Financial Statement information Legal and Other information etc. Generally, between India and Bangladesh, the following things differ: Pricing of the issue Lock-in Provision Minimum offer to public 6.1 Pricing of the Issue
The face value of our Equity Shares is Rs.10 and the Issue Price of Rs. 90 is 9.0 times the face value of our Equity Shares. The Issue Price has been determined by our Company and the Selling Shareholder in consultation with the BRLMs, on the basis of assessment of market demand from the Bidders for the offered Equity Shares by way of the Book Building Process, and on the basis of the following qualitative and quantitative factors. Qualitative Factors Leadership position in Indian power transmission sector; High operational efficiencies; Effective project implementation; Attractive tariffs, competitive landscape and business model; Diversified business portfolio; Strong financial position and cash flow from operations; Government support; and Skilled and experienced senior management team and competent and committed workforce.
35

Quantitative Factors The information presentation below relating to the Company is based on audited unconsolidated financial statements for Fiscals 2009 and 2010 and unconsolidated limited reviewed financial statements for the six months ended September 30, 2010, prepared in accordance with Indian GAAP.

1. EARNING PER SHARE (EPS): Basic & Diluted EPS (in Rs.) Weight 2009 4.02 1 2010 4.85 2 4.57

Fiscal

Weighted Average

As per our unconsolidated limited reviewed financial statements for the six months ended September 30, 2010, the basic and diluted EPS was ` 3.22.

2. PRICE EARNING RATIO (P/E RATIO): P/E Ratio in relation to Issue Price of ` 90 per Equity Share of face value of ` 10 each: a) As per our audited unconsolidated financial statements for Fiscal 2010: 18.56 b) As per our Weighted Average EPS: 19.69 c) Industry P/E There are no listed companies in India which are in the business of power transmission. 3. AVERAGE RETURN ON NET WORTH (RoNW): RoNW as per audited unconsolidated financial statements Fiscal 2009 2010 Weighted Average RoNW Weight 11.57 1 12.83 2 12.41

36

As per our unconsolidated limited reviewed financial statements for the six months ended September 30, 2010, the RoNW was 7.86%. 4. Minimum Return on Total Net Worth after Issue needed to maintain Pre-Issue EPS for the year ended March 31, 2010: a. At the lower end of the Price Band: 11.52% b. At the higher end of the Price Band: 11.40% c. At the Issue Price: 11.40% 5. NET ASSET VALUE (NAV) PER EQUITY SHARE: a. As of March 31, 2010 (unconsolidated) : ` 37.81 b. As of September 30, 2010 (unconsolidated) : ` 40.96 c. Issue Price : ` 90 d. As of September 30, 2010 (unconsolidated) after the Issue: ` 45.21 Bidders should note that pursuant to the letter dated July 27, 2010 from the Selling Shareholder, discount of ` 4.50 to the Issue Price is being offered to Retail Bidders and Eligible Employees, respectively. 6. COMPARISON WITH OTHER LISTED COMPANIES We believe none of the listed companies in India are in the business of power transmission. Hence, comparative data for the peer group/industry is not available. The Issue Price of ` 90 has been determined by our Company and the Selling Shareholder, in consultation with the BRLMs, on the basis of assessment of market demand from the Bidders for the offered Equity Shares by way of the Book Building Process, and is justified based on the above quantitative and qualitative factors.

6.2 Lock-in Provision


3 years from the date of commencement of commercial production or date of allotment in the public issue, whichever is later; Promoters holding in excess of minimum 1 year
Minimum promoters contribution promoters contribution
37

Pre-issue capital held by persons other than promoters

1 year

6.3 Minimum offer to Public


According to the clause (2) of rule 19 of Securities Contracts (Regulations) Rules, 1957, the net offer to public: (a) in case of an initial public offer, shall be at least ten per cent. or twenty five per cent. of the postissue capital, as the case may be; and (b) in case of a further public offer, shall be at least ten per cent. or twenty five per cent. Of the issue size, as the case may be.

Chapter 7
Summary of Findings and Policy Recommendations

38

7.1 Findings After analyzing the differences between the due diligence process between India and Bangladesh, we can find out the following points: Generally, Due Diligence process begins with the agreement between issuer and issue manager. In the agreement, normally Issue analysis, Financing strategy, issue management services, underwriting cooperation, Issue arrangements, post issue services are mentioned. The scope and responsibility of the issue manager is fully mentioned in the agreement contract between issuer and issue manager. Issue manager is responsible for the duties for which he has been appointed. This agreement includes both pre issue and post issue services.
39

Being an issue manager, it analyzed the material information such as Corporate Information, Products/Services information, Customers and Suppliers Information, Financial Information, Employees and Directors Information etc to find the strength and weaknesses of the issue.
The capital market of India is very vast. So, there exist a lot of options.

Lock in provision in India is different from that of Bangladesh. Minimum


promoters contribution is locked in for 3 years from the date of commercial operation date of

allotment in the public issue, whichever is later;


Promoters holding in excess of minimum promoters contribution will be locked in for a year of 1 year. Pre-issue capital held by persons other than promoters will be locked in for a year of 1 year.

7.2 Policy Implications


In comparing the differences between the due diligence process between India and Bangladesh, we can recommend some policy implications for Bangladesh: 1. Bangladesh should consider more factors for risk assessment. 2. Due Diligence Certificate after the issue should also be added. 3. Due Diligence process should be monitored cautiously.

40