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Initial Public Offering, IPO, is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuer's securities.

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A Follow on Public Offering, FPO, is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations.

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Rights Issue, RI, is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best suited for companies who would like to raise capital without diluting stake of its existing shareholders unless they do not intend to subscribe to their entitlements

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Any company making a public issue or a listed company making a rights issue of value of more than Rs 50 lakh is required to file a draft offer document with Sebi for its observations. The company can proceed further on the issue only after getting observations from Sebi. The validity period of Sebi's observation letter is three months only i.e. the company has to open its issue within three months period.

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Sebi does not recommend any issue nor does take any responsibility either for the financial soundness of any scheme or the project for which the issue is proposed to be made or for the correctness of the statements made or opinions expressed in the offer document.

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It is to be distinctly understood that submission of offer document to Sebi should not in any way be deemed or construed that the same has been cleared or approved by Sebi. The lead manager certifies that the disclosures made in the offer document are generally adequate and are in conformity with Sebi guidelines for disclosures and investor protection in force for the time being. This requirement is to facilitate investors to take an informed decision for making investment in the proposed issue.

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Offer Document means prospectus in case of a public issue or offer for sale and Letter of Offer in case of a rights issue, which is filed Registrar of Companies, RoC, and Stock Exchanges. An Offer Document covers all the relevant information to help an investor to make his/her investment decision. ?Draft Offer document? means the offer document in draft stage. The draft offer documents are filed with Sebi, atleast 21 days prior to the filing of the Offer Document with ROC/ SEs. Sebi may specifies changes, if any, in the Draft Offer Document and the issuer or the lead merchant banker shall carry out such changes in the Draft Offer Document before filing the Offer Document with ROC/ SEs. The Draft Offer document is available on the Sebi website for public comments for a period of 21 days from the filing of the Draft Offer Document with Sebi.

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Red Herring Prospectus, RHP, is a prospectus, which does not have details of either price or number of shares being offered, or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares are determined later. An RHP for and FPO can be filed with the RoC without the price band and the issuer, in such a case will notify the floor price or a price band by way of an advertisement one day prior to the opening of the issue. In the case of book-built issues, it is a process of price discovery and the price cannot be determined until the bidding process is completed. Hence, such details are not shown in the Red Herring Prospectus filed with RoC in terms of the provisions of the Companies Act. Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with RoC is called a Prospectus.

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Abridged Prospectus means the memorandum as prescribed in Form 2A under sub-section (3) of section 56 of the Companies Act, 1956. It contains all the salient features of a prospectus. It accompanies the application form of public issues

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Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines have provided that the issuer in consultation with Merchant Banker shall decide the price. There is no price formula stipulated by Sebi. Sebi does not play any role in price fixation. The company and merchant banker are however required to give full disclosures of the parameters which they had considered while deciding the issue price. There are two types of issues one where company and LM fix a price (called fixed price) and other, where the company and LM stipulate a floor price or a price band and leave it to market forces to determine the final price (price discovery through book building process).

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An issuer company is allowed to freely price the issue. The basis of issue price is disclosed in the offer document where the issuer discloses in detail about the qualitative and quantitative factors justifying the issue price. The issuer company can mention a price band of 20% (cap in the price band should not be more than 20% of the floor price) in the Draft Offer Documents filed with Sebi and actual price can be determined at a later date before filing of the final offer document with Sebi/RoCs.

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Book Building means a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for the securities is assessed on the basis of the bids obtained for the quantum of securities offered for subscription by the issuer. This method provides an opportunity to the market to discover price for securities.

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Book building is a process of price discovery. Hence, the Red Herring prospectus does not contain a price. Instead, the red herring prospectus contains either the floor price of the securities offered through it or a price band along with the range within which the bids can move. The applicants bid for the shares quoting the price and the quantity that they would like to bid at. Only the retail investors have the option of bidding at ?cut-off'. After the bidding process is complete, the ?cut-off' price is arrived at on the lines of Dutch auction. The basis of Allotment is then finalized and letters allotment/refund is undertaken. The final prospectus with all the details including the final issue price and the issue size is filed with ROC, thus completing the issue process.

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The Red Herring Prospectus may contain either the floor price for the securities or a price band within which the investors can bid. The spread between the floor and the cap of the price band shall not be more than 20%. In other words, it means that the cap should not be more than 120% of the floor price. The price band can have a revision and such a revision in the price band shall be widely disseminated by informing the stock exchanges, by issuing press release and also indicating the change on the relevant website and the terminals of the syndicate members. In case the price band is revised, the bidding period shall be extended for a further period of three days, subject to the total bidding period not exceeding thirteen days.

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In Book building issue, the issuer is required to indicate either the price band or a floor price in the red herring prospectus. The actual discovered issue price can be any price in the price band or any price above the floor price. This issue price is called ?Cut Off Price?. This is decided by the issuer and LM after considering the book and investors' appetite for the stock. Sebi (DIP) guidelines permit only retail individual investors to have an option of applying at Cut Off Price.