SESSION - 2 ISSUING OF EQUITY & TYPES

Prof. A.K. Mishra IIM Lucknow

20 February 2013

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20 February 2013

Options for Raising Funds

Fund Raising Options

Equity In India Debt Hybrid Equity

IPO/FPO/Rights/Bonus

SESSION 2

From Banks & FIs

Bonds /Deb
SESSION 3

Various forms of Convertibles

ADR/GDR ECB FCCB & FCEB

SESSION 4

Outside
India

Debt Hybrid

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KINDS OF ISSUES
GOVERNED BY DISCLOSURE & INVESTOR PROTECTION SEBI GUIDELINES

Issues

Public Issue

Right Issue

Bonus Issue

Private Placement
Preferential Issue QIPs

IPO Fresh Issue Offer for Sale

FPO Fresh Issue Offer for Sale

Deposit Receipt Public Issue

Sponsored Issue
INCLUDING RIGHTS

Composite Issue

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ISSUE MANAGEMENT
PROSPECTUS ISSUE
INITIAL ISSUE /PUBLIC ISSUE/ IPO NEW ISSUE OF UNLISTED COMPANY (SHARES OR DEBENTURES)
ANY FINANCIAL INSTRUMENT WITH DUE DISCLOSURE

NO MARKET PLACE FOR ISSUE OF NEW SECTS

WIDE PUBLICITY THROUGH MEDIA, DIRECT MAILING

OFFERED THROUGH PROSPECTUS OR OFFER DOCUMENT WHICH GIVES IMPORTANT DETAILS ABOUT THE ISSUE
OFFERING PRICE DETERMINED IN CONSULTATION WITH LEAD MANGER & UNDERWRITER ISSUE FORM WHICH IS TO BE FILLED BY SUBSCRIBER PERIOD OF SUBSCRIPTION: MIN 3 WORKING DAYS & NOT MORE THAN 10 WORKING DAYS
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Exemptions Bank or banking company set up under the Banking Regulation Act, 1949 Or Banking Companies Act, 1970 An infrastructure company:

Eligibility Criteria for Unlisted Companies - SEBI

Primary Criteria
Companies with track record Companies without track record 50% of the net offer to public being allotted to QIBs In case of project funding, 15% participation by FIs/ SCBs 10% of this from appraiser 10% of issue size to be allotted to QIBs
Min post-issue face value capital must be 10 Cr OR Compulsory mkt making for min 2 years from the date of listing of shares

Track record of 3 yr distributable profits Pre-issue net worth of not less than Rs. 1 Cr

Whose project has been appraised by a public financial institution (PFI)

Not less then 5% of the project cost is financed by any of the PFI Rights issue by a listed company 3-5

Net tangible assets of min Rs. 3 Crores

Prospective allottees in the IPO should not be less than 1000 in number

+
Min post-issue face value capital must be 10 Cr OR Compulsory mkt making for min 2 years from the date of listing of shares
Choice of Route: Book Building

Choice of Route: Fixed Price or Book Building

Choice of Route: Fixed Price or Book Building

20 February 2013

Eligibility Criteria For IPO Stock Exchange (BSE)

BSE Eligibility Criteria

Large Companies Minimum post-issue paid-up capital shall be Rs. 3 crore; and Minimum issue size shall be Rs. 10 crore; and Minimum market capitalization shall be Rs. 25 crore

Small Companies Minimum post-issue paid-up capital shall be Rs. 3 crore; and Minimum issue size shall be Rs. 3 crore; and Minimum market capitalization shall be Rs. 5 crore Minimum number of public shareholders after the issue shall be 1000 A due diligence study may be conducted by an independent team of CAs or Merchant Bankers appointed by BSE.
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Why IPO??
For Funding Needs For Non-funding Needs Enhancing Corporate Stature Retention and incentive for Employees through stock options Providing Investors exit options Provide liquidity to the shareholders

Funding Expansion & Diversification

Funding Acquisitions Funding Global Requirements Funding Joint Venture Funding Infrastructure Requirements, Financing Working Capital Funding General Corporate Purposes Investing in businesses through other companies Repaying debt to strengthen the Balance Sheet Meeting Issue Expenses

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IPO Process Fixed Price Issue

