Roadmap to IPO

Contents

IPO Process – An Overview

Key IPO Regulations
IPO Associated Costs and Time-lines
Corporate Governance and Clause 49 requirement

Page 2
Initial Public Offering - Synopsis

► Liquidity for Existing shares

Advantage
► Investor Preference
s
► Increases market visibility and reputation
► Valuation Benchmark
► Platform for future Fund raising exercise
► Attract/Retain Talent through ESOPS

Issues ► Higher issuance costs

► Company under constant regulatory/
market scrutiny
► Compliance requirements

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 The Overall IPO Process

Allocation

ROC Filing of
Listing
(within 12 working
Final prospectus
days of closing
Pricing of Issue)
noi t el p mo C
dna hc nuaL

Book Building

Road Shows
SEBI Clearance
& ROC Filing

Pre- Marketing
& gni t ekr a M
gni ci r P

Filing with SEBI And

Stock Exchanges
Drafting the Draft Red
Herring Prospectus

Due Diligence

Appointment of
noi t ar aper P

Intermediaries
Decision to go
for IPO

Timelines – 17 weeks

Page 4
Intermediaries involved in Listing
Lead Manager to act as a Coordinator
Legal Counsel
► Conducting Due Diligence
► Advise on regulations & issues
► Drafting certain sections in the
DRHP
Lead Manager Registrar to the Issue
► Coordinator among all ► Preparing & finalizing the Basis
intermediaries of Allotment
► Managing the Issue ► Coordinating with Lead
Managers and Escrow Bankers
for submitting reports to SEBI

► Drafting of escrow, syndicate, ► Assisting in refunds and credits

escrow agreements Intermediaries in demat accounts

► Provide Legal opinions to Syndicate Members

Company & Lead Managers
Statutory Auditor
► Provide Auditors Report
► Verification of fin. Info. in the
DRHP/RHP/Prospectus and
providing Comfort Letter
► Providing certificates with
regard to eligibility, basis for
issue price, etc.
ASBA Bank
► Processing of applications
received through ASBA
Escrow Bank
► Collection of application money during
Issue period
► Provide collection details and provide
reports required for post issue
processes
► Processing of bid cum application
forms
Grading Agency
► Conduct Grading exercise
and provide grading for the
IPO
Ad Agency
► Assist in Media Interaction and PR
► Corporate/Issue advertising
► Manage Road Shows

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 Approvals and Regulatory Compliance

Approvals Required

Corporate Approvals SEBI Stock Exchanges/ROC RBI/FIPB

► Approval for MOA & AOA ► RBI/FIPB approval

► SEBI Filing - mandatory ►Approval for
required for certain
authorized capital companies to issue to
► Disclosure as per SEBI
► Filing of draft red
herring prospectus non-resident investors
ICDR Regulations ►Board Resolution of
► Merchant Banker to with stock exchanges
Issuer for IPO ► Sectoral Guidelines
submit due diligence for in principle approval
/Offer for Sale
► Compliance with listing ► Corporate Structure
► 30 days period for ►Formation of an
SEBI to give its requirements
‘IPO Committee’ ► Instrument
comments on the
draft red herring
► Final listing and trading
►Section 81(1A)
prospectus Approvals
resolution by
ROC filingsIssuer’s shareholders
► No change in capital
► of:
►Red Herring
structure permitted ► Approval from project
post filing of the Prospectus
►Final finance lenders
Prospectus
document except as
disclosed essentially
to enable Pre-IPO

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Drafting the Draft Red Herring Prospectus

► Industry ► Promoter and Group

Company Related ► Business Company Disclosures
► Risk factors ► Capital Structure

► Objects of the issue ► Issue Proceeds

Issue Related ► Basis of the Issue price ► Rating/IPO Grading
► Terms of Issue

► Management
► Financial performance discussion and
Financial Information analysis
statement for the last five years
(recast as per SEBI) ► Statement of tax
benefits

► Government Approvals ► Legal and secretarial

Other Information
► Legal and Litigation matters
► Related Party Transactions

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Contents

IPO Process – An Overview

Key IPO Regulations
IPO Associated Costs and Time-lines
Corporate Governance and Clause 49 requirement

