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Initial Public Offering is one of the ways to raise funds for a company. Many companies, startups, SMEs want to raise money by issuing an IPO but rarely are aware of the complete process.

IPO definition: The process through which a private company sells its shares to the public for the first time is called IPO. Once the company becomes Public Limited, its shares can be traded on various stock exchanges.

Requirements for Mainboard IPO:

There are two routes by which a company can prove its eligibility for an IPO.

Eligibility Criteria: Norm 1

  1. Net worth of the company should be 3 crores in the previous three years
  2. The company must have tangible assets worth 3 crores (not more than 50% in monetary asset) in the previous three years
  3. The average profit before tax should be at least 15 crores in the previous 3 out of 5 years
  4. When a listed company launches a Further Public Offer for a fresh issue of shares then the size of the IPO cannot exceed more than 5 times of the company’s pre worth valuation
  5. If the company changes its name in case of FPO, minimum 50% of revenue in the previous year should be from the activity denoted by the new name.

Eligibility Criteria: Norm 2

For companies who require huge capital but do not meet the eligibility criteria mentioned in norm 1, there is an alternative offered by SEBI. The companies can raise funds through book building process. 75% of this net offer to the public is compulsorily allotted to Qualified Institutional Buyers. The company has to refund the subscription fee, if the minimum subscription of QIB is not achieved.

Requirements for SME IPO:

BSE SME Requirement:

  • Post issue capital should be at least 3 crore and should not exceed 25 crores.
  • The company should have net tangible assets of 3 crores and 15 crores for broking companies.
  • Distributable profits for 2 out of 3 years should be minimum 5 crores. For broking companies, profit before tax should be 5 crores.
  • It is mandatory for the company to have a website and to facilitate trading in demat securities.
  • Certificate proving no winding petition or reference to BIFR.
  • In the previous one year, there should be no change in the promoters of the company from the date of filing the application with BSE.
  • Promoters to attend need to interview with Listing Advisory Committee.

NSE Emerge Requirement:

  • Post issue capital should not exceed 25 crores.
  • The company should have a track record of minimum three years.
  • The company should have a positive net worth and should have positive cash accruals from operations for minimum 2 financial years prior to the date of the application.
  • The company has not been referred to BIFR (Board for Industrial and Financial Reconstruction).
  • There is no petition for winding up admitted by a court of competent jurisdiction against the company.
  • In the past three years there has been no disciplinary action by a stock exchange or a regulatory authority against the applicant company.

Requirements for Startup IPO:

  • The company should either be registered with MSME/DIPP as a startup or should have a minimum paid up capital of 1 crore.
  • The post issue paid up capital should not exceed 25 crores.
  • On the date of filing the prospectus the company should be in existence for a minimum period of two years.
  • Company should preferably have investments from QIB investors for a minimum of two years.
  • It is mandatory for the company to have a website and to facilitate trading in demat securities.
  • In the previous one year, there should be no change in the promoters of the company from the date of filing the application with BSE.

Process of IPO in India:

  1. Hire an Investment Bank: A company that wants to launch an IPO needs to hire an investment bank which can also be the lead manager, merchant bank, or underwriter. A company can take services of more than one investment bank. In order to cater to the financial needs of the company, the team at investment bank analyses the company’s financial situation and work with its assets and liabilities. Thereafter, an underwriting agreement is signed between the two parties which states details about the deal, the amount to be raised and the type of securities to be issued. Underwriters assure the company that the amount will be raised, however, they never make any promises.
  • Complying with SEBIs regulations: The company along with the underwrites files the registration statement which contains information about the business model and financial data of the company. The company also needs to declare the purpose for which it is raising funds. A company gets approval only if it discloses every detail that prospective investors should know and if the guidelines are strictly adhered to. The company needs to upload the Draft Prospectus at least 30 days prior. This Draft Prospectus is only if the company wants to raise more than 50 lakhs. Once it is submitted, SEBI gives a list of required changes within the next 30 days. If SEBI is satisfied with the details provided, then it will upload the Draft Prospectus to the website for public review.
  • Listing application to stock exchanges: While the Draft Prospectus is filed with SEBI, the company can apply to various stock exchanges to list its stocks. Out of the 24 stock exchanges in India, BSE and NSE are the most popular ones.
  • Road show (Promotion of an IPO): Companies can promote their IPO while the Draft Prospectus is submitted to SEBI. With the help of marketing agencies (which are also regulated by SEBI), companies advertise and publicize their IPOs.
  • Pricing of share: There are two ways to price the share: Fixed Price Offer and Book Building.
  • Launching of IPO: IPO is available for public to apply for shares on the date that is mentioned in the prospectus. It is made available for 3-6 days.

We at HBF Direct Ltd. Can help you with the process of launching an IPO if your company falls in the category of a startup or SME. We can help smoothen the IPO process as we assure to be there by your side through the various stages.

for more information contact us 

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October 16, 2020

amazing information HBF Direct Team,
we are SME and looking to raise funds via IPO model
Please help

October 16, 2020

Thanks for comment
Please contact 9971337447

October 31, 2020

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December 19, 2020

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September 29, 2021

I’m a startup and want to do ipo. Lemme know how to take it forward.

October 10, 2021

Thanks for comment
for more information contact our team – [email protected] , 9971337447

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