11-12 midterm draft.docx

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Midterm Assignment:
Launching An IPO for US Expansion: Jagdambay Exports, India
Stacey Troup
Financial Principles and Management/ MBA-621
November 12, 2018
Professor Dr. Kenny Roberts
Touro University Worldwide

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Abstract
The desire for world domination is at the forefront of every business around the world.
For this mock case study in a real company, Jagdambay Imports, we will be examining factors of
the US and Indian marketplaces for financial services as well as the requirements and
expectations of taking a company public. The purpose of this paper will be to offer shares of the
company in order to raise funds to open a US office to help facilitate both production and
distribution through channels such as Amazon.com and US retail outlets.
Keywords: Capital Markets, Primary Markets, Secondary Markets, IPO,
Listing Requirements, Fees for Listing

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Jagdambay Exports: Global Expansion Goals Through IPO
Jagdambay Imports of India makes children’s clothing for export on a global scale. The
purpose of this mock paper is to present to the executives of the company, a proposal to go
public to help finance their global expansion desires and into the US markets through an IPO
offering of the company ownership. The paper will examine the finite points of American
Financial Markets while touching on some key concepts in the Indian Markets as it relates to the
IPO for the company. The review will wrap up with the suggestion on which market (US or
India) to offer the IPO in as well as what to expect based on comparable companies who have
done the same. Going public in this volatile macroeconomic environment may not be for
everyone, but at least for Jagdambay Imports, there are no restrictions or tariffs on what they
seek to do!
US Financial Markets and Jagdambay Imports
The US Financial Markets are built to welcome Jagdambay Imports to different
exchanges as they grow their capital, liquidity, and revenue targets over time. The various
components of financial markets and how they could help us attain our goals of a US expansion
include everything from bond markets, cash markets, over the counter markets, and others.
Bond markets are designed to assist Jagdambay with financing their goals while
accumulating debt through bond issuance and trading (inclusive of specific repayment dates)
(Types of Financial Markets, N.D.). One of the two components of a capital market, it is a
vehicle designed to help with short-term financing but some may find the principal repayment
terms to be too much for their liking, choosing to establish a sinking fund in order to help cover
this cost or choosing to abstain from this market altogether (Sinking Funds, N.D.) (Types of
Financial Markets, N.D.). The sinking fund will require money to be deposited into the fund

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(often referred to as an “emergency fund”) in order to help cover the “balloon” principal
payment that becomes due at the maturity (or call date) of the bond while still making yearly
payments on the profits to investors (Sinking Funds, N.D.). For this reason, the bond market is
not a favorable one to seek out due to the large bridge financing currently financed by
Jagdambay Imports which must first be repaid. Assuming bridge financing in 2017 and 2018
currently at 9.95 Crores (equal to 99.5M Rupees or $1,375,736.75 USD based on trade value of
currency 11/14/18) remains to be paid to date, the debt to assets ratio is still a bit high for a bond
market trade (Brick Work Ratings, 2018).
Specific stock markets within the capital markets offerings include such famous
exchange at the NYSE and NASDAQ. These New York-based exchanges are designed for more
stable, established firms who seek to trade portions of their equity (ownership) for cash influx
and valuation through investment by investors. However, the NYSE and NASDAQ markets,
both being primary markets, have significant capital requirements as well as liquidity measures
to be taken into consideration for listing to be approved (See AppendixA) (Cormick, 2018).
Regulation A allows for Jagdambay imports to go public with their minuscule sales and
valuation as a company while not having to meet the high guidelines of the major (or primary)
exchanges. This Regulation requires that companies who file for exemption under Reg A have
public offerings exceeding no more than $5M (USD) in any one year period (Regulation A,
N.D.). Using this Regulation, we would find our solution on the secondary markets such as the
NASDAQ Capital Markets exchange which requires a lower barrier to entry (only $750K sales
last year and last two years prior to asking for listing to qualify). (Wasserman, 2018). The
utilization of these US markets will provide a catalyst to our viable brand offering of children’s
clothing at reasonable prices to a currently overpriced, underserved market.

