📝 Topics Covered

1. 7.1 📈 The Landscape of Share Offerings
   • Defining IPO, OFS, FPO, Fresh Issues, and Rights Issues
2. 7.2 💼 Foundations of Corporate Capital
   • Authorized Share Capital vs. Issued Share Capital
3. 7.3 🚀 The IPO Pipeline & Merchant Bankers
   • Initial Public Offering mechanics & ASBA application schedules
   • Merchant Banker (Book Runner / Lead Manager) operations
   • Red Herring: DRHP vs. RHP steps
4. 7.4 💵 IPO Pricing: Fixed vs. Book Building
   • Floor Price, Cap Price, and the 90% Subscription mandate
   • Cut-off price calculation with a bidding simulation table
5. 7.5 💳 ASBA: Blocked Funds Allotment Security
   • Risk-free bidding with temporary bank hold mechanics
6. 7.6 🏷️ OFS vs. FPO Mechanics
   • Offer for Sale (OFS) retail vs. non-institutional windows
   • Follow-on Public Offerings (FPO)
7. 7.7 📖 Essential Primary Market Glossary
   • Issue vs. Listing Price, RTAs, Escrow Accounts, and Collaterals

7.1 📈 The Landscape of Share Offerings

When private corporations need capital or when existing promoters decide to monetize their equity, they utilize distinct primary market offering channels:

• 🆕 Initial Public Offering (IPO): A private company issuing shares to the public for the first time, leading to listing on public exchanges.
• 📦 Offer for Sale (OFS): Existing promoters or institutional investors liquidating their current holdings to the public. No new capital goes to the company.
• 🔄 Follow-on Public Offer (FPO): An already listed company issuing another batch of shares to raise additional capital.
• 💎 Fresh Issue: The creation and sale of brand new, un-issued shares, directly increasing the company’s equity capital.
• 🤝 Rights Issue: Offering newly issued shares at a discounted price, specifically to existing shareholders first, in proportion to their current holdings.

7.2 💼 Foundations of Corporate Capital

Before looking at public offerings, we must understand the structure of a company’s capital pool:

💼 Authorized Capital: The absolute maximum capital limit (in share units) a company is legally permitted to issue under its constitutional charter (Memorandum of Association).

• Issued Capital: The actual portion of the Authorized Capital that has already been distributed to founders, promoters, private VCs, or the public.

Capital Allocation Equation: $$\text{Authorized Capital} = \text{Issued Capital} + \text{Un-issued Capital}$$

• Example Scenario: A company starts with an Authorized Capital of 1,000 shares. If they issue 300 shares (Issued Capital) split between promoters (200) and early private investors (100), they retain 700 shares in their Un-issued Capital pool.

7.3 🚀 The IPO Pipeline & Merchant Bankers

🚀 Initial Public Offerings (IPOs)

When a private company decides to go public, it executes an IPO. This is typically structured as a combination of a Fresh Issue (creating new shares out of the un-issued capital pool) and an OFS (promoters selling their existing shares).

🏦 The Lead Manager: Merchant Banker

Also known as the Book Runner or Lead Manager, a Merchant Bank acts as the strategic architect of the IPO:

• Market Pricing: They gauge institutional investor appetite (QIB interest) to determine demand and valuation parameters.
• Corporate Finance: They structure large institutional fundraises, coordinate mergers, and manage major corporate acquisitions.

📑 Steps for an IPO Proposal

The company must file a comprehensive disclosures document (Prospectus) with SEBI covering operational histories, 5-year audited financial records, and business risk factors:

graph TD
    A["1. Board Approval<br>(Board resolves to go public)"] -->
    B["2. Draft Prospectus (DRHP)<br>(Rough draft filed with SEBI for feedback)"] -->
    C["3. Red Herring Prospectus (RHP)<br>(Approved version published to public without final price)"] -->
    D["4. Public Subscription Window<br>(ASBA bidding opens for 3-4 trading days)"]
    style A fill:#efebe9,stroke:#5d4037,stroke-width:2px
    style B fill:#fff3e0,stroke:#ff9800,stroke-width:2px
    style C fill:#e1f5fe,stroke:#03a9f4,stroke-width:2px
    style D fill:#e8f5e9,stroke:#4caf50,stroke-width:2px

• DRHP (Draft Red Herring Prospectus): The preliminary draft prospectus submitted to SEBI to request public issue permissions.
• RHP (Red Herring Prospectus): The final approved prospectus released to the general public, containing all transaction parameters except the final cut-off price.