Decision to go for IPO

Management gets the approval of BOD

Funds transferred to issuer

Appointment of IB and legal counsel

Listing

Issuer

Due diligence

Allotment

Drafting of Draft Prospectus

SEBI GIVEN UP VETTING OF PROSPECTUS

Issue Closure

Filing with SEBI & Stock Exchanges Preparation / Approvals

Pre-Marketing

SEBI Clearance & ROC Filing of the Prospectus

Roadshows

Issue Open

Filing the Prospectus and Marketing

Launch & Completion

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IPO Process Book Built Issue

Decision to go for IPO

Management gets the approval of BOD

Funds transferred to issuer

Appointment of BRLM and legal counsel

Listing

Issuer

Due diligence

RoC filing of final Prospectus

Drafting of Draft Red Herring

SEBI GIVEN UP VETTING OF PROSPECTUS

Pricing & Allocation

Filing with SEBI & Stock Exchanges Preparation / Approvals

Pre-Marketing

SEBI Clearance & ROC Filing

Roadshows

Book building

Marketing and Estimation of Price Range

Launch & Completion

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Execution Process Timeline

Activity Preparation Phase Due Diligence Filing of Draft Document Sebi Observation Finalization & filing of offer Document Issue Period Post Issue Activities
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IPO Process - 23 weeks 2 weeks 4 - 5 weeks 1 week 4 - 8 weeks 2 - 3 weeks Min. 3 Days 2 - 3 weeks
COMPLEX PROCEDURE, EXPERTS ADVISE NEEDED

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Intermediaries Involved
Overall Pre & Post issue Management

Lead Managers CATEGORY 1

Domestic & International Legal Counsels Bankers
Self Certified Syndicate Bank (SCSB)

Conduct due diligence and finalize disclosure drafting Offer Document Ensure compliance protocol with SEBI / NSE / BSE Legal Due Diligence, Drafting the offer document Assistance in complying with requirement for selling in international geographies

Acting as collecting agents, Escrow Account & Refund account

Acting as collecting agents for ASBA (Application Supported by Block Amount) process Coordination with Issuer & Bankers for collections, reconciliation, refunds Securing allocation approval from Stock Exchanges

Registrars

Post issue co-ordination collation and reconciliation of information

Auditors Printers Advertisers 3-11 Auditing & preparing financials for inclusion in the Offer Document Verify/audit various financial and other data used in the Offer document and provide Comfort Letter Bulk printing of Red Herring Prospectus Bid Forms, final Prospectus etc. Ensure timely dispatch and distribution of stationery to all centers Creating advertisement materials and getting published all statutory notices as per norms
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Minimum Public Shareholding

Min 25% of the post issue paid up capital with the public (ie. other than promoter and promoter group) However, at least 10% can be offered if

Minimum offer size Rs. 100 crores

Issuance through book building with 60% QIB allocation

Continuous public shareholding needs to be maintained

Not applicable to government companies, infrastructure companies and companies referred to the Board for Industrial and Financial Reconstruction.
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Minimum Promoters Contribution and Lock-in

Promoters Contribution Minimum 20% of the post issue capital of the Company for unlisted companies; for listed companies, either to extent of 20% in issue or to ensure post issue holding of 20% For Promoters: Lock-in for a period of 3 years from the date of allotment Lock-in period Balance pre-issue capital, Must be locked-in for a period of 1 year from the date of allotment Shares issued last will be locked-in first

In case of public issue of securities by a company which has been listed on a stock exchange for at least 3 years and has a track record of dividend payment for at least 3 immediately preceding years.

Exemption

In case of companies where no identifiable promoter or promoter group exists.

In case of rights issues.
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 SEBI allows free pricing of IPO (Equity & Rights) Approval of RBI might be required for public issues by banks Differential pricing is permissible in a public issue to retail individual investors and retail individual shareholders Retail investors can be offered shares at a discount to the price offered to other investor categories (Max discount can be 10%) Price Band: The cap price can be 20% more than the floor price. Price band can be revised by 20% from the floor price. No Par Value Restriction: If the issue price is above Rs.500 then the issuer can fix the FV of shares below Rs.10 but a minimum of Rs.1.

