IPO (Initial Public Offering) / Listing Planning

Presented by

Affan Sajjad ACA

Cell # 03219400788

Presenter Profile

Passed CA exams in December 2004 Became Associate Member of ICAP in November 2005 Completed Articles from Ernst & Young (FRSH) from August 2001 to October 2005. Served Ernst & Young as Assistant Manager Audit from November 2005 to April 2006 Served KPMG as Assistant Manager Audit from July 2006 to November 2006 Moved to Industry by joining Agritech Limited (Formerly Pak-American Fertilizers Ltd.) as Manager Corporate Finance in December 2006. Achievements:

Qualified during Articles Seconded to EY Saudi Arabia and USA during articles Due Diligence and acquisition of Hazara Phosphate Project financing for the expansion project Listing of Agritech Restructuring of long term loans of more than PKR 20 Billion Due diligence of Agritech and Hazara by local and international investors Merger of Agritech & HPFL Acquisition of Agritech by Banks consortium under debt swap arrangement Handling lender base of more than 70 investors including banks, financial institution, mutual funds, international investors, individuals.

Index

Introduction to Listing Strategic Issues to be considered before going for Listing Activities / Procedure to complete listing activity

Listing through
Initial Public Offering

Inviting general public for subscription of new shares through prospectus.

Offer for Sale

A person who holds more than 10% in a company may offer for sale such shares totally or part thereof to the general public through offer for sale document.

Issues to be considered
Purpose Why Listing Raising Funds Repayment of Debts / Lowering leverage Possible Acquisition / Expansion Funding for loan based project Funding for Equity based project

Others Repute Local & international recognition Availability of market / quoted price Easy to attract private equity Diversify investor base Easy to sale and purchase shares for Public

Issues to be considered
Shareholding What is the current shareholding structure Are you issuing new shares Who is targeted investor Equity investors / Institution / Public What is the minimum limit to be issued to Public What will be post IPO shareholding structure In case of offer of sale by existing shareholding Need to justify disinvestment Possible effect on shareholding / directorship / control

Capital Structure Existing Debt to equity ratio & WACC What will be the impact on debt to equity ratio and WACC Loan agreement restricting change in shareholding

Issues to be considered
Price

What should be the Offer price. Three scenarios (Issue could be at DISCOUNT, PAR, PREMIUM) Prepare financial model for pricing Prepare Valuation on DCF and Market based methods Need to convince underwriters on IPO price Conditions under Capital issue rules on public issue at premium Profitable operational record of at least one year Premium shall not exceed the premium charged to private placements Fully underwritten Underwriters not being associated companies Underwriters shall include at least two financial institution Due diligence report by underwriters providing justification of premium Employees getting preferential allocation shall be charged with same premium Shares allocated on preferential allocation at par shall not be saleable for two years Sample Due Diligence report Due Diligence report of EPL

Issues to be considered
Price

In case of Premium, Justification for Premium (Quantitative and Qualitative) Quantitative Valuation as compared to peers / sector justifying premium Qualitative factors justifying premium Management track record Brand Value Sector preference Growth story Cost advantage / technology Strategic location

Premium Justification in Prospectus (Quantitative & Qualitative) EFL Prospectus

Issues to be considered

Applicable Laws Listing Regulations of Stock exchange The Companies (Issue of Capital) Rules, 1996 Companies Ordinance Securities and Exchange Ordinance Guidelines available at SECP site
Legal requirements after listing Code of corporate governance Additional disclosure requirements under 4th schedule of co. ordinance Tight scrutiny by auditors, SECP and KSE Quarterly reporting and accounts printing Vulnerable to hostile takeover Investor relations

Issues to be considered
Advisors / Intermediaries Lead Financial ( For underwriting, placements & Marketing) Corporate (For statutory approval from KSE & SECP) Others Legal Advisor Underwriters Share registrar Balloter Bankers to the issue Book runner

