Pre-Issue & Post-Issue Management

Issue management is the most critical and publicly visible responsibility of a Lead Merchant Banker. When a company issues shares or debentures to the public, the entire lifecycle is divided into two distinct operational phases: Pre-Issue Management (everything done before the issue opens for public bidding) and Post-Issue Management (everything done from the time bidding closes until shares are credited and traded on stock exchanges).

1. Overview of the Issue Management Lifecycle

┌────────────────────────────────────────────────────────────────────────┐
│                      ISSUE MANAGEMENT LIFECYCLE                        │
├───────────────────────────────────┬────────────────────────────────────┤
│ PRE-ISSUE MANAGEMENT              │ POST-ISSUE MANAGEMENT              │
│ (Preparation & Launch)            │ (Collection, Allotment & Listing)  │
├───────────────────────────────────┼────────────────────────────────────┤
│ • Due Diligence & Audits          │ • Bidding Closure & ASBA Collation │
│ • Drafting DRHP Offer Document    │ • Finalizing Issue Pricing         │
│ • SEBI Vetting & Exchange Approval│ • Determining Basis of Allotment   │
│ • Appointing Intermediaries       │ • Demat Credit & Fund Unblocking   │
│ • Marketing Roadshows & Pricing   │ • Listing & Trading Commencement   │
└───────────────────────────────────┴────────────────────────────────────┘

2. Phase 1: Pre-Issue Management Activities

Pre-issue management spans several months of preparation and regulatory compliance before the public sees the IPO advertisement.

1. Conducting Comprehensive Due Diligence

The lead merchant banker must independently verify every claim made by the promoters:

• Inspecting physical factory sites, machinery, and production capacities.
• Auditing legal contracts, land titles, pending court litigations, and tax liabilities.
• Verifying 3 to 5 years of audited financial statements, related-party transactions, and promoter shareholding.
• The Lead Manager must submit a formal Due Diligence Certificate to SEBI confirming that all disclosures are true, fair, and adequate.

2. Drafting the Offer Document (DRHP)

• The merchant banker prepares the Draft Red Herring Prospectus (DRHP).
• Contains company history, management background, capital structure, risk factors, objects of the issue (why funds are being raised), and audited balance sheets.
• The DRHP is filed with SEBI and placed on stock exchange websites for public review for at least 21 days.
• After addressing SEBI’s observations and public comments, the final Red Herring Prospectus (RHP) is filed with the Registrar of Companies (ROC).

3. Appointment of Intermediaries

The Lead Manager coordinates and formalizes agreements with necessary registered intermediaries:

• Underwriters: To guarantee subscription in case public demand is weak.
• Registrar to the Issue (RTA): To manage investor bid data, validate applications, and handle allotment (e.g., Link Intime, KFintech).
• Bankers to the Issue / Escrow Collection Banks: Commercial banks handling application escrow accounts.
• Advertising Agencies & PR Firms: To manage promotional media, press releases, and statutory statutory advertisements.

4. Pricing Strategy & Price Band Fixation

• The merchant banker works with company management to establish a valuation model (Discounted Cash Flow, P/E multiples of listed peer companies).
• Determines the Price Band (e.g., Floor Price: Rs. 850, Cap Price: Rs. 900) where the cap cannot exceed 120 percent of the floor price under SEBI rules.

5. Marketing, Roadshows & Anchor Investor Placement

• Organizes domestic and international Investor Roadshows where company founders present their growth strategy to institutional fund managers.
• One day before the public issue opens, shares are allocated to marquee Anchor Investors (large mutual funds, sovereign wealth funds) to anchor market confidence.

3. Phase 2: Post-Issue Management Activities

Once the 3-day public bidding window closes, post-issue management begins to ensure fast, fair, and transparent allotment.

1. Application Supported by Blocked Amount (ASBA)

• Under modern SEBI mandates, retail investors apply via ASBA using their bank accounts and UPI IDs.
• Key Advantage: Money is NOT debited immediately. The bid amount is simply blocked in the investor’s own bank account, continuing to earn savings interest until allotment is finalized.

2. Finalizing the Issue Price & Basis of Allotment

• The lead merchant banker and company analyze the book-building bid sheets.
• They determine the final Cut-off Price where the issue is fully subscribed.
• In consultation with the Designated Stock Exchange (NSE or BSE), the Registrar determines the Basis of Allotment:
  • If Under-Subscribed: Every valid applicant receives the full number of shares applied for (subject to achieving at least 90 percent minimum subscription).
  • If Over-Subscribed: Allotment in the retail category is conducted via a transparent computerized lottery draw overseen by exchange officials.

3. Demat Credit & Fund Unblocking

• The Registrar sends electronic instructions to depositories (NSDL and CDSL) to credit allocated shares directly into successful applicants’ Demat accounts.
• Sends electronic unblock instructions to banks to immediately release funds for unsuccessful or partially successful applicants.

4. Listing & Trading Commencement

• The merchant banker submits all final compliance documentation to the stock exchanges.
• Exchanges issue the official Trading Notice.
• Under SEBI’s accelerated timeline (T+3 listing mandate), the company rings the opening listing bell and shares begin trading publicly on NSE and BSE within 3 working days of the issue closing.

5. Filing Mandatory Post-Issue Reports with SEBI

• Lead managers must submit a 3-day post-issue monitoring report and a final 7-day post-issue report to SEBI confirming that 100 percent of allotment, unblocking, and grievance redressals have been completed satisfactorily.

4. Pre-Issue vs Post-Issue Management Summary

5. Summary for BBA Exams

• Pre-Issue Management: Due diligence certificate, drafting DRHP/RHP, SEBI vetting, price band determination, roadshows, and anchor placement.
• Post-Issue Management: ASBA collation, price discovery, basis of allotment via computerized lottery, Demat credit, fund unblocking, and exchange listing.
• Modern Timeline: Under SEBI norms, listing happens on the T+3rd business day after issue closure.
• ASBA: Investor funds stay safely blocked in their own bank accounts until allotment is decided.