7.4 💵 IPO Pricing: Fixed vs. Book Building

Companies utilize two distinct methodologies to price their equity issues:

• ⚖️ Fixed Price Issue: The company specifies a single, unchangeable share price (e.g., ₹250). Bidders apply exactly at this price.
• 📊 Book Building Issue: The company declares a dynamic Price Band (e.g., ₹290 to ₹300).
  • Floor Price: The minimum bidding boundary (₹290).
  • Ceiling / Cap Price: The maximum bidding boundary (₹300).

⚠️ The 90% Subscription Mandate: SEBI rules dictate that an IPO must achieve a minimum subscription level of 90% of the offered size. If the bidding volume falls below 90%, the IPO fails, and the company must instantly return all application funds.

🧮 Discovering the Cut-off Price

Bids in a book-built issue are sorted top-down (highest price bids cleared first) to determine the cut-off price at which the subscription quota is fully satisfied:

• Analysis: The 90% subscription mark is cleared at ₹295. Bidders who bid at ₹300 and ₹296 will be allotted shares at the cheaper ₹295 rate, with the price difference automatically refunded to their bank accounts. Bidders who bid below ₹295 are rejected and receive full refunds.

7.5 💳 ASBA: Blocked Funds Allotment Security

💳 ASBA (Application Supported by Blocked Amount):

• Mechanism: A highly secure payment pipeline. When bidding for an IPO, the application money is not debited from your bank account immediately. Instead, the funds are temporarily blocked (frozen) in your savings account by your bank.
• Outcome A (Successful Allotment): The blocked amount is debited, and shares are credited to your Demat account on the settlement day.
• Outcome B (No Allotment / IPO Cancelled): The bank release lock is instantly lifted, restoring full liquidity to your savings account. No refund delays, no transaction risks!

7.6 🏷️ OFS vs. FPO Mechanics

🏷️ Offer for Sale (OFS)

An OFS allows existing promoters to liquidate stakes. Because it uses existing shares, no fresh capital goes to the company; it goes directly to the selling shareholders.

• Timing: Conducted inside normal market hours (9:15 AM – 3:30 PM).
• Bidding Schedule: Day 1 is reserved for Non-Institutional Investors (NII), and Day 2 is open for Retail Individual Investors (RII).

🔄 Follow-on Public Offer (FPO)

An FPO is executed by an already listed company to raise fresh expansion capital by issuing a new tranche of shares out of its remaining un-issued capital pool.

7.7 📖 Essential Primary Market Glossary

• 🏷️ Issue Price: The finalized price at which the shares were formally allotted to investors in the primary IPO market (e.g., DMart’s issue price was ₹299).
• 🔔 Listing Price: The exact opening price of the stock when it debuts on the stock exchange (e.g., DMart listed at ₹600, yielding a massive 100% listing gain).
• 📊 Book Value: Mathematically calculated as Total Assets - External Liabilities. Represents the actual net worth of the company.
• 🤝 RTA (Registrar and Share Transfer Agent): A SEBI-registered entity (like KFintech, Link Intime) responsible for managing the registry of shareholders, processing applications, and transferring Demat shares to allotted investors.
• 🔒 Escrow Account: A highly restricted, temporary banking trust account set up specifically to hold blocked IPO subscription cash until the listing is finalized.
• 🏦 Pledge vs. Mortgage:
  • Pledging: Using liquid financial assets (like shares) as collateral to secure a loan.
  • Mortgaging: Using physical real estate assets (like houses or property) as collateral to secure a loan.
• 🐳 Bulk / Block Deals: Trades representing massive share volumes (typically >0.5% of total equity) executed in dedicated windows.
• 🛑 Ring Trading: Illegal, unregulated off-market speculation.

📖 References

• 📅 SEBI & Exchange Guidelines on Market-Wide Circuit Limits
• 📜 DRHP & Red Herring Prospectus Filings Search - SEBI