IFLR India Awards 2011 - "Team of the Year" in the Indian Investment Banks category Primary and Secondary Issuance Process May 2012
Table of Contents Section 1 Section 2 Capital Markets Overview Trends in Primary Markets Section 3 Trends in Secondary Markets Section 4 Challenges and Way Forward 2
Section 1 Capital Markets Overview 3
Overview of Domestic Asset Allocation and Market Penetration India Household Financial Assets Overview USD BN Global Overview USD BN Total Financial Assets 100% 75% 50% 25% 0% Total Financial 413 987 1,301 1,769 Assets 1,825 45,488 2,007 42,467 43,427 10% 1 9% 8% 30% 29% 29% 30% 8% 6% 6% 52% 5 56% 57% 2001 2007 2009 2011 Deposits Shares (incl. MF) Life Insurance & PF Claims on Government Others 100% 75% 50% 25% 0% 17% 21% 15% 22% 21% 15% 18% 2% 32% 2% 32% 32% 2 2 10% 10% 11% 41% 21% 42% 18% 18% 15% 17% 18% China - 2007 USA - 2007 China - 2009 USA - 2009 USA - 2011 Deposits Shares Mutual Funds Insurance & pension Others Source: Reserve Bank of India Note : INR has been converted into USD at 46.67 INR per USD. Stock position has been calculated as the sum of net inflows since 1970 Trading Accounts No. of Accounts in Mn % of population 10.2% 1.6% 150 100 50 0 137.4 China 20.0 India Source: People s Bank of China, US Federal Reserve Trend in Individuals Holding (% of Free Float Market Cap) Free Float Mkt. Cap (Rs. Cr) Individuals Holding (Rs Cr) 73,915 100% 75% 50% 25% 0% 254,681 2,836,239 1,186,774 663,720 264,098 5 59% 58% 62% 18% 18% 20% 18% 29% 2 22% 20% 2001 2007 2009 2011 Individuals Other Non Institutional Institutional 2,602,607 520,380 Source: CDSL, NSDL, China Securities Depository and Clearing Corporation Ltd. Source: Capital Line 4
Global Recognition of India and its Markets Analysis of FII Holding (Rs. Crores) Free Float M.Cap (Rs. Crores) 254,681 280,937 548,192 697,388 1,070,811 1,550,883 2,836,239 1,213,262 2,451,612 3,053,898 2,939,203 2,602,607 Holding as a % of Freefloat M.Cap 21% 21% 26% 30% 3 36% 36% 32% 3 35% 3 36% 1,200,000 900,000 600,000 300,000 0 1,018,894 1,070,476 807,127 981,965 941,703 564,935 368,539 385,721 54,514 59,084 142,065 210,198 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Holding in Equity Markets Source : Capital Line Sector Wise Break up Holding in Equity Markets 2001 Sector Wise Break up Holding in Equity Markets 2004 Sector Wise Break up Holding in Equity Markets 2007 Sector Wise Break up Holding in Equity Markets 2010 6% 8% 1 12% 1 25% 15% IT Oil & Gas FIG FM CG Pharma Telecom Tobacco Auto Others 2% 15% 6% 7% 16% 22% 19% FIG IT Oil & Gas Pharma Auto Telecom Power FM CG Capital Goods Steel Others 1% 20% 5% 5% 7% 2 9% 12% FIG Oil & Gas IT Telecom Capital Goods Steel Realty PG & D Infrastructure Pharmaceuticals Auto FM CG Others 21% 7% 9% 28% 12% FIG IT Oil & Gas Auto Pharma Steel Power Capital Goods Infra Telecom FM CG Others Source: Capital Line Source : Capital Line Source : Capital Line Source : Capital Line 5
Accessing Capital Markets Capital Market Issuances Primary Secondary Equity Debt Equity IPO QIP / Preferential Issue Rights Issue FPO / IPP Public Issue Private Placement OFS IPP 6
Section 2 Trends in Primary Markets 7
Regulatory Milestones in Primary Markets 1992 2001 Electronic Book Building Process in public issues Discretionary allocation allowed to QIBs No margin required for QIBs 2006 New Fund raising opportunities QIP Introduction of discretionary allocation to Anchor Investors in public issues New Fund raising opportunities IDR 2009 Introduction of ASBA for retail investors in rights issue 2012 Introduction of listing day volatility mechanism Filing of offer document upto Rs. 500 crs (USD 100 mn appx.) with SEBI regional office Legal status granted to SEBI Free Pricing regime 2010 Pre 1992 Before 1992 companies have to take permission from CCI to decide timing, quantum and price of New Issue 1992-1999 IPO at fixed price Proportionate allotment 2005 Discretionary allocation to QIBs discontinued QIBs to pay 10% margin on application amount 2008 Validity of SEBI observations extended to 1 year from 3 months QIP floor price revised to 2 weeks average Introduction of ASBA for retail investors in IPOs Auction method allowed for public issues 100% margin for QIBs Dilution of 25% minimum in IPO At least 10% dilution in case post issue market cap to be greater than Rs 4,000 Crores subject to Company increasing its public holding to 25% within three years of listing Introduction of ASBA to institutional shareholders and HNIs Regulators are proposing introduction of e-ipo system for investor participation 8