Page 8
Eligibility Criteria
Minimum public shareholding to be 25%
Choice of Route: Fixed Price
or Book Building
► Minimum networth of Rs. 1
crore
► Net tangible assets> Rs. 3
crore for each of the
Under ICDR preceeding 3 full years
Regulations, 2009 ► Profits in 3 of last 5 years
► 50% of revenues from activity
suggested by the new name
in case the name has
changed in last one year
► Aggregate issue + previous
issues in same year < 5 times
pre issue net worth
25% of Post Issue Capital
Under Securities
(Regulation)(Amend- ► All listed Companies to have
minimum 25% public
ment) Rules, 2010* shareholding for continuous
Minimum dilution listing
* Notified on June 4, 2010
Page 9
Choice of Route: Book
Building Process
► Book Building Process with
minimum 50% of the issue
size allotted to QIBs,
OR
► At least 15% participation by
FI’s/Banks of which 10% is
from appraiser. In addition
10% to be allocated to QIBs
AND
► minimum post issue cap to be
Rs. 10 cr.
OR
► market making for 2 years
10% of Post Issue Capital
► If the post issue capital
calculated at offer price is
4000 crores.
► Dilution of 5% per annum
Capital Structure – Promoters
Minimum Promoters Contribution: 20% of Post Issue Capital

► Person or Persons who are in

► Overall control of the Company
Promoter ► Instrumental in the formulation of a plan or program pursuant to which
securities are offered to the public
► Named in the offer document as promoter(s)

► Minimum of 20% of the post issue capital of the Company for unlisted
companies
► Following shares are ineligible for Promoter’s contribution
Promoter’s ► Issued in last one year at a price lower than issue price, unless topped up
Contribution ► Issued in last three years out of bonus issue out of revaluation reserve or
reserves created without accrual of cash resources
► Acquired in the last three years for a consideration other than cash and
revaluation of assets or capitalization of intangible assets is involved in these
transactions
► Pledged shares, other than for use towards Objects of the Issue

► For Promoters: Lock-in of 20% of the post issue capital for 3 years from
later of allotment date or commencement of commercial production
Lock-in ► Balance entire pre-issue capital must be locked-in for a period of 1 year
Period from the date of allotment, other than
► shares held by Venture Capital Funds (registered with SEBI) & have held
shares for one year prior to the date of filing the draft prospectus with SEBI
► shares allotted to employees under the employee stock option/purchase
scheme & full disclosure of the ESOP has been made in the offer document.

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 Book Building Process
Issue Price determined through Bid Process
Used in IPOs/Follow-on offerings - Aids price and demand discovery
► Bids collected from investors at various prices within a price band
► Retail investors have an option to bid at “cut-off” price
What is ► Bids can be revised or withdrawn
Book Building
► Issue price determined by the Lead Manager in consultation with the
Company
► Demand displayed at bidding centers on real time basis on BSE &
NSE website
Qualified
Anchor
Institutional Retail Non-
Investors
Buyers Investors Institutional
(QIB)

Individuals applying Application of a

Defined under ICDR All other Investor
Definition For Rs. 1,00,000 or value of at
Regulations Categories
less per application least Rs. 10 crores

Discretionary basis and

Allocation ► Minimum 50% ► At least 35% ► At least 15% 30% of portion available
for allocation to QIBs

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Audited Financial Statements…
Restated Financial Information for the last 5 years
► The Auditors report is to be prepared in accordance with the SEBI ICDR Regulations on the
Restated Financial Information for the last five financial years and interim period
► 5 year accounts in accordance with SEBI ICDR Regulations from statutory auditor.
► Consolidated financials and subsidiaries financials also to be reported for the last 5 years
► Audited financial statements not older than 6 months as on the date of opening of the Issue

► Restated financial statements to be based on:

► adjustments arising on account of prior period items,
► changes in accounting policies,
► qualifications in auditors reports,
► incorrect accounting policies,
► extraordinary items, etc.

► Major events in each of the preceding three financial years to be highlighted

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Certification from the Auditors

► Financial information as per US GAAP may be included in the offer document.

Reconciliation between Indian and US GAAP should also be included in case US GAAP
information is given
► Key business issues to be highlighted
► Dependence on customers/suppliers
► Business trends, seasonality and uncertainties, if any
► Other certificates required:
► Eligibility criteria as per SEBI Guidelines on a stand alone basis
► Basis for Issue Price as per SEBI Guidelines
► Tax benefits certificate
► Comfort Letters
► Comfort Letters are required at the time of filing at DRHP/RHP/offer document stage

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Objects of the Issue
Fund Requirement to be justified
► Purpose of the Issue
► Activities proposed to be undertaken by the Issuer by the Funds raised. The activities fall within
the main objects listed in the Memorandum of Association

► Funds Requirement
► The Fund requirement should be disclosed clearly
► Where the company proposes to undertake more than one activity, i.e., diversification, expansion,
etc., the total project cost shall be given activity- wise or project wise
► Where the company is implementing the project in a phased manner, the cost of each phase,
including the phase, which has already been implemented should be given separately.