Issues to be considered
Initial - Cost Initial Listing Fee of stock exchanges Annual Listing Fee SECP fee Underwriting commission Take-up commission Ballotters and Share registrar charges Commission to Bankers to issue Brokerage to Members of the stock exchange Advisory fee of lead manager and book runner Legal Fees Printing and Publication cost (prospectus, Application form, Information memorandum, Notice) Marketing Expenses After Listing -Cost Fee of stock exchanges & SECP Quarterly Printing cost Newspaper cost for notice and ads Arrangement of AGM & EOGM Cost of meeting Code of corporate governance requirements

Issues to be considered
Internally

Develop project team Appoint Financial and Corporate advisor IPO responsibility Prospectus responsibility Timetable Consideration IPO marketing

Timelines

Nearly six months exercise containing various steps / approvals Consider Proposed project / acquisition funding timelines

Pivotal Milestones to complete Listing process

Underwriting agreements

Issuance of Prospectus (newspaper)

Pivotal Timelines to complete Listing process

Audited Accounts Date

Not more than 6 months

Prospectus published in newspaper

7 to 30 days

Subscription Dates

June 30, 2011 Dec 31, 2011

Dec 31, 2011 June 30, 2012

Jan 30, 2012 July 30, 2012

Technical Knockout Point: Audited accounts disclosed in prospectus should not be older than six (6) months from the date of publication of prospectus (KSE listing regulation)

Eligibility for Listing

Any public limited company or body corporate having minimum paid up capital of two hundred million rupees (Rs.200 million) may apply for listing on a stock exchange in Pakistan. (KSE listing regulation Chapter IV) Section 2 of the Ordinance prohibits private limited companies to invite general public for subscription of their securities including shares. A foreign company having place of business in Pakistan can also apply for listing on a stock exchange in Pakistan subject to approval of Federal Government.

Technical Knockout Point: No company shall be listed unless it has made public issue which is subscribed by not less than 500 applications. (KSE listing regulation chapter IV)

Issue Size and Allocation of Capital (KSE listing regulations Chapter III A)
The size of issue and allocation to various categories of investors has been set as under:

In case post issue paid-up capital of the issuing company is up to Rs.500 million, at least 50% of such capital shall be offered to the general public; and In case capital of the issuing company is beyond Rs.500 million, public offer shall be at least Rs.250 million or 25% of the post issue paid-up capital, whichever is higher. In case of offer for sale of shares by an existing shareholder, the offer size shall be at least Rs. 100 million or 25% of the paid up capital of the company whichever is lower. Upto 5% of the issue size can be allocated to employees of the issuing company. Upto 20% of the issue size can be allocated to overseas Pakistanis. In case of Modarabas at least 70% of the issue size shall be allocated to general public/retail investors. Keeping in view the appetite for IPOs, the offer price, nature of business of the issuer and issuer's pattern of shareholding, the requirement of minimum allocation to retail investors can be relaxed as deemed appropriate by SECP.

Allocation of shares to (i) Sponsors in excess of 25% & (ii) Under Pre IPO placement including employees of company / group companies

Methods of Offering Shares

Fixed Price Method

Under this method the offer price is set by the issuer or the Offerer Independent institutions / underwriters provide comfort to the prospective investors as far as the offer price is concerned. The basis of issue price is disclosed in the prospectus where the issuer gives detail about the qualitative and quantitative factors justifying the issue price. Investors subscribe for the shares at the price already decided by the issuer.

Book Building Process

Book-Building is a mechanism of price determination through which indication of interest for investment in the shares offered by an issuer/Offerer is collected from Institutional Investors and High Net worth Individual Investors through making of bids and a book is built which gives a picture of demand for the shares at different price levels. Floor Price is decided by the Issuer/ Offerer in consultation with the Book Runner Strike Price is determined at the end of the bidding period on the basis of bids received through the Dutch Auction Method. Under the Dutch Auction Method, Strike Price is the price at which bids for the entire shares offered for sale are made. Book Building portion of the offer is underwritten by the Book Runner. Detail procedure of issue/offer of shares through Book Building is given in the Appendix-4 of the Listing Regulations of the Stock Exchanges.

