Listing of Companies in Stock Exchange
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Listed Company are those companies whose Shares are listed and Traded on a Recognised Stock Exchange. Listing means admission of securities to dealing s on recognised Stock Exchange. It become necessary when a Public limited company wants to issues its securities among public.
Objective of listing a company:
- Easy way to raise capital from public
- Expansion of company
- To provide liquidity to securities
- To protect share holders and investors interest
Following are the eligibility criteria have been prescribed for listing of company on stock exchange, through Initial public offer (IPO) & Further public offer (FPO):
Through regulation 26
- The issuer has to fulfil all the following five conditions to make IPO:
- The issuer has net tangible assets of at least 3 crore rupees in each of the preceding 3 full years (of twelve months each), of which not more than 50% are held in monetary assets. However, the limit of fifty percent on monetary assets shall not be applicable in case the public offer is made entirely through an offer for sale.
- It has a minimum average pre-tax operating profit of rupees 15 crore, calculated on a restated and consolidated basis, during the 3 most profitable years out of the immediately preceding 5 years. (3) It has a net worth of at least 1 crore rupees in each of the preceding 3 full years (of twelve months each)
- The aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed 5 times its pre-issue net worth as per the audited balance sheet of the preceding financial year;
- If it has changed its name within the last 1 year, at least fifty per cent. of the revenue for the preceding one full year has been earned by it from the activity indicated by the new name.
If company is already listed then it has to follow condition (4) & (5).
- An issuer not satisfying any of the conditions stipulated in sub-regulation (1) may make an initial public offer if
- IPO is made through 100% book building Process + atleast 50% of net offer to public (NOTP) shall be givento QIBs
- If normal IPO atleast 15% of issue size shall be given to bank/FIs. Provided further that 10% out of 15% shall be given to appraiser + atleast 10% of issue size shall be given to QIBs
- Post issue size face value less than or equal to 10 crore of capital
- the issuer undertakes to provide market-making for at least two years from the date of listing of the specified securities, subject to the following:
- The market makers offer buy and sell quotes for a minimum depth of three hundred specified securities and ensure that the bid-ask spread for their quotes does not, at any time, exceed ten per cent.
- the inventory of the market makers, as on the date of allotment of the specified securities, shall be at least five per cent. of the proposed issue.
- Minimum allottee should be 1000.
- Simplifying the IPO process for listing your company on stock exchange:
- Appointment Of investment Banker.
- All banks, public or private have an investment division which takes care of the IPO process
- Registration forms to SEBI
- Every IPO has to mandatorily register with SEBI and once it gets the approval, the IPO is ready to get listed on the exchanges.
- Red Herring prospectus
- The Red Herring Prospectus is a document which contains all the information about the IPO - the size of the IPO, financial statements, company history and the future plan of the company.
- Advertising includes everything from putting up hoardings to giving interviews to news channels and magazines. Basically, the more your company is talked about and known, the more demand it will attract from the investors, which in turn will help in a better listing price on the exchanges.
- Price Band set by investment Banker
- The investment bank goes through all the financial statements of the company and sets a price band for prospective investors to bid within the price band.
- Book Building Process
- Once the bidding is done, the banks identify if the issue is over-subscribed or under-subscribed. If the issue is over-subscribed, the banks release the shares at the highest band and the share is listed.
Advantage of Listing:
- Way to raise capital from public
- Increase Liquidity
- Increase Credibility
- Helps in Merger & Acquisition
- Enhance Goodwill & reputation
- Listing subject to many risk since the market is volatile
- Brokerage commission decreases profit margine
- Time Taking process