► Means of financing to be decided

► Quantum of bank financing and other means, if any, to be ascertained
► 75% of the Means of finance except IPO proceeds to be tied up before filing Draft Red Herring
Prospectus
► Certificate of a latest date from Chartered Accountant relating to the money spent on objects of
the issue.

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Listing Requirements
Ensuring Corporate Governance

Compliance to be ensured with Corporate Governance norms as per listing agreement prior to
filing the DRHP
► Professional directors to be inducted in the Board, if required
► Optimum combination of Executive and Non-executive directors. If the chairman is a non-executive director, at
least 1/3rd of the Board should comprise of independent directors and in case, the Chairman of the Board is an
executive director, at least ½ of the Board should consist of Independent Directors.
► Requisite committees to be formed, viz. Audit Committee, Remuneration Committee, Investors Grievance
Committee

Audit Committee
► 2/3rd Independent Directors, one director should have finance background.
Remuneration Committee
► Should be constituted entirely by non executive directors. Chairman should be an independent director

Shareholders/Investors Grievance Committee

► Chairman should be a non-executive director. No specific regulation on constitution apart from chairmanship,
however it is advisable to have majority independent directors in the committee

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Contents

Our understanding of Quintiles India

IPO Process – An Overview
Key IPO Regulations
IPO Associated Costs and Time-lines
Corporate Governance and Clause 49 requirement

Page 16
The Execution Process Timeline

Phase I Phase II Phase III

Marketing & Estimation of
Preparation of Documents Launch & Completion
Price Range

~ 17 weeks

Week 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Appoint Bankers
P
R /Lawyers
O
C
Capital
E Public Research
D Structuring
U Finalize Price band &
R Print Red Herring
Drafting/Data Room/
E
Due Diligence Sign under-
& SEBI Review Writing
File Draft Comments Final agreement
A
C Prospectus received Approval
T
I Investor Roadshow/
V Education Book building
I
T
I
E Launch offering, Distribute
Pricing Basis of
S “Red Allotment
Herring” prospectus Listing &
Trading

Page 17
IPO Expenses

Particulars 100 crore issue 500 crore issue

Lead Managers Fees 4.00% 2.00%

Legal Counsel – Domestic & 0.50% 0.50%

International
Registrar to the Issue 0.10% 0.04%
Printing and Dispatch 0.60% 0.20%
Advertisements -TV/Hoarding 0.75% 0.40%
Newspapers/Road Shows
Filing & Stock Exchange Fees 0.07% 0.07%
Underwriting, Selling & Brokerage 2.00% 1.00%

Other Expenses 1.00% 0.50%

Total 9.02% 4.71%

Page 18
Contents

IPO Process – An Overview

Key IPO Regulations
IPO Planning, Execution, Associated Costs and Time-lines

Corporate Governance and Clause 49 requirement

Page 19
Clause 49 – The intent

IDENTIFY AND MANAGE KEY BUSINESS RISKS

•• Information oninvestors
Institutional controls
and risk profile
••Swiss company
Accountability of law Other
•• More investors
active audit
CFO/CEO
•SWX regulations committees
• Information for oversight
Foreign
•action regulations • Existence of a risk
management strategy
• Stronger Boards

•Financial
• Active policing analysts
of
• More•Clients
emphasis on
forced compliance Rating
•
interests by agencies
the audit
•Labor unions committee
•Media
• Alignment with
• Quality financial
global•
Supplieurs
Suppliers
trends
reporting information
C
• ompetitors
• Increased focus on
• Globally consistent
•NGO‘s
auditor
interpretation
responsibilities

BUILD AND PROTECT VALUE

Page 20
Clause 49 – Key Requirements

Board of Directors

Audit Committee

Risk Management
Clause 49 CEO/CFO Certification
(Key Requirements)
Compliance Reporting

