Page 132 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Unit 7: Depositories and Custodians

2. Unlisted companies eligible to make a public issue and desirous of getting its securities Notes
listed on a recognized stock exchange can also freely price shares and convertible securities.
3. The free pricing of equity shares by an infrastructure company is subjected to the
compliance with disclosure norms as specified by the SEBI from time to time.
4. While freely pricing their initial public issue of shares/convertibles, all banks require
approval by the Reserve Bank of India (RBI).

Promoters Contribution and Lock-in-Requirements

Promoters contribution in different issues:
1. Public issue by unlisted companies' promoters should contribute at least 20% of the post-
issue capital.

2. Offer for scale by unlisted companies the promoters post-issue capital should be at least
20%.
3. Public issue by listed companies' promoters should ensure to the extent of 20% of the
proposed issue or 20% of the post issue capital.
4. Lock in of minimum required contribution would be locked in for a period of three years.
5. In case of public issue by an unlisted company, excess promoters' contribution would be
locked-in for a period of one year.
6. Securities issued last to be locked-in-first.

Book Building

Book building is a process undertaken by which a demand for securities proposed to be issued
by a body corporate is elicited and built up, the price for such securities is annexed for the
determination of the quantum of such securities to be issued by means of a notice, or a circular
or an advertisement.
Book building is basically a process used in Initial Public Offer (IPO) for efficient price discovery.
It is a mechanism where, during the period for which the IPO is open bids are collected from
investor at various prices which are above or equal to the floor price. The offer price is determined
after the bid closing date.

As per SEBI guidelines, an issuer company can issue securities to the public through prospectus
in the following manner:
1. 100% of the net offer to the public through book building process.

2. 75% of the net offer to the public through book building process and 25% at the price
determined through book building.
3. The Fixed price position is conducted like a normal public issue after the Book Built
position during the issues price is determined.
4. For the process of 100% Book building it is mandatory that time capital should be above
4.25 crores.
5. For 100% Book building process a Book runner is appointed usually a lead Merchant
banker.

6. The merchant banker should draft the prospectus along with all disclosure other than
price of the securities and no of securities and should file the same with SEBI.

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