PRE AND POST LAUNCH – ADDITIONAL KEY ACTIONS :
Apart from obtaining necessary approvals, appointment of various agencies and proper documentation, the following additional key actions are necessary for making the Euro-issue a success.
(i) Constitution of a Board Sub-Committee; (ii) Selection of Syndicate Members; (iii) Constitution of a task force for due diligence; (iv) Listing; (v) Offering Circular; (vi) Research papers; (vii) Pre-marketing; (viii) Timing, pricing and size of the issue; (ix) Roadshows; (x) Book building and pricing of the issue; (xi) Closing of the issue; (xii) Allotment; (xiii) Investor Relation Programme; and (xiv) Quarterly Statement.
Constitution of a Board Sub-Committee
To launch a Euro-issue, the issuing company has to take a large number of decisions in time. These decisions normally fall within the power of Board of Directors. It is usually difficult to call Board Meetings frequently and to ensure presence of adequate Board Members. Thus, it is normally advisable to constitute a sub-committee of the Board with full delegation of powers with regard to Euro-issue. The delegation of powers to the Board subcommittee should normally include the following:
– Appointment of agencies
– Authority to make applications for seeking various approvals
– Authority to finalise and execute documents and agreements.
– Decisions about the timing, size and pricing of the issue
– Allotment of shares
Selection of Syndicate Members
The success of any Euro-issue depends upon the well planned and coordinated efforts of the syndicate members and the company. The selection of the Syndicate members should be made depending upon the strength and capabilities of each member in different areas of specialisation such as marketing, financial research, distribution etc. The lead manager may be entrusted with the work of selection of syndicate members. The lead manager while selecting the above members, in addition to their strength and capability, should also evaluate their standing, image, reputation, infrastructure, past experience in handling Indian Euro-issue, etc.
Constitution of a task force for due diligence
The due diligence is a process in which a team consisting of legal, technical and financial experts of the lead manager meets top executives of the company and visits the sites of the company in order to understand the strengths, weaknesses, problems and opportunities of the company. The team also studies and analyses the balance sheet of the company and its subsidiaries, its financial arrangement with the group, investment pattern and also the future prospects of the company.
It also scrutinise the minutes of the company, various arrangements entered into by the company with regard to marketing, purchase, technology, ancillary units, employment, etc. and analyse the impact of litigations on the profitability of the company.
The purpose of above exercise is to draft the offering circular (prospectus) and work out marketing strategies for the Euro-issue.
Listing
One of the conditions of Euro-issues is that the securities are to be listed on one or more Overseas Stock Exchanges. The issuing company has to fulfill all the requirements particularly disclosure and documentation as prescribed by the Overseas Stock Exchanges. The company shall take the help of the listing agent in getting its Euro-issue instruments listed on the Overseas Stock Exchanges.
The issuing company shall prepare the requisite documents as prescribed by the Overseas Stock exchange authorities and submit the same along with application to it after scrutinizing the application and obtain the formal listing approval shall be issued by the Overseas Stock Exchange.
The underlying shares against GDRs are to be listed on one or more Indian Stock Exchange(s) on which the company’s existing shares are already listed. For this purpose, the company has to apply to the stock exchange authorities to get the shares represented by GDRs listed on the Indian Stock Exchanges. Trading of such shares on Indian Stock Exchange(s) will not commence until the period specified in the guidelines after the date of issue of the GDRs.
Offering Circular
Offering Circular is a mirror through which the prospective investors can access vital information regarding the company in order to form their investment strategies.
It is to be prepared very carefully giving true and complete information regarding the financial strength of the company, its past performance ,past and envisaged research and business promotion activities, track record of promoters and the company, ability to trade the securities on Euro capital market.
The Offering Circular should be very comprehensive to take care of overall interests of the prospective investor. The Offering Circular for Euro-issue offering should typically cover the following contents:
(i) Background of the company and its promoters including date of incorporation and objects, past performance, production, sales and distribution network, future plans, etc.
(ii) Capital structure of the company-existing, proposed and consolidated.
(iii) Deployment of issue proceeds.
(iv) Financial data indicating track record of consistent profitability of the company.
(v) Group investments and their performance including subsidiaries, joint venture in India and abroad.
(vi) Investment considerations.
(vii) Description of shares.
(viii) Terms and conditions of global depository receipt and any other instrument issued along with it.