Primary Market Size Amount Raised Rs. Crs. No. of Dom. Issues 27 16 33 62 103 145 175 72 96 152 68 19 No. of Intl. Issues 4 5 12 33 100 109 104 25 37 50 25 2 160,000 140,000 139,580 120,000 115,543 100,000 87,560 80,000 60,000 45,337 58,535 65,012 54,415 40,000 20,000 0 29,260 17,233 2,954 3,361 4,436 CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 CY 2006 CY 2007 CY 2008 CY 2009 CY 2010 CY 2011 CY 2012 Source : Prime Database 9
Primary Market Mix Mix of Issuances Since 2001 100% 80% 60% 40% 20% 0% 2% 2% 8% 1 1 12% 2 17% 18% 22% 7% 7 10% 30% 16% 38% 11% 7% 59% 22% 38% 1 29% 17% 10% 9% 15% 11% 7% 1 38% 2 55% 6% 5% 9% 7% 5% 2% 6% 8% 2 26% 12% 27% 78% 6% 40% 17% 7% 7% 28% 8% 31% 31% 32% 2 22% 20% 6% CY 2001 CY 2002 CY 2003 CY 2004 CY 2005 CY 2006 CY 2007 CY 2008 CY 2009 CY 2010 CY 2011 CY 2012 IPO - Equity FPO - Equity Offer For Sale Institutional Placement Programme QIP - Equity Rights - Equity FCCB GDR/GDS ADR/ADS Source : Prime Database 10
Section 3 Trends in Secondary Markets 11
Regulatory Milestones in Secondary Market 2012 1995 1997 Set-up of Trade Guarantee Fund 2001 T+5 Settlement process Commencement of trading in Index & Stock Options and stock futures 2003 T+2 Settlement Introduction of Offer for Sale through Stock Exchanges and Institutional Private Placement to enable companies to comply with rule 19(2)(b) and 19 A of SCRR BOLT (BSE Online Electronic Trading Platform) Handles 8 million trades/day 2010 2000 2002 T+ 3 Settlement Launch of 15-minute special pre-open trading session Trading to commence from 9 AM 1994 NSE Capital Market commences trading Launch of automated trading (NEAT) by NSE 1996 Dematerialisation of securities NSE Derivatives (Index Futures) Segment commenced Commencement of Internet Trading in India 12
Outperforming Global Markets Performance of Sensex vis-à-vis Global Markets Since 2001 till date 600 500 400 300 200 100 0 1-Jan-01 2001 2002 15-Jun-02 2003 27-Nov-03 2004 10-May-05 2005 200622-Oct-06 2007 4-Apr-08 2008 200916-Sep-09 2010 7-Apr-11 2011 2012 Dow Jones 20% FTSE -11% Nikkei -3 Straits 47% Sensex 317% Hang Seng 3 Shanghai 17% Source Bloomberg 13
Broad based Expansion of Domestic Market Sensex, BSE 100 and BSE 500 Since 2001 Mkt. Cap USD BN 112 130 280 386 546 816 1,815 637 1,301 1,629 1,005 1,111 800 700 600 500 400 300 200 100 0 1-Jan-01 28-Oct-01 2001 24-Aug- 2002 20-Jun-03 2003 15-Apr-04 2004 9-Feb-05 20056-Dec-05 2006 2-Oct-06 2007 29-Jul-07 24-May- 2008 20-Mar-09 2009 14-Jan-10 2010 10-Nov-10 20116-Sep-11 2012 02 BSE Sensex 317% BSE 100 325% 08 BSE 500 390% Avg DailyTrading Turnover Cash market (USD BN) 0.97 0.79 1.13 1.50 1.90 2.58 4.44 4.30 4.36 4.23 3.03 3.04 Avg. DailyTrading Turnover Derivatives market (USD BN) NA 0.31 1.22 2.27 3.55 6.27 11.73 10.99 13.34 21.95 27.97 24.26 Source Bloomberg, Prime Database, BSE 14
Evolution of Capital Markets 2000 (Beginning of New Decade) 2007 (Last Peak) 2008 (Meltdown) 2011 (Turnaround) 2012 YTD GDP (1) (1) (US$ Bn) 451 1,111 1,099 1,591 1,847 Market Capitalization (2) (2) (US$ Bn) 209 1,815 637 1,533 1,219 Mkt Cap / GDP 46% 16 58% 96% 66% # of Registered FIIs (3) (3) 555 1,147 1,316 1,767 1,764 Value of FII Holding (3) (3) (US$ Bn) 13.4 226 86 223 176 MF AUMs (4) (4) (US$ Bn) 22 122 92 115 115 # of Demat Accounts (3) (3) (Mn) 00 7.9 11.57 19.01 20.01 Cos. with M.Cap US$ 1- US$ 10 Bn 27 155 129 155 152 Cos. with M.Cap of >=US$ 10 Bn 22 28 25 32 21 Source Broker Research Estimates, Bloomberg, SEBI, AMFI,NSDL, Economic Survey 2010-11, Capital Line, RBI Notes 1. As on March,2000, December 2007, March 2008 and March 2011, March 2012 (E) 2. As on March,2000, December 2007, December 2008 and 31 March 2011, 31 March 2012 3. As on March,2000, December 2007, December 2008 and December 2011, 08 May 2012 4. As on March,2000, December 2007, December 2008 and December 2011, March 2012 15