Issue Pricing

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Disclosures in the Offer Document

Shareholding Pattern (pre-issue and post-issue) Capital Structure Securities Premium Account (pre-issue and post-issue) Holding of the promoter and promoter group Disclosure about ESOPs if any Total requirements of funds

Means of Financing
Objects of the Issue Undertaking by the issuer company confirming firm arrangements of finance through verifiable means towards 75% of the stated means of finance (excluding proposed IPO) Details about the appraisal of the project

Business

Interim use of funds Description about the Industry in which the Company operates
Detailed description about the business of the Company Risks related to the Company

Risk Factors Company Management 3-15

External Risk Factors Details about the Board of Directors and various committees
Details about key management persons
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Disclosures in the Offer Document (Contd)

Auditors Report to have five year restated financials for Issuer Company, and All Subsidiaries Audited financials presented should not be more than six months old at the time of filing DRHP with SEBI and must be updated to be not more than six months old on the date of filing the prospectus with the ROC All financials should be presented based on Indian GAAP

Financial Disclosures

MD&A

Detailed discussion on performance for the past 3 years Capital Expenditure Cash Flow and Liquidity

Litigations and Defaults

All pending litigations in which the Company/Promoters / Promoter Group / Directors / Group companies are involved. Both, litigations filed by or against the Company/Promoters / Promoter Group / Directors / Group companies Outstanding litigations, defaults, etc., pertaining to matters likely to affect operations and finances of the company. The pending proceedings initiated for economic offences against the directors, the promoters, companies and firms promoted by the promoters indicating their present status.
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 NSE, BSE, OTCEI and 20 other regional SEs

Listing and trading of shares governed by Securities Contracts Regulation Act (SCRA) and listing guidelines of SEs. IPOs have to be listed in order to be traded. Minimum paid up capital of Rs 10 crore for listing on BSE Min paid up capital Rs 100 cr + networth of Rs 25 crores on NSE Min paid up capital of Rs 5 crores on regional Stock Exchanges ALL NEW IPOs COMPULSORILY TRADED IN DEMAT FORM 20 February 2013
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Issue Listing

ISSUE MANAGEMENT
PROSPECTUS ISSUE

FURTHER ISSUE/COMPOSITE ISSUE Issue of securities by a listed company on a public cum rights basis offered through a single offer document wherein the allotment for both public and rights components of the issue is proposed to be made simultaneously;

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ISSUE MANAGEMENT
PROSPECTUS ISSUE RIGHT ISSUE/OFFER
ISSUE OF NEW SHARES TO EXISTING SHARE HOLDERS

TO BE OFFERED IN FIRST INSTANCE ON PRO RATA BASIS

(SEC 81, COMPYS ACT, 1956) GIVEN PRE EMPTIVE RIGHTS TO SUBSCRIBE TO NEW ISSUES ISSUED AT PAR OR REMIUM TO EXISTING SHARE PRICES OPEN FOR MIN 30 DAYS & NOT MORE THAN 60 DAYS Standby underwriting Underwriter agrees to buy any shares that are not purchased through the rights offering IF ISSUE NOT UNDERWRITTTEN & UNDERSUSCRIBED, MONEY TO BE REFUNED WITHIN 42 DAYS FORM DATE OF CLOSURE
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ISSUE MANAGEMENT
RIGHT SHARES
NON SHAREHOLDER CAN ALSO SUBSCRIBE IF EXISTING

HOLDER RENOUNCES RIGHTS IN HIS FAVOR

HOLDERS WITH SPECIAL RESOLUTION MAY FOREFEIT THIS RIGHT PARTIALLY OR FULLY

PROCEDURES :

OFFER LETTER WITH FOUR APPLICATION FORMS SENT FORM A - ACCEPTANCE OF RIGHTS & APP FOR ADDTL SHRS FORM B - TO RENOUNCE RIGHTS IN FAVOUR OF OTHERS FORM C - FOR APPLICANT IN WHOSE FAVOUR RENOUNCEMENT HAS BEEN DONE FORM D - TO MAKE A REQUEST FOR SPLIT FORMS ALL THE FORMS TO BE MAILED WITHIN 30 DAYS
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CONSEQUENCE OF RIGHT ISSUE - ABC CO.

