Attorney-Client Privileged Communication

Role of the investment banks

• Overall transaction management responsibility
• Navigating transaction strategy including structuring, timeline and execution
• Conducting due diligence, developing positioning theme, assisting in drafting of Industry section & strengths and strategy, advising on operational data to be disclosed in offer document and participating in drafting sessions
• Co-ordination with all parties involved in the transaction
• Liaising with the regulators
• Coordinating research briefing, pre-marketing, management roadshows and marketing the Issue
• Generating demand, managing the book, advising on pricing and allocation
• Assisting in managing post issue formalities

Issuer’s domestic counsel

• Trusted advisor of the Company and advising Company on compliance with applicable Indian regulations
• Drafting various corporate authorizations and coordinating approvals relating to the IPO
• Conducting due diligence and drafting of non - business sections of the offer documents
• Negotiating agreements on behalf of Company and drafting monitoring agency agreement and PR Agency Agreement
• Providing legal opinion to the investment banks and assisting in ‘Closing’

Investment Banks’ Domestic Counsel

• Conducting due diligence and reviewing offer documents
• Advising investment banks on compliance with domestic regulations
• Drafting of transaction agreements (Offer Agreement, Escrow, Syndicate, Underwriting and Share Escrow Agreements) and negotiating on behalf of investment banks
• Co-ordination of certification with issuer/Auditors etc
• Providing legal opinion to the investment banks and assisting in ‘Closing’

International Counsel

• Conducting due diligence and drafting of the “business sections” - Industry, Business, MD&A and Risk Factors – of the offer documents
• Primary responsibility for compliance with international regulations relating to offering and selling restrictions and preparation of “International Wraps”
• Reviewing various Agreements
• Negotiating Comfort Letter, Arrangement Letter and Circle-ups with Auditors
• Providing legal opinion to the investment banks and assisting in ‘Closing’

Statutory Auditors,

Independent Chartered Accountants

• Provide Auditors Report and requisite certificates
• Provide comfort letters to BRLMs
• Provide certifications relating to financial information included in offer documents
• Provide statement of tax benefits for company and its material subsidiaries

Party

Key Responsibility

Printers

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• Printing of the offer documents, application forms and other stationery

Registrar to the Issue

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• Analysis of electronic bid book
• Coordinating with Escrow Bankers and other parties for finalization of basis of allotment
• Finalizing Basis of Allotment post weeding out technical rejections
• Arranging for unblocking of ASBA accounts, refunds, Demat credit, Printing of allotment etc.

Advertising/ PR Agency

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• Corporate and Issue advertising
• Public relations
• Managing logistics of domestic roadshows
• Media monitoring

Monitoring Agency

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• To monitor the use of proceeds. Compulsory if Issue size exceeds Rs 1,000 million (excluding Offer for Sale portion)

Depository

• Tripartite Agreement and dematerialization of the company’s shares
• Demat transfers of shares and credit of shares to allottees

Escrow collection Bank, Refund Banker, Sponsor Bank

• Collection of application moneys from anchor Investors, coordinating UPI applications
• Hold issue proceeds in escrow till listing
• Assist in post-issue

Formation of Core Execution Team

• Form core execution group with representatives from finance, accounts, secretarial and legal teams
• Identify single point coordinator to lead the process, drive core execution group and escalate issues internally

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Preparation of Data Room

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• Set up an electronic data room to complete due-diligence based on checklist provided by legal counsels
• Legal counsels and BRLMs start diligence once the data room is substantially ready
• Critical to focus on setting up data room before formal start of the process

Legal and Regulatory

• Conversion of the issuer company from a private limited company to a public limited company, if applicable. Conversion typically takes a month
• Appointment of compliance officer (requirement of SEBI Regulations)

Put the House in Order

• Update secretarial and legal records
• Certain regulatory filings, reporting or expired approvals create unknown hurdles — Identification of such hurdles well in advance is critical
• Enter into arms length agreement for related party transactions, shared facilities
• Consider Secretarial Audit

Review Litigations

• Litigation details of issuer, subsidiary, group companies, promoters and directors required to be disclosed
• Prepare MIS including category, nature of dispute, status of case, amount of claim and other details