Listing Incentives

Tax credit for enlistment: Where a taxpayer being a company opts for enlistment in any registered stock exchange in Pakistan, a tax credit equal to 15% of tax payable shall be allowed for the tax year in which said company is enlisted. (sec 65C of income tax ordinance) Government of Pakistan through the Finance Act, 2011 has announced a tax holiday for five years (till June 2016) for newly established industrial undertakings, BMR and expansion provided such projects are financed entirely through equity. For detail Sections 65D and 65E of the Income Tax Ordinance, 2001 may be consulted. To be benefitted of this incentive, the companies may raise equity through the capital market for financing their projects.

Activities / Procedures to Complete IPO / Listing Activity

Steps to Complete IPO / Listing Activity (I)

1. 2. 3. 4. 5.

Preliminary work on Scheme / structure of transaction. Creating Financial Model showing future financial performance and position and impact of this transaction. Company Valuation on the basis of Financial Model. Also finalizing the issue price with the transaction advisor. Preparing Teaser for the transaction Holding BOD meeting for passing resolution for IPO / listing

6.
7.

Underwriting
Private placements / Pre IPO placements

8.
9.

Appointment of bankers to issue for collecting of subscription money and applications

Appointment of Balloter and Share Registrar

Steps to Complete IPO / Listing Activity (II)

10. 11. 12. 13. 14. 15. 16. 17.

Obtaining clearance from CDC and NCCPL and ensuring declaration of the company shares as an Eligible Security Prepare Offer for Sale document / prospectus Due Diligence report by underwriter Audited Accounts and certificates from Auditors Filing of listing application with KSE with relevant documents Filing of application with SECP with relevant documents Approval of OFSD / prospectus and listing application by KSE and SECP File application with KSE and SECP for obtaining clearance for date of publication of OFSD / prospectus and date of opening and closing of subscription list

Steps to Complete IPO / Listing Activity (III)

18. 19. 20. 21. 22. 23. 24.

Publication of OFSD / prospectus Presentation to KSE members Printing of Share certificates and application forms Subscription dates File necessary return as to subscription received with the KSE, SECP and bankers to issue within 3 working days of closure of subscription Balloting within 10 days of closure of subscription Determination of successful applicants and filing of Ballot register with the KSE, SECP and bankers to issue

25.

Call a board meeting immediately after ballot to approve the allotment to applicants determined successful in the ballot

Steps to Complete IPO / Listing Activity (IV)

26.

Refund of subscription money to the rejected and unsuccessful applicants within 10 days of ballot and transfer subscription money of successful applicants to the companys main account. File return of allotment with the Registrar of Companies within 30 days of allotment

27.

28.

Transfer of shares to successful candidate within 30 days of closure of subscription list.

Timelines

Audited Accounts Date

Not more than 6 months

Prospectus published in newspaper

7 to 30 days

Subscription Dates

Activities during this period Appointment of Financial & Corporate advisor Preparation of Financial Model ,Valuation, IM, Prospectus Underwriting Agreements Private placements Due diligence report Audited Accounts Auditors Certificates Appointment of Banker to issue, Balloter & Share registrar Approval from KSE & SECP

Activities during this period

IPO Marketing Printing of Application forms & other requisite documents

Application to KSE (I)

List of documents to be filed to KSE is given in Appendix 1 of Listing regulations. Summary of documents are given below

Copy of the certificate of incorporation certificate of commencement of business. conversion certificate from private to public company; if applicable. certificate for change of name of the company, if applicable. Board resolution Feasibility report of new project Information memorandum Material contracts (underwriting, placements, projects, financing) Title deeds of land CDC eligibility Printed share certificate Soft copy of draft prospectus Scanned copy of MOA & AOA Scanned copy of audited accounts last 5 years

Application to KSE (II)

List of documents to be filed to KSE is given in Appendix 1 of Listing regulations. Summary of documents is given below