PAID UP EQUITY CAPITAL (10,00,000 SHARES OF RS 10 EACH) RETAINED EARNINGS EBIT INTEREST PBT TAX (50%) PAT EPS M.P PER SHARE (ASUME P/E AS 8) PROPOSED RIGHT SHARES PROPOSED SUBSCRIPTION PRICE
NO. OF EXISTING SHARES REQD FOR A RIGHT SHARE (10,00,000 / 2,00,000) PERSON HOLDING 100 SHARE GETS 20 RIGHT SHARES
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ISSUE MANAGEMENT

100,00,000 200,00,000 120,00,000 20,00,000 100,00,000 50,00,000 50,00,000 RS 5 RS 40 2,00,000 RS 20

5 share

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ISSUE MANAGEMENT
VALUE OF A SHARE AFTER RIGHT ISSUE, EXPECTED TO VR = NP0 + S N+1 = 5 X 40 + 20 5+1 = RS 36.67

WERE N = NO. OF EXISTING SHARES REQD FOR RIGHT ISSUE P0 = CUM RIGHT MARKET PRICE PER SHARE S = SUBS PRICE AT WHICH RIGHT SHARES ARE ISSUED RATIONAL FOR EVERY N SHARES BEFORE RIGHT ISSUE, THERE WOULD BE N+1 SHARES AFTER THE RIGHT ISSUE MKT VALUE OF THESE N + 1 SHRS EXPECTED TO BE MKT VALUE OF N CUM RIGHT SHARES PLUS S THE SUBSCRIPTION PRICE

RIGHTS & SHAREHOLDERS WEALTH

NOT AFFECTED IF RIGHTS EXERCISED IN FULL BY SH HOLDERS
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ISSUE MANAGEMENT
RIGHTS & SHAREHOLDERS WEALTH
A HAS 100 EQ SH IN ABC CO.WITH MKT VALUE OF RS 40 EACH WILL BE GIVEN RIGHTS OF 20 SHARES @ RS 20 EACH HE EXERCISES HIS RIGHTS MV OF ORIGINAL SHARES (100 X 40) 4,000

ADDTL SUBS PRICE PAID (20 SH X RS 20)

TOTAL INVESTMET

400
4,400 4,400 0
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MV OF 120 SH @ 36.67 PER SHARE (PREV.SLIDE) AFTER RIGHTS SUBSCRIPTION (120x36.67)

CHANGE IN WEALTH (4400 - 4400)
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ISSUE MANAGEMENT
RIGHTS & SHAREHOLDERS WEALTH
HE SELLS HIS RIGHTS MV OF ORIGINAL SHARES (100 X 40) ADDTL SUBS PRICE PAID (20 SH X RS 20) VALUE REALISED BY SELLING 20 RIGHTS @ RS 36.67 PER SHARE NET VALUE REALISED MV OF 100 SH HELD AFTER RIGHT ISSUE @ 36.67 PER SHARE CHANGE IN WEALTH (3667 + 333 - 4000) 400 4,000

733 333

333

3,667
0
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ISSUE MANAGEMENT
RIGHTS & SHAREHOLDERS WEALTH
HE ALLOWS RIGHTS TO EXPIRE
MV OF ORIGINAL SHARES (100 X 40) MV OF 100 SH HELD AFTER RIGHT ISSUE @ 36.67 PER SHARE CHANGE IN WEALTH (3667 - 4000) 4,000 3,667 (333)

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ISSUE MANAGEMENT
VALUE OF RIGHTS WITHIN SPECIFIED DATE

VALUE OF RIGHT WHEN STOCK IS TRADING RIGHTS ON

R = Pr - S N+1

R = VALUE OF RIGHTS PR = MARKET VELUE OF SHARE TRADING RIGHTS ON S = STRIKE PRICE N = NUMBER OF RIGHTS TO PURCHASE ONE SHARE

CO X MAKES RIGHT OFFER WITH STRIKE PRICE OF RS 15 WITH 5 RIGHTS FOR 1 NEW SHARE. CURRENTLY SHARES HAVE MKT PRICE OF CUM RIGHTS OF RS 16.50. INITIAL VALUE OF EACH RIGHT WILL BE = 16.50 - 15/ 5 + 1 = 0.25 AFTER SPECIFIED DATE SHARE IS EX-RIGHTS SHARE PRICE DECREASES BY INITIAL VALUE OF RIGHTS THUS SHARE PRICE EX RIGHTS (Pe = Pr - R) = 16.50 - 0.25 = 16.25

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Rights Offering versus Public Offering

Advantages of Rights Offering With a low enough subscription price, the cost of IPO, underwriting can be eliminated. Firm can tap a market that already exists. Current shareholders can retain their present ownership proportion, no wealth transfer
Disadvantages of Rights Offering