Review of Memorandum / Articles of Association / legal records

• Conversion into public limited company, if required
• Increase authorized capital, if required
• Review and remove restrictive clauses/special rights and incorporate provisions relating to a Public Limited Company and in compliance with the Stock Exchange requirements

Review of Existing Shareholders Agreements

• SEBI by way of a practice followed in the recent past, requires companies to remove special rights to investors post listing. Board seat can continue subject to approval by shareholders post listing (special resolution)
• Restrictive clauses included in Articles to be modified

Review of Various Business Approvals, IPRs, Trademarks

• Issuers require number of approvals for continued operations, certain approvals may have expired
• Create/ update an MIS of approvals, IPRs, Trademarks, property, insurance
• Discuss with counsels and apply for unregistered brand names, trade marks
• In case IPRs are held by an entity other than the Issuer, ensure suitable agreements are in place for usage of IP by the Issuer
• Ensure that arrangements are in place for usage of premises, other shared services provided by group entities, if applicable

Review Corporate Governance Requirements

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• Secretarial team should review the corporate governance requirements, including appointment of independent directors, formation of various committees, auditors certificate certifying compliance with corporate governance requirements
• SEBI regulations require compliance with corporate governance at the time of filing of DRHP with SEBI

SEBI compliant ESOPs , if any

• ESOPs, if any, will need to be compliant with SEBI SBEB and Sweat Equity Regulations, 2021

Financial Statements

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• Get the auditors (including previous year auditors, auditors of subsidiaries if different from issuer) on board well in advance of the IPO process
• Discuss the auditor related deliverables in light of the SEBI framework
• Qualifications/ critical notes in auditors report should be discussed and addressed early on
• Often delivery of financials and other auditor related deliverables have overall impact on timelines
• Identify if proforma financial statements would be required

Promoter, Promoter Group and Group companies

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• Identify promoter and thereafter promoter group in terms of SEBI (ICDR) Regulations based on persons/ entities defined as promoters
• Identify Group Companies based on Related Parties with whom the issuer had transactions during the period for which the restated financials are being prepared
• Examine if the promoters have dissociated with any company during the preceding three years
• Collation of information of Promoters, promoter group and group companies for disclosure in the offer document

Key Performance Indicators

• Identify appropriate mechanism for legal counsels and BRLMs to identify, due-diligence and certify key performance indicators

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Gear up for Reporting Requirement

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• Preparedness for quarterly reporting of financials and select operational information
• Develop clear communication plan for changes in business

Business Plan

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• Prepare business plan for 3/5 years
• Formulate business plan keeping in mind the long-term objectives of the Company
• Discuss the same with investment banks to suitably modify assumptions
• Critical to align the growth plans with investor expectation

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Key Positioning Themes

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• Senior management of the issuer company should focus on identifying the key positioning themes for the investment story of the issuer company

Review of Competition

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• Most companies are aware of competitors and their products
• It may be helpful to review the competitors’ business strategy
• Review publicly available information, research reports, etc. of internationally listed companies
• Identify the key strengths and strategies for the company

Criterion for rejection of Offer Document

• Sebi has the power to reject an offer document filed with it
• Review the criterion vis-à-vis the criterion specified by SEBI
• Address these issues before the draft offer document is filed with SEBI

No outstanding securities permitted

• Outstanding convertible securities not permitted
• Exceptions – (i) ESOP, (ii) fully paid convertible securities to be converted prior to RHP filing

Mandatory Book Building Regulation 6(2)

Doesnot meet net tangible assets, profitability and net worth track record

• Issue through book building route with at least 75% allotted to QIBs

Optional Book Building Regulation 6(1)

Meets Net tangible assets, profitability and net worth track record

• Net tangible assets of at least Rs. 30 mn calculated on restated consolidated basis in the preceding three full years
• not more than 50% in monetary assets –Not applicable for pure Offer for Sale

• Minimum average operating profit of Rs.150 mn on a restated consolidated basis during the preceding three years, with operating profit in each of these years

• Net worth of at least Rs. 10 mn in each of the preceding three full years

50% of Independent Board

1/3^rd Independent Board

• Chairperson is executive
• Chairperson is non executive but related to:
• Promoters³; or
• Related to person who is an executive director or occupying management position at a level below Board
• Company does not have regular chairman

• Chairperson is Independent Director
• Chairperson is non executive but not related to:
• Promoters³; or
• Related to person who is an executive director or occupying management position at a level below Board.