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While Regulation A also has two different tiers to its basis, which each tiers have
different caps to profits ($20M and $50M) before having to provide audited financials and other
documentation as part of the offering, we assert that this regulation and the secondary market are
the ones we will seek out in order to reach our expansion goals (Regulation A, N.D.). By
starting with the smaller exchanges, we can then move into another exchange should our global
reach find success in this market, by listing new shares once capital guidelines have been met
over time, on the major exchanges, bringing a valuation to our company we could have never
reached without the help of the secondary markets.
Physical Asset Markets
The physical assets contained within Jagdambay Imports are things such as their
equipment, machinery, and inventory, which may be used as an asset to back a loan. Physical
asset markets are those in which physical goods are traded (such as commodities) as well may be
qualified as retail stores, outlets such as Amazon, etc.
Jagdambay Imports has a brand that they believe can break into these physical markets in
order to find their success in the U.S. through outlets such as Amazon and other online giants
who will help the brand catapult their success on a more global market. In order to accomplish
this, strategic decisions need to be made for inexpensive build-out and staffing in order to bring
value to the host city as well as drive sales on the commercial (stock) market.
The expansion will also bring a new revenue stream and a brand awareness through these
alternative retail markets which were once not believed possible. With 64% of Americans using
Amazon Prime (Sixty Four Percent of US Households Have Amazon Prime, 2017) with an
immense presence for new companies launching baby products that meet the needs of consumers
(Weisul, 2014). The brand loyalty that will result from a successful physical asset market launch

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will drive our stock prices and company valuation in the secondary markets as we strive for
launch of additional share classes on the primary markets.
Money Markets Vs. Capital Markets
The difference in capital markets vs money markets is a simple idea to grasp. Money
markets are designed for short-term loans which need rapid repayment. Capital markets deal in a
more long-term structure and are designed for long-term investments. Capital markets
investments often include investments in or through hedge funds which have substantial
requirements for investment (Qualified Purchaser requirements) and include long-term lock-up
periods which prohibit withdrawal of funds before the lockup period reaches maturity (Zucchi,
CFA, 2018).
Whereby a money market may seem an ideal place for the goals of Jagdambay Imports at
first, the review of their outstanding, yearly loans (debt) make this type of loan incredibly
prohibitive to repayment and put us at higher risk for failure (to repay). Right now, the company
takes out a loan equal to their annual sales as a way to bridge their financial needs for asset
purchases and accounts receivables to come to fruition (Brick Work Ratings, 2018).
Cost of IPO
An IPO comes with its share of costs to Jagdambay Exports as with any other company
who wishes to gamble their privately held interest and control for the chance of great riches
through shared ownership/capital in the company. As a company, launching an IPO for
Jagdambay may delay our ability to launch slightly until the company is more liquid and does
not possess the line of bridge financing they seemingly take out each year.
The following is an outline of costs as dictated by a company famous for launching IPO’s
or representing companies as they seek to launch an IPO:

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 “Legal fee: $90k (partially paid upfront)
 Underwriter fee: 8% of the portion of capital they raise plus warrants and a lower fee for
the online capital raised of 2%
 Marketing costs: $50k-250k and up. Expect 2% to 6% of the capital raised online
(partially upfront)
 Underwriter fee: 30k-50k (upfront)
 Audit (going back 2 years) at on filing Reg A+, at US GAAP level, PCAOB level audit
required for post listing reporting periods.
 The annual fee on the NASDAQ is around $40,000, and $60,000 and above on the
NYSE.
 To list the company on the OTCQB marketplace, the cost of registration and ticker is
$2,500 paid to OTC Markets. Higher price for OTCQX - $20k. Note that most Reg A+
Tier 2 offerings that complete qualify to list on the OTCQB in a regular Reg A+ with
lower fees and the lighter reporting burden inherent to Reg A+, not S-1 level reporting
 The annual fee on the OTC costs $10,000 per year for the QB – paid to OTC Markets.
Higher price for OTCQX.
 DTCC Filing fee to make your stock easier to transfer to investor brokerage accounts,
$12k-18k” (How Much Does Regulation IPO Cost, N.D.)
In addition to the costs of going public under Reg A (or A+), there is a Segway to your
secondary IPO release which also comes with significant costs as well as waiting periods and the
increase (or raising) of capital to a significant degree. If Jagdambay finds success with the Reg
A+ IPO and the US markets welcome their products, it is not inconceivable that a major stock

