Raising CapitalBalkrishna Parabbalkrishnaparab@jbims.edu

Raising Capital

What do we

offer the fund-

providers?

Who will

provide funds?

How do we

actually get the

funds?

Raising Capital

InstrumentsInvestors Processes

Investors

An investor is an individual or any

entity allocates capital with the

expectation of a future financial

return.

Raising

CapitalInstruments

Investors

Processes

Angel

Investors

Venture Capital

Investors

Private Equity

Funds

Institutional

Investors

Public

Investors

Mutual Funds

Endowments

Banks

Insurance

Companies

Pension Funds

Hedge Funds

Non-

Availability of

Information

Needs Large

CapitalIlliquidity

Restricted

Access

Difficulties of Investing in

Unlisted Companies

High Risks

Pension Plans

Insurance

Companies

Endowments

High Net Worth

Individuals

Investors

in Private

Equity

Funds

Control and Involvement

in Management

Professional

Management

Easier Monitoring

of Investments

Greater Diversification

Long Term Returns

Motivations

for Private

Equity

Investments

Exit Routes

for Private

Equity

Investments

Trade Sale

Secondary

Buyout

Leveraged

Recapitalisation

Initial Public

Offerings

Instruments

A financial instrument is a contract

between the investors and issuers

(companies)

Raising

CapitalInstruments

Investors

Processes

Ownership

Instruments

Debt

Instruments

Hybrid

Instruments

Equity Shares

DVR Shares

Bonds

Debentures

Preference

Shares

Share Warrants

Processes

Capital raising processes are steps

through which companies obtain

funds from the investors and issue

financial instruments

Raising

CapitalInstruments

Investors

Processes

Private Placement

Qualified Institutional

Placement

Rights Offer

Vendor Placement

Public Offers

IPOs

FPOs

Private Placements

Private placement is a method of raising capital, where

the company offers its securities directly to a small

number of investors without the use of any general

advertising or solicitation.

Private Placement

Investor EntrepreneurInvestment Bank

Private placement means any offer of securities or

invitation to subscribe securities to a select group of

persons by a company (other than by way of public

offer) through issue of a private placement offer letter

and which satisfies certain conditions

Private Placement

Explanation II (ii) to Section 42 of the Companies Act, 2013

The Case that Influenced the Law on Private Placement

Sahara India Real Estate Corporation Limited

v. SEBI, (2012) 10 SCC 603

1

Sahara

Companies

Collect

Subscriptions

from Investors

for OFCD

Millions of

Investors

Pay

Rs. 17566

Crores

2

3

SEBI Orders

Refund of

Money as

Regulations

were not

Complied

Sahara’s

Appeals to

Securities

Appellate

Tribunal is

Rejected

4

5

Supreme

Court Rejects

the Appeal of

Sahara and

Orders Refund

of Money

Private Placement Law

1

2

3

4

5

6

7

8

9

Busi

ness

Pla

nEnga

ge

Merc

han

t

Ban

k

Dra

ft P

riva

te

Pla

cem

ent

Lett

er

Mai

nta

in

Reco

rds

Boar

d

Meeting

AG

M

Open E

scro

w

Acc

ount

The Process of Private Placement

10

11

12

13

Allo

t Secu

rities

14

Dis

pat

ch O

ffer

Lett

ers

File

Retu

rn o

f

Allo

tment

Rece

ive

Applic

atio

n

Money

Tra

nsf

er

Funds

from

Esc

row

Acc

ount

Identify

Inve

stors

Role of Merchant Banks in Private Placement

Benefits of Private Placement

Initial Public Offers

An IPO is a defining moment in

the life of a companyAn IPO is a defining moment in the life of a company

Palmer, Company Law Precedents XVII Edition, Part I, Page 58

A public offer signifies an offer made by an

advertisement or circular to the general public or

section thereof, as distinguished from an offer made

privately, that is, to a select and small circle of friends,

customers or connections.

PUBLIC OFFER

Section 67 of the Companies Act, 1956.

An offer shall be treated as public if the offer or

invitation is calculated to result, directly or indirectly,

in the shares or debentures becoming available for

subscription by persons other than those receiving

the offer or invitation.