Committees of the Board of Directors

Audit Committee*

• Should comprise at least three directors
• Atleast two-thirds of the members shall be independent directors
• All members shall be financially literate
• At least one director should have financial and accounting knowledge/expertise
• Committee Chairperson to be an independent director and should be present at AGMs
• The committee shall meet at least four times a year and not more than 120 days should elapse between two meetings.

Stakeholders’ Relationship Committee*

• Comprising of at least three directors, with at least one being an independent director.
• The Chairperson of the Committee shall be a non-executive director.
• The committee shall meet at least once a year.

Nomination and Remuneration Committee*

• Should comprise at least three directors
• All non-executive directors, 2/3^rd of the members shall be independent directors
• Committee Chairperson to be an independent director and should not be Chairperson of the Board
• The quorum for a meeting shall be either two members or one third of the members of the committee, whichever is greater, including at least one independent director in attendance. The Committee shall meet at least once a year

Risk Management Committee**

• Minimum 3 members with majority of the members of the Committee to be members of the Board with Chairman to be member of Board.
• At least one independent director
• The Risk Management Committee shall meet at least twice a year

Subsidiary company***

At least one independent director on board of issuer shall be director on the board of an un-listed material subsidiary.

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Promoter definition under SEBI ICDR Regulations

• In terms of SEBI Regulations, the term ‘Promoter’ shall include:
• the person who has been named in draft offer document or offer document or identified as an issuer in the annual return filed under the Companies Act;
• the person or persons who are in control over affairs of the company – directly or indirectly, whether as a shareholder, director or otherwise;
• the person in accordance with whose advise, directions or instructions, the Board is accustomed to act

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Promoter definition under Companies Act, 2013

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• Person named in Prospectus as such or identified by the Company in its annual return
• Person who has control over the Company, directly or indirectly, whether as shareholder, director or otherwise
• Person with whose advice or directors the company’s Board is accustomed to acts
• Person acting merely in professional capacity not deemed as Promoter

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Meaning of the word ‘Control’

• The word ‘Control’ has been defined under SEBI (SAST) Regulations, as under:
• ‘Control’ shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner

Whether defined as Promoter in Shareholder Agreement(s), statutory filings, other like issuances, etc.

• Examination of Shareholder Agreement(s) is critical; there could be instances where certain entities may have been defined as ‘promoter’ in such agreement(s)
• Entities could also have been defined as ‘promoter’ in certain constitutional documents of the Issuer, or in certain statutory filings viz. GoI, RBI, FIPB, etc.
• If the Issuer has raised capital in the past through other capital market modes viz., placement of debt, etc., examination of offer documents prepared for such issuances will be critical to review whether any entity was defined as ‘promoter’
• Lender agreements will have to be examined to determine which entity (ies) have been named as promoters

Promoters’ contribution

SEBI requires at least 20% of post-IPO capital of the company to be held by the Promoters, which is referred to as Promoters’ contribution

Securities ineligible for computation of promoters’ contribution are those that are:

• Pledged with any creditor;
• Acquired by the promoters in the last three years for consideration other than cash and revaluation of assets or capitalization of intangible assets is involved;
• A result of bonus issues by utilization of revaluation reserves or unrealized profits of the company or from bonus issue against shares which are ineligible for computation of promoter contribution in the last three years
• Acquired by the promoters at a price lower than the IPO price during the preceding 1 year from the date of filing the DRHP with SEBI, unless the difference in price is brought in. However, this is not valid of these acquired shares result from an inter-se promoter transfer and (i) such shares were acquired by the transferor promoter during the past one year at or more than the IPO price; or (ii) such shares were acquired the transferor/promoter prior to the past one year.

Compliance with norms for Promoters’ contribution shall be required at the time of filing the DRHP with SEBI

Promoter contribution of 20% of post IPO Capital will be locked-in for a period of 18 months from the date of allotment in IPO. In case majority of the proceeds for the fresh issue portion are proposed to be utilised for capital expenditure, then the lock-in period will be for three years.

