The 10% Book-Building Reason

Bharti Tele-Ventures' initiative to launch an initial public offering entirely through book-building -- a route thus far unchartered by any Indian corporate- was based on its decision to offer equity equivalent to 10 per cent of its post-issue capital to investors.

The offer document submitted to the Securities and Exchange Board of India for its approval read, "As Bharti Tele-Ventures is proposing to make an issue of 10 per cent of its post-issue capital, this issue is being made through book building."

In the process, an allocation of 60 per cent of the issue will be made to qualified investment bodies (QIBs), as per Rule 19(2)(b) of the Securities Contacts (Regulations) Rules, 1957, the document said.

The company's IPO plan entirely via book building raised many eyebrows in the corporate circles. Many analysts were of the opinion that the company was "forced to go through book building as it did not meet the Sebi requirement for the general IPO mechanism."

It is also mentioned in the document that no initial public offering in any of the operating companies in which Bharti Tele-Ventures has controlling stake will happen in the next two years. However, this undertaking will not apply to Bharti Mobile.

Also, this undertaking will not apply to any company controlled by Bharti Tele-Ventures whose assets and operations are not related or connected to the telecommunications service business.

However, the company, in its offer document, said, "it made the track record criteria specified in clause 2.2.1 of the Sebi Guidelines." The document said that the company has:

* a pre-issue net worth of not less than Rs. 10 million in the immediately preceding two years and in a total of three years out of last five years;

* a track record of distributable profits in terms of Section 205 of the Companies Act for at least three out of the last five years; and

* the proposed issue size would not exceed five times the pre-issue net worth."

Bharti Tele-Ventures has decided to offer 185,336,700 equity shares of which QIBs will be allotted 111,202,020 shares. Non-institutional investors will be offered 27,800,505 shares, while 46,334,175 shares will be kept for the retail investors.

The net proceeds will be used for funding investment in the company's cellular, fixed-line and national long distance businesses, repayment of borrowing, making acquisitions of minority stakes in our subsidiaries and general corporate purposes including investing in our broadband business.