(ix) Economic and regulatory policies of the Government of India.
(x) Details of Indian securities market indicating stock exchange, listing requirements, foreign investments in Indian securities.
(xi) Market price of securities.
(xii) Dividend and capitalisation.
(xiii) Securities regulations and exchange control.
(xiv) Tax aspects indicating analysis of tax consequences under Indian law of acquisition, membership and sale of shares, treatment of capital gains tax, etc.
(xv) Status of approvals required to be obtained from Government of India.
(xvi) Summary of significant differences in Indian GAAP, UK GAAP and US GAAP and expert’s opinion.
(xvii) Report of statutory auditor.
(xviii) Subscription and sale.
(xix) Transfer restrictions in respect of instruments.
(xx) Legal matters etc.
(xxi) Other general information not forming part of any of the above.
A copy of the Offering Circular is required to be sent to the Registrar of Companies, the SEBI and the Indian Stock Exchanges for record purposes.
Research Papers
Research analysts team of lead manager/co-lead manager prepares research papers on the company before the issue. These papers are very important marketing tools as the international investors normally depend a lot on the information provided by the research analysts for making investment decisions.
Pre-marketing
Pre-marketing exercise is a tool through which the syndicate members evaluate the prospects of the issue. This is normally done closer to the issue. The research analysts along with the sales force of the syndicate members meet the prospective investors during pre-marketing roadshows .This enables the syndicate members to understand the market and the probable response from the prospective investors. The pre-marketing exercise helps in assessing the depth of investors’ interest in the proposed issue, their view about the valuation of the share and the geographical locations of the investors who are interested in the issue. The response received during pre-marketing provides vital information for taking important decisions relating to timing, pricing and size of the issue. This would also help the syndicate members in evolving strategies for marketing the issue.
Timing, pricing and size of the Issue
After pre-marketing exercise, the important decisions of timing, pricing and size of the issue are taken. The proper time of launching the issue is when the fundamentals of the company and the industry are strong and the market price of the shares are performing well at Indian Stock Exchanges. The timing should also not clash with some other major issues of the Indian as well as other country companies. The decision regarding the size of issue is inversely linked with the pricing i.e. larger the size, the comparatively lower the price or vice-versa.
Roadshows
Roadshows represent meetings of issuers, analysts and potential investors. Details about the company are presented in the roadshows and such details usually include the following information about the company making the issue:
– History
– Organisational structure
– Principal objects
– Business lines
– Position of the company in Indian and international market
– Past performance of the company
– Future plans of the company
– Competition – domestic as well as foreign
– Financial results and operating performance
– Valuation of shares
– Review of Indian stock market and economic situations.
Thus at road shows, series of information presentations are organised in selected cities around the world with analysts and potential institutional investors. It is, in fact, a conference by the issuer with the prospective investors.
Road show is arranged by the lead manager by sending invitation to all prospective investors.
Book building and pricing of the Issue
During road shows, the investors give indication of their willingness to buy a particular quantity at particular terms. Their willingness is booked as orders by the marketing force of lead manager and co-lead manger. This process is known as book building.
Price is a very critical element in the market mix of any product or service. This is more so in case of financial assets like stocks and bonds and specially in case of Euro issues. The market price abroad has a strong correlation to the near future earnings potential, fundamentals governing industry and the basic economic state of the country. Several other factors like prevalent practices, investor sentiment, behaviour towards issues of a particular country, domestic market process etc., are also considered in determination of issue price. Other factors such as the credit rating of the country, interest rate and the availability of an exit route are important.
Closing of the Issue and Allotment
Closing is essentially an activity confirming completion of all legal documentation and formalities based on which the company issues the share certificate to the depository and deposits the same with the domestic custodian. Once the issue is closed and all legal formalities are over, the allotment is finalised. Thereafter, the company issues shares in favour of the Overseas Depository Bank and deposits the same with the domestic custodian for custody. The particulars of the Overseas Depository Bank are required to be entered into the Register of Members of the company.
Investor Relation Programme
The international investors expect that the issuing company maintains contact with them after the issue. These investors always like to be informed by the company about the latest developments, the performance of the company, the factors affecting performance and the company’s plans. It is, therefore, essential for the GDR issuing company to set up an investor relation programme. Good investor relation ensures goodwill towards the company and it would help the company in future fund raising efforts.