Lock-in Requirements

Promoter’s holding, in excess of minimum promoters’ contribution is locked in for six months from the date of allotment in IPO. In case majority of the proceeds for the fresh issue portion are proposed to be utilised for capital expenditure, then the lock-in period will be for one year.

Entire pre-IPO capital (except the promoter’s shareholding) is locked in for six months from date of allotment in IPO.

Exemptions from lock-in for:

• Venture capital fund, foreign venture capital investor, or alternative investment fund of category I or category II who have held shares for at least six months from date of purchase (which shall include the holding period of convertible security in case of equity shares resulting out of convertible securities).⁽¹⁾This shall not be applicable in case the offer is under Regulation 6(2) and the shareholding in the issuer company is more than twenty per cent of pre-issue shareholding of the issuer based on fully diluted basis.
• Pre-IPO shares held by employees which were issued under ESOP or ESPS before the IPO
• Shares held by employee trust or transferred to present or ex-employees

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Pledge

Excess promoter holding locked-in for six months may be pledged only with Banks/PFIs/SI-NBFC/HFC as collateral provided the pledge is a term of sanction

If securities are locked-in as Promoters’ contribution, the same may be pledged if the loan has been granted by such Banks/PFIs/SI-NBFC/HFC for the purpose of financing one or more objects of the issue and the pledge is a term of sanction

Promoter | Body Corporate

• Subsidiary(ies) and holding company(ies) of the Corporate Promoter(s)
• Any company in which the Promoter(s) holds 20% or more of the equity capital or which holds 20% or more of the equity capital of the Promoter(s)

Promoter | Individual

• Any body corporate in which 20% or more of the equity share capital is held by the promoter or an immediate relative of the promoter or a firm or HUF in which the promoter or any one or more of their relative is a member
• Any body corporate in which a body corporate as provided in the above point holds 20% or more, of the equity share capital
• Any HUF or firm in which the aggregate share of the promoter and their relatives is equal to or more than 20% of the total capital

All persons whose shareholding is aggregated under the heading “shareholding of the promoter group”

• Companies (other than Promoter(s) / Subsidiaries) with which there were related party transactions during the period for which financial information is disclosed in the offer document, as covered under the applicable accounting standards
• Companies considered material by the Board of the Issuer, for which a policy is to be formulated by the Board

Deliverable

Key Contents & Remarks

Auditors Report

• Auditors Report for 3 years and the stub period (not older than six months as on date of the offer document)
• In case any of the previous years were audited by different auditors, the auditors’ report should contain references to respective reports for the said years

Restated Financial Statements

• Restated financial statements should be prepared on a consolidated basis, in accordance with Indian Accounting Standards and Companies Act , 2013. These financial statements can be prepared by the statutory auditor or an independent chartered accountant.
• The Company should present a complete Ind AS consolidated financial statements for the stub period.
• Where the Company has no subsidiary/ JV/ associate in a particular financial year, it shall present separate financial statements for that financial year by as per requirements of restated CFS.
• A reconciliation explaining the differences between the audited CFS equity and profit (loss) and the restated CFS should be presented in a columnar format
• Financial statements for subsidiaries need to be audited and restated for consolidation exercise
• Past financial statements to be restated as per SEBI Regulations
• Separate audited standalone financial statements for past three full financial years of the Company and all its material subsidiaries (identified as per SEBI Regulations) should be uploaded on Company’s website
• Auditor should have a valid peer review certificate issued by the Peer Review Board of the ICAI as on the date of signing the restated financial information
• Financial statements provided should not be more than 6 months old with reference to
• the date of offer document
• For the purpose of comfort letters, interim financials, not older than 135 days, may be required

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Key Restatements

• Change in Accounting policies

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• Latest accounting policies for the stub period/ latest full audited year to be adopted for preceding three financial years and financial statements presented as though uniform accounting policies were followed in each of these years

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• Prior period items

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• Adjustments should be made in respective years to which such items relate
• Company has an option to present comparatives for the stub period.