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exchange listing could imminently follow. The steps to follow for a listing from the secondary
markets to the primary markets can be viewed in Appendix B.
Success Story for IPO in India
As we look to others who have similar businesses as ours as a matrix for how to go public
as well as how to maintain your stock valuation, we look to TCNS Clothing Company out of
India. TCNS is a clothing manufacturer specializing in stylish Hindi wearables for men and
women. While the company makes no children’s clothing and is listed on the Indian Stock
Exchange (NSE of India), they went public with a very limited line of clothing geared only
toward people of Indian descent. The differences between TCNS and Jagdambay Exports are
only in the styles and markets they serve. Both companies take advantage of the low cost of
manufacturing in India but only Jagdambay is seeking to expand into the US marketplace with
their children’s clothing (Amit Mudgill, 2018).
When TCNS went public in July of 2018 with an offering of 15,714,038 shares at
between 714 and 716 Rs per share ($10.01-$10.04 USD per share), which, if all sold, would have
brought the company a value of approximately $157,297520.38 USD (exchanged from Rs) at the
time of the IPO (Amit Mudgill, 2018).
This company had a solid backing and stable finances at the time of the IPO. Jagdambay
Exports, however, struggles with liquidity measures and should consider streamlining their
operations to a bare crew for a term in order to increase revenues and better manage their
financial position without having to take out expensive bridge loans.
With Jagdambay’s desire to expand into the US markets, if they are able to raise the
necessary capital to do so, should choose a low rent, low wage market in order to take the best
advantages of the tax incentives from governments who are attempting to corral foreign

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businesses to set up shop in the US market while taking advantage of positive tax implications
which help the businesses get stable footing while settling (Hobbs & Rathke, 2015).
TCNS has had their share of problems with valuation with a limited offering to only
Indian markets and consumers and currently (as of November 20, 2018) finds their stock valued
at less than the IPO price while holding at 704.05 Rs (approximately $9.95 USD) per share
(TCNS Clothing Stock Price, n.d.).
Transferrance of Capital – Investors and Borrowers
To properly understand the markets, the premise of Transferrance of Capital must be
addressed. There are people who seek to invest in companies and companies who seek to
borrow funds to help their growth.
There are three main ways that capital is transferred which include direct transfer,
investment banking house, financial intermediary (Three Primary Ways Money is Transferred
Between Lenders and Borrowers, N.D.).
The first of these examples, direct transfer, refers to such investments as rollover of a
401(k) from one qualifying plan to another. Additionally, any tax-deferred plan such as this
which rolls over into another does not come with the protection of professional advise of
investment but is managed by an administrator of the particular plan or self-directed, depending
on the choices one makes at the time of investment (The FInancial Markets - Direct and Indirect
Transfers, 2013). While these investments come with tax-free implications, they are often
undirected by an investment professional.
Investment banking houses often help with the transference of capital in many ways but
to a much smaller clientele. Through mergers and acquisitions, IPO stock offerings, stock sales,
alternative asset investments (hedge funds), and other vehicles available to qualified 3(c)(7)

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investors (minimum liquidity measures must be met for this distinction), they invest in more
structured investments in companies or funds that have a higher return, often levering the money
with their investors (in the alternative assets setting) or taking a percentage of stock as part of
their fee in the M&A setting. Firms benefit greater than the investor in these scenarios but all
investors who find success in these heavily due-diligence investment come with heavy guidance
from investment professionals due to the investments required (usually $5M or higher). Even
with the IPO or stock offerings from these intermediary clearinghouses, the firms still make
money even if your decision fails due to the fees they collect. These brokerage houses have the
ability to come with investment advice (a private broker) but are often run by salespeople who
make a profit regardless of stock performance, earning a percentage of the stock price as well as
a commission (The FInancial Markets - Direct and Indirect Transfers, 2013) (Zucchi, CFA,
2018). While these investments and the people who complete them come with higher rewards
and a fully guided advice of licensed investment professionals within investment banking, the
qualification for a 3(c)(7) investor require a liquidity of at least $5M (3C7, n.d.) where funds
qualifying as 3(c)(7) must showcase proof that no IPO will be offered and that the fund will stay
privately funded and invested through qualified purchasers Additionally these funds must have a
greater investment than $25 Million in order to be considered Qualified Purchasers under Section
2(a)(51) of the Investment Company Act while remaining 3(c)(7) compliant under Rule 144A of
the 133 Act (Cornelius, 2010) (Kristina Zucchi, 2018).
Financial intermediaries refer to investors or companies who utilize a “pooling” method
for greater investment strength and greater returns. While these intermediaries do not accept
deposits from the general public, however, they may be introduced through a professional
connection such as an attorney, tax advisor, or business manager in order to help facilitate