Code of Conduct

Whistleblower Procedures

Page 21
 Detailed Requirements

Area Points to Consider

•Composition of Board of Directors
•Director’s compensation
•Board Procedure
Board and Audit •Code of conduct
Committee •Qualified and Independent Audit Committee
•Meetings and Role of Audit Committee
•Legal compliance framework
•Risk assessment and minimization procedures
Risk Management •Establishment of Risk management framework
Framework •Management Discussion and Analysis to contain
commentary on risks and concerns
Clause
49 •Certification of financial statements
CEO/ CFO •Evaluation of effectiveness of Internal controls over
certification financial reporting
•Responsibility to make disclosures relating to
material internal control weaknesses to auditors and
audit committee
•Support to the working of the audit committee
Other Key •Report on Corporate Governance
Disclosures •Disclosures pertaining to Director’s remuneration,
transactions of non-executive directors
•Disclosure of material financial transactions which
may conflict with the interest of the company

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Clause 49 – BoD and Audit Committee
Key requirements
 Atleast 1/3 of the Board to
be Independent Directors
 Qualified and Independent
Audit committee
 Minimum number of
meetings in a year of the
Audit Committee
 Role of Audit committee
Page 23
Key requirements
Director’s remuneration
Senior management to
disclose to Board all material
financial commercial
transactions which may
conflict with the interest of the
company
Report on Corporate
Governance
Compliance - Role Of The Audit Committee

► Oversight of the company’s financial reporting processes and the disclosure of its
financial information to ensure that the financial statement is correct, sufficient and
credible.
► Reviewing material internal control and internal audit deficiencies
► Recommending the appointment and removal of external auditor, fixation of audit fee and
also approval for payment for any other services.
► Review annual as well as quarterly financial statements with the management before
submitting the same to BOD
► Discussion with external auditors before the audit commences about nature and scope of
audit as well as post audit discussion to ascertain any area of concern.
► Reviewing the company’s financial and risk management policies.
► To look into the reasons for substantial defaults in the payment to the depositors,
debenture holders, shareholders(in case of non payment of declared dividends) and
creditors.
► Oversight of the appointment of the internal auditor and the internal audit activity

Page 24
Clause 49 – Requirements related to the RM
Framework

The company shall:

 Lay down procedures to inform Board members about the risk assessment
and minimization procedures.

 Periodically review to ensure that executive management controls risk

through means of a properly defined framework.

 Include in its Annual Report, a management discussion and analysis report

on the Risk and Concerns within the limits set by the company’s competitive
position

Page 25
Clause 49 - Requirements relating to
Internal Controls
1.The CEO and the CFO certify that they:

• accept the responsibility for establishing and maintaining

internal controls (over financial reporting);

• have evaluated the effectiveness of internal control

systems

• have disclosed to the Auditors and the Audit Committee:

– deficiencies in internal controls (in design & operation)

and

– remediation steps (taken or proposed to be taken)

2. They have indicated to the Auditors and Audit Committee

significant changes in internal control during the year
Page 26
 Internal control certification – Key Activities

AEvaluate effectiveness of internal controls

Project/ maintenance

1 Identify accounting units, subsidiaries & business

processes that can materially impact financial
• reporting
Obtain at least 75% coverage of material account balances
• Map business processes to accounts

2 Identify & evaluate design of controls over financial

• For every process & activity, assess ‘What Can Go Wrong’
reporting risk:
• For each ‘What Can Go Wrong’, identify existing controls & control gaps
• For control gaps, identify remediation plans

3 Assess operating effectiveness of controls

Process

• Test controls (both IT & Process related) to reassure management

• Continuous assurance through controls self assessment
• Prepare remediation plans and close control gaps

B Establish process to indicate significant changes in the

controls
Page 27
environment
Clause 49 – Other key requirements

Compliance  The Audit Committee shall mandatorily review reports

Reporting relating to compliance with laws

 The Independent Director shall periodically review legal

compliance reports prepared by the company as well as
steps taken to rectify instances of non-compliance

Code of  The Board has laid down a ‘Code of Conduct’ for the
Conduct Board and Senior Management and it has been published
on the Company’s web-site

 Annual affirmation of compliance with the Code of

Conduct by Senior Management and Directors

 Signed declaration by the CEO in the Annual Report

Page 28
Clause 49 – Other key requirements

Whistle blower Whistleblower Policy

 The company may establish a mechanism for employees
to report to the management concerns about unethical
behaviour, actual or suspected fraud or violation of the
company’s code of conduct or ethics policy

Other Considerations
 The Company has established a framework for identifying
and escalating any transactions that are fraudulent, illegal
or violative of the Code of Conduct

 The Company has disclosed to the Auditors and the Audit

Committee any instances of fraud and the involvement
therein of an employee having a significant role in the
internal controls system

Page 29
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