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• Qualifications in Auditors reports in preceding three financial years and stub period

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• Appropriate adjustment/rectifications

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• Incorrect Accounting policies

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• Re-computation should be done in accordance with correct accounting policies

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• Extraordinary items

Disclosure IND AS Financial Statements

• Instances where Ind AS is not applicable to the Company for any of the previous three years, the principles laid down in Circular No SEBI/HO/CFD/DIL/CIR/P/2016/47 of March 31, 2016 or any other relevant circular issued by SEBI shall apply. All previous years to be audited under Ind AS

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• Disclosures of interim period, if any, shall be made in line with the accounting policies followed for latest financial year.

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Other Financial Information

Following information shall be computed as per the Guidance Note issued by the ICAI from time to time and disclosed in other financial information

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• Earnings per share (Basic and Diluted)
• Return on net worth
• Net Asset Value per share
• EBITDA

Management’s Discussion and Analysis of Financial Position and Results of Operations

• Significant developments subsequent to the last financial year or when applicable subsequent to the stub period
• Factors that may affect the results of operations
• Discussion on the results of operations for the last three years and most recent audit period
• Summary of the past financial results after adjustments containing significant items of income and expenditure.
• A summary of major items of income and expenditure.
• The income and sales on account of major product/ main activities.
• If a material part of the income is dependent upon a single customer/supplier or a few major customers/suppliers, disclosure of this fact along with relevant data.
• In case the issuer has deviated from statutorily prescribed manner for recording sales and revenues, its impact may be analysed and disclosed.
• The nature of miscellaneous income and miscellaneous expenditure for the interim period and the preceding years, if applicable.
• Comparison of last three years and the stub period on the major heads of the profit and loss statement, including an analysis of reasons for the changes in significant items of income and expenditure

Capitalisation statement

• Capitalisation Statement showing total borrowings, total equity, and the borrowing/ equity ratios before and after the issue is made shall be incorporated
• Any change in the share capital since the date as of which the financial information has been disclosed in the offer document, a note explaining the nature of the change

Deliverable

Key Contents & Remarks

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Certificates

• Special Tax Benefits available to the Company and its shareholders and material subsidiaries
• Eligibility criteria as per SEBI ICDR Regulations
• Compliance with corporate governance requirements of SEBI LODR Regulations
• Profits arising from related party transactions have arisen from legitimate business transactions
• ESOP in compliance with ESOP Guidelines and related disclosures in the offer document
• Auditor consent for being named as an ‘expert’ in the offer document and inclusion of their report in offer document
• Peer Review Certificate
• Objects related certificate, as applicable
• Basis of allotment certificate

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Auditor Comfort Letters

• Comfort letters are customarily delivered at four stages:
• Prior to filing of DRHP – Prior to filing of RHP
• Prior to filing of Prospectus - On closing
• Comfort letters primarily include
• Appropriate negative assurances regarding subsequent period changes. Negative assurance is provided up till a cut-off date, typically 3 days from the date of issuance of the comfort letter
• Circle-up procedures relating to relevant pages of the offer document
• Comfort letters, for all stages as mentioned above, will be required for the Issuer and its subsidiaries
• Auditors will not typically issue comfort letter with negative assurance if it is dated 135 days after the date of last audit/review

Due Diligence

• Customary auditor due-diligence by BRLMs and Legal Counsels

Proforma Financial Statements

• Applicable if a ‘material’ acquisition or divestment of a subsidiary made by the Issuer post last annual financial statements.
• Acquisition/divestment would be considered as material if acquired/ divested business or subsidiary in aggregate contributes 20% or more to turnover, net worth or profit before tax in the latest annual CFS of the Issuer.
• Proforma to be prepared for last FY and stub period by statutory auditor or an independent chartered accountant.
• In case of non-material acquisitions/divestments disclosures in relation to the fact of the acquisition/divestment, consideration paid/received and mode of financing shall be certified by the statutory auditor of the issuer company

Regulatory Requirements

Disclosures

Considerations for Issuer

Objects of the Issue

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• Key activities for which the Fresh Issue proceeds are to be utilized
• Total amount to be utilized for such activities from issue proceeds
• In case of investment in a subsidiary, disclosures regarding form of investment and benefits expected to accrue to be made
• In case of loan repayment, details of loans and certificate from statutory auditor certifying utilisation of loan

• Identify key objects for which IPO proceeds shall be utilized
• Proceeds from secondary sale (OFS) will be remitted to selling shareholders
• Amount of general corporate purpose (GCP) can be kept open at DRHP stage, subject to overall limit of 25% of issue size, determined closer to RHP stage
• Amount reserved for un-identified acquisitions and GCP cannot exceed the overall limit of 35%, wherein not more than 25% can be reserved for un-identified acquisitions or GCP, individually.
• For investment in a subsidiary which is not wholly owned, implications of potential dilution of other shareholders to be examined
• If the majority of the fresh issue proceeds are proposed to be utilised for capital expenditure, the benefit of the reduced lock-in period will not be available to the promoters.