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investment needs and goals. These investments and investors are more considered “family
money” offices who make larger investments through an intermediary or assist with the
brokering of asset transfer through the 1031 Exchange. Consider them the investor equivalent of
your real estate agent when you sell or buy a house. They facilitate all the paperwork and
transfer the assets while holding the documentation and rights in kind while the transaction
finalizes the transference of ownership. This sounds more difficult than it really is. When you
sell a house, the agent helps with the legal paperwork, offers, and sale documentation for title
transfer. When the sale is done, you pay them a commission for their process and the title is
transferred to you as is the asset upon closure of the deal. The premise is systematically and
ideally the same for these financial markets except that they require a higher liquidy measure in
order to do business with them (Prince, 2018) (Kristina Zucchi, 2018).
While each of these capital transferrence methods bring different results, the only one
that Jagdambay Exports qualifies within is the IPO stock option under the secondary markets
offerings due to capital restrictions, company financial position, strength of company finances,
and overall health of the company. Capital requirements for the remaining offerings as listed
above are beyond the scope of Jagdambay Exports at this time but we may seek a secondary
listing or even a M&A offering once we find stable footing in the US Markets.
Securities – Over The Counter (OTC) Vs. Physical Exchanges
As discussed previously, the secondary market, which is a physical exchange with lower
requirements in terms of capital in order to be listed and is a physical exchange. In this type of
exchange, as with the primary markets such as NASDAQ or NYSE, shares of stock are
exchanged. Since the Exchanges are overseen by regulatory authorities, the traders who execute
these orders via orders taken by brokers from the brokerage houses and traders over the phones

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and computer orders are required to hold Series 7 Licenses (Stockbrokers License) in order to
properly trade in the ‘pits’ of the stock exchanges (Secondary Market Exchanges Vs OTC
Markets, n.d.).
The Over the Counter (OTC) market has really taken off in terms of investment
availability with the launching of online platforms from major trading firms which allow for
stock purchases to be done on small or large scales through an App in ones phone. OTC markets
are things like stocks which are purchased on the retail level (no volume purchase or prerequisite
investor status needed) in order to start trading. This is where ‘day traders’ spend a bulk of their
day, utilizing their own information and thoughts on the market to trade individual stocks on the
retail market. FOREX (the foreign exchange market) and the debt markets are debts with an
attached asset (such as bonds) and are traded with a similar lack of restrictions on the open
market (Secondary Market Exchanges Vs OTC Markets, n.d.).
Because of these market variations and the fact that we advise of doing a secondary
market IPO, the physical exchange market will better fit Jagdambay Exports and their goals
toward expansion while not incurring further debt through exchanges such as bond markets.
U.S. Financial System & Expectations for Jagdambay
The US Financial System is one made up of varying markets and options for both
investors and borrowers and when embraced with a strong corporate structure, provide a
platform for success for launching companies.
With the launch of a similar amount of shares as TCNS Clothing Company (15,714,038)
but with a lower IPO of $7.00 per share (USD), we would stand to raise $109,998,266 if all
shares were purchased. If even half of these shares sell, we would find the success we need to
pay off our debts, do a stock repurchase, grow our valuation, and build our US operations while

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strengthening our brand through companies like Amazon, Walmart, Target and other outlets. By
selling half of those shares (conservatively) between $5 and $7 per share, the company would
stand to make a profit of between $39,205,045 and $54,999,133 while selling 7,857,019 shares.
Through this expansion, we would be able to pay off our bridge financing while structuring a
plan for a US operations, which will further drive the price of our stock up as the profits of the
company continue to rise, bringing our liquidity and capital structure to a more positive “green”
to the benefit of company and investors alike.
Conclusion
By moving into the secondary markets over other markets for our offering to the public,
we can immediately launch our offering provided the fees are able to be paid for the IPO while
bringing a low-cost brand to the US markets amidst a thriving market for baby products in retail
sectors. The IPO would give us a financing model to expand into the US while repaying debts,
creating greater profits and liquidity measures, and driving our brand loyalty within the US while
the stock is sold. Beginning with a lower stock price may find better success and give us the
money we need for the move as will taking advantage of the tax advantages afforded to us
through these incentives.
As the US markets are a haven for new products in the baby category, and Jagdambay
keeps its costs low on manufacturing while expanding into markets such as Amazon, we will
further the company valuation, liquidity, and strength through vastly increased sales and brand
recognition with improved fill rate time to our customers through a US operations. Additionally,
through a partnership with Amazon, this will further our brand on a more global basis as
Amazon has offices all around the world that mirror the US markets site and could push
Jagdambay into a never before seen market or revenue stream beyond that of the US.

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Appendix A
Capital Requirements for IPO Listing

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Appendix B
Secondary Market to Primary Market IPO

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