Reliance Power ful IPO Learning Objectivesy To understand the various methods of raising equity

capital y To understand the difference between public issue and private placement y To understand the public offering in the Indian context y To bring out the pros and cons of raising capital via IPO

Public Issue of Equity shares by Reliance Power Ltd - Raising Equity Capital

Public Issue of Equity shares by Reliance Power LtdWhat is a Public issue ?

Public Issue of Equity shares by Reliance Power LtdWhat is a Public issue ?y When an issue / offer of securities is made to new

investors for becoming part of shareholders family of the issuer it is called a public issue. Public issue can be further classified into Initial public offer (IPO) and Further public offer (FPO).

Public Issue of Equity shares by Reliance Power LtdWhat is an offer document?

Public Issue of Equity shares by Reliance Power LtdWhat is an offer document? y Offer document is a document which contains all the relevant information about the company, promoters, projects, financial details, objects of raising the money, terms of the issue etc and is used for inviting subscription to the issue being made by the issuer. y Offer Document is called Prospectus in case of a public issue or offer for sale.

Public Issue of Equity shares by Reliance Power LtdWhat is Red herring prospectus?

Public Issue of Equity shares by Reliance Power LtdWhat is Red herring prospectus?y an offer document used in case of a book built public

issue. It contains all the relevant details except that of price or number of shares being offered. It is filed with RoC before the issue opens.

Public Issue of Equity shares by Reliance Power LtdWhat is the difference between IPO and FPO?

Public Issue of Equity shares by Reliance Power LtdInitial public offer (IPO):y Whe a

urt er public offer ( PO) or ollo on offer:y Whe a alrea y liste

liste c a y a es either a fresh iss e f sec rities r ffers its existi sec rities f r sale r th f r lic, it the first ti e t the is calle a I .

c a y a es either a fresh iss e f sec rities t the lic r a ffer f r sale t lic, it is calle a . the

Public Issue of Equity shares by Reliance Power LtdWhat is book Building?

Public Issue of Equity shares by Reliance Power LtdWhat is book Building? y Book building is a process of price discovery. y The issuer discloses a price band or floor price before opening of the issue of the securities offered. y On the basis of the demands received at various price levels within the price band specified by the issuer, Book Running Lead Manager (BRLM) in close consultation with the issuer arrives at a price at which the security offered by the issuer, can be issued.

Public Issue of Equity shares by Reliance Power LtdHow does Book Building work?

Public Issue of Equity shares by Reliance Power LtdHow does Book Building work? y A floor price or price band within which the bids can move is disclosed at least two working days before opening of the issue in case of an IPO and at least one day before opening of the issue in case of an FPO. y The applicants bid for the shares quoting the price and the quantity that they would like to bid at. y After the bidding process is complete, the cut-off price is arrived at based on the demand of securities. y The basis of Allotment is then finalized and allotment/refund is undertaken. y The final prospectus with all the details including the final issue price and the issue size is filed with ROC, thus completing the issue process. Only the retail investors have the option of bidding at cut-off .

Public Issue of Equity shares by Reliance Power LtdWhat is a price band?

Public Issue of Equity shares by Reliance Power LtdWhat is a price band? y The price band is a band of price within which investors can bid. y The spread between the floor and the cap of the price band shall not be more than 20%. The price band can be revised. y If revised, the bidding period shall be extended for a further period of three days, subject to the total bidding period not exceeding thirteen days.

Public Issue of Equity shares by Reliance Power Ltdy Who are Qualified Institutional Buyers or QIBs?

Public Issue of Equity shares by Reliance Power LtdWho are Qualified Institutional Buyers or QIBs? y Public financial institutions as specified in Section 4A of the Companies Act, y FIIs, y scheduled commercial banks, y mutual funds registered with SEBI, y venture capital funds registered with SEBI, y state industrial development corporations, y insurance companies registered with Insurance Regulatory and Development Authority, y provident funds (subject to applicable law) with minimum corpus of Rs. 250 million and y pension funds with minimum corpus of Rs. 250 million

Public Issue of Equity shares by Reliance Power LtdWhich are the intermediaries involved in an issue?