Deployment Schedule

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• Year-wise schedule of utilization of IPO proceeds for each main activity

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• Deployment schedule will have to be determined considering the time involved between DRHP and RHP filing
• Change in deployment schedule will be considered as a change in object of the issue, despite overall amount remaining the same
• Internal accruals may be earmarked for immediate expenditures
• Quarterly disclosure of amounts utilized in accordance with SEBI LODR Regulations and in the format prescribed under the SEBI ICDR Regulations, including comments from the Board of Directors of the Company, if any
• Ongoing disclosure in ‘IPO track record’ available on BRLMs’ websites for proposed vs. actual utilization and reasons for deviation

Regulatory Requirements

Disclosures

Considerations for Issuer

Funding of Objects of the Issue

• Amount spent on the objects as on date
• Tie-up of 75% of funds required excluding IPO proceeds through verifiable means

• Amounts already spent on each activity need to be certified by the statutory auditors
• Tie-up of additional funds may be through internal accruals, debt, etc.

Detailed Break-up of Costs

• Break up of costs for each sub-activity
• Quotations/ purchase orders where relevant
• Additional details depending on the type of activity

• Recent quotations from vendors, as relevant, will need to be obtained; the period of validity of quotations will need to be ascertained

Issue Expenses

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• Break up of issue related costs

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• Costs include fees of all intermediaries, brokerage and selling commission, ASBA processing fee, marketing expenses, regulatory filing fees, listing fees, etc.

Variation in Object of the Issue post completion of IPO (in certain situations) would require special resolution and an exit option to dissenting shareholders by Promoters/controlling shareholders at a price and in the manner as per ICDR Regulations

Key Provisions

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• General Corporate Purposes (GCP) to not exceed 25% of the Issue size
• Amount reserved for un-identified acquisitions cannot exceed 25% of the Issue size and together with GCP, the reservation cannot exceed 35% of the Issue size.
• Changes in the Objects of the Issue as stated below would require fresh filing of DRHP with SEBI along with fees – issue size to be considered – it is the basis for paying the filing fees to SEBI

In case of a fresh issue:

• Any addition to objects resulting in increase in estimated issue size or estimated means of finance by more than 20%
• Any deletion in objects (which leads to exacerbate of risk) resulting in decrease in estimated issue size by more than 20% of the estimated issue size
• Any increase or decrease in estimated issue size by more than 20%
• Any increase in estimated deployment in any of the objects of the issue by more than 20%

In case of Offer for sale:

• Any increase or decrease either in number of shares offered for sale or the estimated issue size, by more than 50% of the estimated issue size

Agreement

Parties to the Agreement

Purpose of the Agreement

• Engagement Letter

• Company and individually with Merchant Bankers, Counsels to the Company, Auditors, Registrar and other intermediaries

• Engaging the intermediaries for the services

• Issue Agreement

• Company, Selling Shareholder(s) (if any) and BRLM(s)

• Lays down the roles, responsibilities, reps of BRLM and Company

• Registrar Agreement

• Company, Registrar and Selling Shareholder

• Lays down the roles, responsibilities of the Registrar

• Tripartite Agreement with Depositories

• Company, Registrar and NSDL/CDSL

• Lays down the provisions of NSDL / CDSL acting as the Depositories of the Company

• Cash Escrow and Sponsor Bank(s) Agreement

• Company, Selling Shareholder(s), BRLM(s), Syndicate Member, Registrar, Escrow Banker, public collection bank and Escrow Bankers to the Issue

• Lays down the process for receipt of monies from Anchor Investors and release of funds to the Company

• Share Escrow Agreement

• Company, SS, Escrow Agent, Registrar, BRLM(s).