Section 4 Challenges and Way Forward 16
Current Primary Issue Process 1A 2 Appoint Appoint Merchant Banker Syndicate Member Sub-syndicate 1B Appoint ASBA Bank Submit direct ASBA Applications Banking ASBA Application 4A Bidding Centre Submit syndicate ASBA/Non-ASBA Applications Banking Non-ASBA Applications 4B Escrow Bank Transfer of Application Forms 5A 5B Submitting Bid file for allotment 3A Investor 3B Registrar Allotment of Shares 6C Issuer 6A Issue Proceeds 6B Refund of Application money 5C Submitting Bid file for allotment 17
IPO Process Timeline Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8-14 Week 15 Week 16 Week 17 Week 18 Week 19 Week 20 Appoint Bankers/ Lawyers Issue Structuring & Planning Publish Research Drafting & Due Diligence Print Red Herring Prospectus File Draft Prospectus SEBI Review Final Comments received Approval Investor Education Finalise price band Roadshow/ Bookbuilding Issue launch Pricing Allotment & Refund Post Issue Activities Listing Initial Public Offering (IPO) 18
Regulatory Framework Key Regulators All the regulators and their respective framework are closely aligned to achieve issuance of securities Registrar of Company ( RoC ) / Depository Filing of Offer Document with Registrar of Companies Handles corporate action for credit of shares to investor Lock-in of shares (as applicable) Securities and Exchange Board of India ( SEBI ) Provides the disclosure standard and coverage for preparing offer document SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 Significant interface in the offering process including observations in the offer document Equity Reserve Bank of India ( RBI ) Provides the policy framework for Issuance at same price to NR investor as to domestic investor i.e. avoid differential pricing to NR Repatriation of issue proceeds Stock Exchanges Provides the framework for listing and trading of Equity Shares The Listing Agreement outlines the applicable continuous compliance & reporting obligations for the Issuer Finalization of basis of allotment with the Designated Stock Exchange Approval for listing and trading 19
Towards E-IPO Process SEBI had set up a Group on Review of Issue Process which submitted its report in February 2008 The Group recommended with implementation of e- IPO process, the primary markets will be automated Two modes of making an application will be available to the investor Independently, or Through a broker Central database will be maintained which will have all the information related to KYC Investor / Broker will have to input DP ID and PAN number which will be verified with the information maintained in the Central Database This process will significantly reduce the post issue timelines 1 INVESTOR Investor chooses to participate through one of the intermediary A BROKERS WEB - LMs - DP Participant Broker inputs data DP ID and PAN / Undertakes to make payment F Clearing corporation sweeps the broker account STOCK EXCHA NGE SYSTEM 2 Investor / Broker inputs his DP ID and PAN number 5 D 10 Investor / Broker inputs his bid Price and Quantity Intimation and generation of a unique number 7 Transfer to an Escrow Account 11 BANKS ESCROW BANK 6 Verification and debiting of the investor a/c 8 Investor chooses one of the payment mechanism PAYMENT GATEWAY Confirmation of the debit 9 E ADMINISTRATOR Acceptance of the Bid / Rejection of Bid in case of failure 3 Online verification B of the data 4 C X CENTRAL HUB Updating at Regular Intervals Confirmation and provision of information CENTRAL DATABASE DEPOSI - TORY / UCC DATABASE 20
Key Challenges and Way Forward 11 77 Corporate Governance and Insider Trading issues Enhancing the depth of of primary and secondary markets 22 Participation of of retail investors 66 Integration with global practices and markets Key Challenges 33 Uniformity of of initial and continual disclosures 55 Improvement and integration of of market infrastructure especially in in primary markets 44 Multiple regulatory framework v/s unified regulator Effective implementation and robust regulatory framework will mitigate challenge 21