PUBLIC OFFER

Benefits of Raising Capital through IPOs

Active

Companies

In India

1,088,780

Companies

have made

An IPO

6796

A mere 0.62% of the companies have raised

money through IPOs

Drawbacks of Raising Capital through IPOs

Balkrishna Parab (c) 2017 | balkrishnaparab@jbims.edu | 9833528351

Assess IPO-Readiness

Reviewing

and

improving its

internal

control

systems and

procedures

Reinforcing

its corporate

governance

system

Instituting

legal and

regulatory

compliance

systems and

procedures

Recruit

Professionals

and

independents

on its board

of directors

Strengthenin

g the

financial

reporting

system

Corporate

Performance

Capital and

Assets

General Conditions for IPO

Firm

Arrangements

of finance

Towards 75%

of the Stated

Means of

Finance

Company and

Promoters

Not Debarred

from

Capital Market

Agreement

with

Depositories

Listing

Application

Calling Up all

Partly

Paid Shares

Promoters or

directors are

not

wilful

defaulters

Issue size does

not exceed

Five Times its

Pre-Issue Net

Worth

Net Tangible

Assets > 3 Cr

in last 3 Years

Minimum

Average

NOPAT of Rs.

15 Cr in 3 out

of last 5 Years

Net Worth of

One Crore in

Last 3 Years

Primary Eligibility Criteria

Revenue from

Change in

Name

An issuer may determine the price of specified

securities in consultation with the lead merchant

banker or through the book building process.

PRICING

IPO Grading is

Optional

At Least 1000

Prospective

Allottees

No

Outstanding

Convertible

Securities

OFS of Share

Held for at

least One Year

Conditions

Section 2 (70) of the Companies Act, 2013

Prospectus means any document described or issued

as a prospectus and includes a red herring prospectus

or shelf prospectus or any notice, circular,

advertisement or other document inviting offers from

the public for the subscription or purchase of any

securities of a body corporate

PROSPECTUS

Offer Documents

Shelf

Prospectus

Deemed

Prospectus

Abridged

Prospectus

Red

Herring

Prospectus

Prospectus

Explanation to Section 32 of the Companies Act, 2013

Red herring prospectus means a prospectus which

does not include complete particulars of the quantum

or price of the securities included therein.

RED HERRING PROSPECTUS

Explanation to Section 31 of the Companies Act, 2013

Shelf prospectus means a prospectus in respect of

which the securities are issued for subscription in one

or more issues over a certain period without the

issue of a further prospectus.

SHELF PROSPECTUS

Section 2 (1) of the Companies Act, 2013

Abridged prospectus means a memorandum

containing such salient features of a prospectus as may

be specified by the SEBI.

ABRIDGED PROSPECTUS

Section 25 (1) of the Companies Act, 2013

Where a company allots or agrees to allot any securities of the

company with a view to all or any of those securities being

offered for sale to the public, any document by which the offer

for sale to the public is made shall, for all purposes, be deemed

to be a prospectus issued by the company;

DEEMED PROSPECTUS

New Brunswick and Canada Railway and Land Company V. Muggeridge (1867)

Everything must be stated with strict and scrupulous

accuracy. Nothing should be stated as a fact which is not

so, and no fact should be omitted the existence of which

might in any degree affect the nature and quality of the

privileges and advantages which the prospectus holds out

as inducement to take shares…

GOLDEN RULE OF DRAFTING PROSPECTUS

Promoters’ Contribution

Promoter

The person or persons who are in

control of the issuer

The person or persons who are

instrumental in the formulation of a plan

or programme pursuant to which

specified securities are offered to public

The person or persons named in the

offer document as promoters

Regulation 2 (za) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009,

Promoters’

Contribution

Quantum20% of the Post Issue

Capital

Lock-In 3 Years

Eligible

Securities

Securities Obtained at

Fair Price

ExemptionNo Identifiable

Promoter

Regulation 14 (1) of the SEBI (ICDR) Regulations, 2009

Minimum Subscription is the minimum number of

applications that the issuer is required to receive. At

present, the minimum is 90% of the issue size.

Where a company does not received the minimum

subscription with the specified time, the entire

application money received needs to be refunded.

MINIMUM SUBSCRIPTION

Regulation 16 (1) of the SEBI (ICDR) Regulations, 2009

Where the issue size exceeds Rs. 500 CR, the issuer is required

to make arrangements for the use of proceeds of the issue to be

monitored by a public financial institution or by one of the

scheduled commercial banks named in the offer document as

bankers of the issuer. The monitoring agency is required to

submit its report to the issuer on a half yearly basis, till the

proceeds of the issue have been fully utilised.

MONITORING AGENCY

Post-IPO Governance and Compliances

Meetings of the

Board and its

Committees

Advertisement

and Publicity

Shareholder

Communi-

cations

Secretarial

Department

Expenses

Listing

Compliance

Secretarial

Audit

Balkrishna Parab taches law, accounting and finance at the

Jamnalal Bajaj Institute of Management Studies

164, DN House, HT Parekh Marg, Backbay Reclamation.

Mumbai 400 020, India

Cell: 9833528351

eMail: balkrishnaparab@jbims,edu

BALKRISHNA PARAB