• For escrowing shares being sold in offer for sale.

• Syndicate Agreement

• Company, Selling Shareholder(s), BRLM(s) and Syndicate Members

• Lays down the process of marketing and handling the forms

• Underwriting Agreement

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• Company, Selling Shareholder(s) and the Underwriters (BRLM and Syndicate members)

• Lays down the terms of Underwriting and the extent of underwriting

• Listing Agreement

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• Company and Stock Exchanges

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• Binds the Company to the requirements of the SEBI Listing Regulations

• Ad Agency Agreement

• Company and Ad Agency

• Media monitoring

• Monitoring Agency Agreement

• Company and Monitoring Agency

• Monitoring of proceeds of fresh Issue (if fresh issue exceeds Rs 100 cr)

Minutes of meetings and forms

• Board, shareholder and committee minutes for the last three fiscals and stub (for the issuer company and the material subsidiaries)
• Forms filed for appointment of directors and key management personnel
• Forms filed for creation of charge (for the issuer and the subsidiaries)
• Return of allotment evidencing share capital build-up since incorporation
• In case allotment was made to more than 49 investors under Companies Act, 1956 or more than 199 investors under Companies Act, 2013 – corrective action as mandated by SEBI

Licenses and approvals

• Creating an MIS of all approvals required by the issuer company and its material subsidiaries, identifying the material approvals in the MIS
• Copies of such licenses and approvals
• Copies of all documents evidencing material intellectual properties owned by the company

Litigation

• Pending litigations involving the issuer company, its directors, promoters and subsidiaries
• Such litigations are (a) all criminal (b) actions by regulatory/ statutory authorities/ tax litigations (disclosed in a consol. manner) (c) disciplinary action by SEBI and stock exchanges against the promoters and (d) other pending litigations, as per a materiality policy, to be formulated by the board
• Pending litigations involving group companies that may be material from the issuer’s perspective
• Prepare litigation MIS, covering all such litigations

Management

• Back-up of CVs of board and senior management (educational qualification, work experience, etc.)
• Resolution for appointment of board and key management (along with compensation)
• Independent directors, women director and committees, as per SEBI LODR Regulations, to be appointed/ constituted prior to filing of the DRHP

Business and risk factors

• Copies of annual reports and marketing/ investor presentation
• Copies of all material business contracts
• Back-up of business initiatives such as CSR, etc.
• Preparation of MIS of insurance and copies the key insurance policies
• Copies of agreement re: key properties owned or leased by the company
• MIS of contracts for B2B business – with revenue from each client as of last Fiscal

Indebtedness

• An MIS of all loans availed by the company and its subsidiaries
• Copies of all sanction letters, facility agreements, mortgage/hypothecation deeds
• Copy of the charge register

Objects of the issue

• If the objects are capex – copies of all quotations and/ or purchase orders for the capex
• If the objects are retirement of debt, the indebtedness documents are reviewed (see row above)
• If the objects are for investment in another company/ acquisition – valuation of the assets
• A detailed break – up of cost of the project

Certifications

• Some information is not easy to diligence – for such information, representations through company certificates is relied on – details regarding promoters, promoter group, group companies, certain confirmations regarding company, subsidiaries, directors etc.

Section

Key Disclosure Requirements – business sections

Business

• Business overview, strengths and strategies
• Competitor landscape, sourcing, marketing, employee details, etc.
• Disclosures relating to key business metrics

Management Discussion & Analysis

• Discussion and analysis of financial condition and results of operations for the periods disclosed in the offer document
• Disclosure of trends, risks and uncertainties that may affect business operations

Risk Factors

• Business and “non-business” related risks
• External risk factors

Industry

• Industry overview and key trends, and future outlook
• Generally a third party agency will be hired to provide industry report

Financial statements

Restated consolidated financial statements for three years and stub period, if any, being not more than six months old (from SEBI perspective)/ 135 days (for Auditor comfort letter)

Objects of the issue

Details regarding the objects of the issue (capex, retirement of debt, investing in subsidiaries through loan, equity) etc.

Section

Key Disclosure Requirements – Non-business sections

Capital structure

• Composition of the existing capital structure and Issue details
• Shareholding pattern
• History of capital build-up, lock-in requirements, ESOP details

Promoters, Promoter Group, Group Cos.