Public Issue of Equity shares by Reliance Power LtdWhich are the intermediaries involved in an issue? Intermediaries which are registered with SEBI are: y Merchant Bankers to the issue (known as Book Running Lead Managers (BRLM) in case of book built public issues), y Registrars to the issue, y Bankers to the issue & y Underwriters to the issue

Public Issue of Equity shares by Reliance Power LtdWhat is the role of Merchant Banker?

Public Issue of Equity shares by Reliance Power LtdWhat is the role of Merchant Banker? y Merchant banker does the due diligence to prepare the offer document which contains all the details about the company. y Merchant banker is also responsible for ensuring compliance with the legal formalities in the entire issue process and for marketing of the issue.

Public Issue of Equity shares by Reliance Power LtdWhat is the role of Registrars to the Issue?

Public Issue of Equity shares by Reliance Power LtdWhat is the role of Registrars to the Issue?y They are involved in finalizing the basis of allotment

in an issue and for sending refunds, allotment etc.

Public Issue of Equity shares by Reliance Power LtdWhat is the role of Bankers to the Issue?

Public Issue of Equity shares by Reliance Power LtdWhat is the role of Bankers to the Issue?y The Bankers to the Issue enable the movement of

funds in the issue process and therefore enable the registrars to finalize the basis of allotment by making clear funds status available to the Registrars.

Public Issue of Equity shares by Reliance Power LtdWhat is the role of Underwriters to the issue?

Public Issue of Equity shares by Reliance Power LtdWhat is the role of Underwriters to the issue?y Underwriters are intermediaries who undertake to

subscribe to the securities offered by the company in case these are not fully subscribed by the public, in case of an underwritten issue.

Public Issue of Equity shares by Reliance Power LtdWhat is Gr -shoe tion?

Public Issue of Equity shares by Reliance Power tion? Ltd What is Green-shoehoe tion is a rice sta ilizing echanis in hich shares are iss e in excess of the iss e size, y a axi of 15 . y rom an investor s ers ective, an iss e ith green shoe option provi es more probability of getting shares and also that post listing price may show relatively more stability as compared to mar et volatility.y Gree

Public Issue of Equity shares by Reliance Power LtdWhat is Safety Net?

Public Issue of Equity shares by Reliance Power LtdWhat is Safety Net?y In a safety net scheme or a buy back arrangement the

issuer company in consultation with the lead merchant banker discloses in the RHP that if the price of the shares of the company post listing goes below a certain level the issuer will purchase back a limited number of shares at a pre specified price from each allottee.

Public Issue of Equity shares by Reliance Power LtdWhat are the features of ordinary Shares?

Public Issue of Equity shares by Reliance Power LtdWhat are the features of ordinary Shares? y Claim on Income y Claim on Assets y Right to Control y Voting Rights y Pre-Emptive Rights y Limited Liability

Public Issue of Equity shares by Reliance Power Ltdy

What are the advantages and disadvantages of raising capital via IPO?

Public Issue of Equity shares by Reliance Power LtdAdvantages of Going Public Issue y Facilitates future funding by means of subsequent public offerings y Enables valuation of the company y Provides liquidity to existing shares y Increases the visibility and reputation of the company y Commands better pricing than placement with few investors y Enables the company to offer its shares as purchase consideration or as an exchange for the shares of another company.

Public Issue of Equity shares by Reliance Power LtdDisadvantages of oing Public Issue y Dilution of ownership stake makes the company potentially vulnerable for future takeovers y Involves substantial expenses, for example: Reliance Power spent INR 1,190.50 million, which was 1% of the issue proceeds y Need to make continuous disclosures y Increased regulatory monitoring y Listing fees and documentation y Cost of maintaining investor relations y Takes substantial amount of management s time and efforts.