Auditor Certificate On private placements U/s 53 read with clause 28(1) of sec 2 of past 1 of 2nd schedule (Profit & Loss, Asset & liabilities, Rate of dividend of 5 years, subsidiary also) On EPS for last 5 years On break up value on the basis of latest audited accounts

Consents / NOC of the Underwriters Balloter to issue (should not be associated company) Auditors Experts / legal advisor CEO, Director, Company Secretary Bankers to issue

Application to KSE (III)

List of documents to be filed to KSE is given in Appendix 1 of Listing regulations. Summary of documents is given below

CIB reports of Sponsors, Directors (Not nominee directors) Company Associated companies (on the basis of director ship)
List of

Directors / shareholders subscribing under private placement Employees allocated share out of current issue Persons allocated share on account of preferential treatment, where shares issued at premium (Not saleable for two years.)

All documents should be certified by Company Secretary & CEO. Documents relating to regulatory authorities should by certified from regulatory authorities.

Loan based project (Capital Issue rules sec 3)

A company which owns a loan based project and purposes to raise capital through public offer for the first time shall comply with the following conditions.

The size of capital to be issue shall be in accordance with financial plan approved by an institution financing the project The company's auditors shall certify that sponsors subscription has been received in full and at least eighty per cent therefore has been utilized in the project The stock exchange concerned shall verify that at least thirty percent of the plant & machinery has been installed and last consignment of P&M, where required has been shipped to the company The sponsor shall, at all times retain at least 25% of the capital of the company

Equity based projects (Capital issue rules sec 3)

A company which owns an equity based project and purposes to raise capital through public offer for the first time shall comply with the following conditions.

The fixed capital expenditure shall be entirely financed by equity The project shall be appraised by the financial institution or commercial bank or investment bank The appraisal report shall be accompanied by a certificate from the company auditors confirming that The capital allocated to sponsors, foreign and local investors, if any has been fully paid The land for the project has been acquired, LC have been established and shipment schedule of P&M have been finalized by the suppliers The issue shall be fully underwritten and the underwriters, not being associated companies, shall include at least two financial institutions, including commercial bank & investment bank and the underwriters shall evaluate the project in their independent due diligence report. The sponsor shall retain at least 25% of the capital of the company for a period of 5 years form the date of public subscription.

Application to SECP
List of documents to be filled with application to SECP.

Clearance letter from Stock exchange Hard & Soft copy of Prospectus / OFSD with last page signed by directors Affidavit from CEO & CFO on accuracy of disclosure certified by oath commissioner Processing Fee Undertaking from Balloter, Transfer agent & Underwriter that they fulfill conditions of rule 4 of Balloter, transfer agent & underwriters rules 2001 Consent of Pre IPO investors Undertaking regarding no buy back agreement from underwriters Certified Form 29 Confirmation that issued capital does not consist of shares issued against intangible assets Affidavit from CEO, Directors, Company secretary, CFO that they have disclosed all legal proceedings

Documents / Publications in IPO / Listing

Teaser Information Memorandum (IM) Financial Model containing impact of IPO Underwriting Agreements

Pre IPO placement Agreements

Due diligence report Prospectus Abridged Prospectus Application in English and Urdu Notice Ad in Newspaper

Documents / Publications in IPO / Listing

Teaser

Opportunity Introduction Business overview Summary of Financial history Future growth plan Pakistan economy and sector insight Investment Highlights Contact details

Documents / Publications in IPO / Listing

Information Memorandum (IM)

Term Sheet Executive summary Pakistan economy insight Sector insight Company business overview Investment Highlights Equity Market Historical financials Financial projection Valuation & offer price Analysis on key variables Risk factors and there mitigants

Documents / Publications in IPO / Listing

Due Diligence report ( to be issued by underwriters)

Background Transaction summary Company & Business overview BOD & management profile Justification of premium Financial overview Valuation Market based DCF based Underwriting rationale Investment highlight

Thank you
In case of any question / feedback, feel free to contact.
Affan Sajjad Cell # 03219400788 affan.sajjad@pafl.com.pk affan.sajjad@hotmail.com