• Identification of Promoter and Promoter Group
• Disclosures relating to Group Companies

History

• Changes in name, registered office, memorandum of association and other key events since incorporation
• Description of key agreements (not entered in the ordinary course of business)

Management

• Composition of Board of Directors, Committees of the Board, key management personnel and their details
• Details of their compensation and interests

Litigations

• Litigations by or against the Issuer, its subsidiaries, directors, promoters and group companies

Government approvals

• Material government and statutory approvals of issuer and material subsidiaries

Indebtedness

• Key terms of all loan agreements – loans availed by issuer & subsidiaries

Eligible selling shareholders

• Any existing shareholder of the company
• Such shareholder must not be debarred from accessing capital markets by SEBI
• Such selling shareholder must not be a willful defaulter or a fraudulent borrower
• Against whom there are no litigations or other actions which impact the title/ beneficial ownership of the offered shares

Eligible securities

• Securities should be fully paid up and need to be held for more than 1 year at the time of filing of DRHP; holding period of compulsory convertible securities can be considered towards this requirement
• If the equity shares arising out of conversion of fully paid-up compulsorily convertible securities are being offered for sale, conversion to be completed prior to filing of the RHP, provided full disclosures of the terms of conversion are made in the DRHP
• Bonus shares issued during the last 1 year on securities held for a period of 1 year shall also be eligible subject to:
• Bonus being issued out of free reserves or share premium in the books of the company and the end of last financial year;
• Bonus is not issued out of revaluation reserves or unrealized profits.

Eligible securities (Contd.)

• The shares proposed to be offered for sale must not be subject to any encumbrance
• Equity shares proposed to be offered as a part of offer for sale have to be dematerialized
• Lead managers would prefer to finalise quantum of shares to be offered at the DRHP stage

Additional conditions for offer for sale under Regulation 6(2)

• Shareholders holding, individually or with persons acting in concert (PAC), more than 20% of the pre-issue shareholding of the issuer cannot offer more than 50% of their pre-issue shareholding in the offer.
• Shareholders holding, individually or with PAC, less than 20% of the pre-issue shareholding of the issuer cannot offer more than 10% of the pre-issue shareholding of the issuer in the offer.
• If the shareholder is a VCF, AIF or FVCI and is holding, individually or with PAC, more than 20% of the pre-issue shareholding of the issuer, the relaxation from lock-in under Regulation 17 is not applicable and the shareholding will be locked-in for a period of six months from the date of allotment in the offer.

On the letterhead of the Selling Shareholder

• Consent letter – consent to participate as a selling shareholder, consent to be named as a selling shareholder in the offer documents, consent to lock-in shares unsold in the IPO for a period of six months post listing (except promoters), consent to dematerialize shares, etc.
• Certificate – certificate confirming that the selling shareholder is not debarred from accessing capital markets, is not a wilful defaulter or fraudulent borrower, offered shares not subject to encumbrance, no litigation affecting title of shares, etc.
• Board resolution for corporate selling shareholders – authorization for participation in the IPO

Transaction documents to be signed

• Declaration pages of the offering documents - confirming only statements about the selling shareholder in the offering document – which are consistent with the confirmations mentioned in the certificate (as mentioned above)

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• Sign the transaction agreements – offer agreement, underwriting agreement, cash escrow agreement, share escrow agreement, syndicate agreement, registrar agreement

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• Representation and warranties in such agreements to be signed off by the selling shareholder – which are largely consistent with the undertakings mentioned in the certificate (as mentioned above)

IPO cost

• IPO cost shared proportionately between issuer company & selling shareholders.
• In case of IPO in which there is no fresh issue, entire cost of the IPO is shared between the selling shareholders, in proportion to the offered shares, generally except listing fees.
• Company incurs cost at first instance – selling shareholder reimburses on successful listing.

Other considerations

• The quantum of shares (in aggregate amount or actual number) offered for sale must be disclosed in the draft red herring prospectus

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• The shares proposed to be offered for sale must be in dematerialized form

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• On closing of the IPO, a lawyer representing the selling shareholder must issue a closing opinion to the merchant banks (opinion covers the shares offered for sale)