More costly to complete than a public offering

Does not broaden the shareholder base

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ISSUE MANAGEMENT
PROSPECTUS ISSUE BONUS SHARES
TO EXISTING SHARE HOLDERS AS A RESULT OF CAPITALISATION OF RESERVES
DOES NOT RESULT INTO RAISING NEW FUNDS
PROFITS & RESERVES CONVERTED INTO ADDITIONAL SH CAP NO ADDITION IN LIABILITY IN B/S TAKES PLACE DISTRIBUTION DETERMIND IN PROPORTION TO EXISTING HOLDERS
Holder holding 100 shares when 10% (1:10) bonus issue made Receives 10 additional shares
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BONUS SHARES
A. Equity Portion Before Bonus Issue Paid up share capital

10,00,000 shares of Rs 10 each fully paid up

Reserves & surplus B. Equity Portion After Bonus Issue in Ratio of 1:1

10,000,000
30,000,000

Paid up share capital

20,00,000 shares of Rs 10 each fully paid up Reserves & surplus 20,000,000 20,000,000

In the wake of a bonus issue

The shareholders proportional ownership remains unchanged The book value, market price, E.P.S decreases.
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BONUS SHARES - REASONS

Tends to bring market price within more popular range

O/S shares increases helping in more active trading helping company to achieve reputation in eyes of investors
Nominal rate of dividend tends to decline. This may dispel the impression of profiteering. Shareholders regard a bonus issue as a firm indication that the prospects for the company are good & dividends may increase Improves prospects of raising additional funds
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BONUS SHARES - REGULATIONS

ISSUED IN ADDITION TO & NOT IN LIEU OF CASH DIVIDEND AOA TO ALLOW FOR CAPITALIZATION OF RESERVES CO NOT A DEFAULTER IN PAYMENT OF STATUTORY DUES

MADE OUT OF CAPITALISATION OF FREE RESERVE BUILT BY GENUINE

PROFIT OR SH PREM COLLECTED IN CASH Includes investment allowance reserve, Excludes capital reserve on account of asset revaluation

PARTLY MADE SHARES CONVERTED INTO FULLY PAID UP SHARES MADE WITH 6 MONTHS FROM DATE OF APPROVAL BONUS SAHRES ALSO TO BE GIVEN TO DEBENTURE HOLDERS IF THERE IS AN IMPENDING CONVERSION AFTER ISSUE IF SUBSCRBD & PAID UP CAPTL EXCEEDS AUTHORISED CAPITAL, RESOLUTION TO BE PASSED TO INCREASE AUTHORISED CAPITAL
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DETERMINING MAX BONUS RATIO Residual Reserve Test

Residual reserves (excluding revaluation reserves that cannot be capitalized) after proposed capitalization should be at least 40% of the post bonus share capital.

Yield Test
30% of the average amount of pre-tax profits of the company in the previous three years should yield a return of at least 10% on the increased capital.
RPT YIELD TEST were R
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= =

(R-SB) > = 0.4 (1 + B) S 0.3 (PBT) > = 0.1 S (1 + B)

= Reserves before bonus issue = Paid up Share capital before bonus issue = Bonus Ratio = Average PBT for last 3 years
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S B PBT

DETERMINING MAX BONUS RATIO

An Illustration: Consider a company for which the following data is available:
Paid up share capital (S) Reserves (R) Average PBT in the previous three years Using the equations: (R-SB) > = 0.4 (1 + B) S 150 100b>= 0.4 * 100 (1+b) 0.3 (PBT) > = 0.1 S (1 + B) 0.3 * 80 >= 0.1 * 100 (1+b) The above is reduced to 11/14 >= b and 14/10 >= b Since 11/14 >= b is more restrictive than 14/10 >= b we find that the maximum bonus share ratio is 11/14
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Rs. 100m Rs. 150m Rs. 80m

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ISSUE MANAGEMENT
BONUS ISSUE - COMPUTING MAX BONUS RATIO
12,00,000 EQ SHARES HAVE ALREADY BEEN ALLOTTED
THUS ENDING THE FINAL PAYMENT OF PLANT

INCLUDED IN 90,00,000 SHARES

PLANT WORTH 4 CR SHOWN ON ASSETS SIDE OF B/S

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ISSUE MANAGEMENT
BONUS ISSUE - COMPUTING MAX BONUS RATIO
OPPOSITE EFFECT ON LIABILITIES SIDE 12,00,000 SHARES ISSUED = 12,00,000 X 10 = 120,00,000 SHOWN IN PAID UP CAPITAL PREMIUM WHICH IS NOT COLLECTED IN CASH IS = COST OF PLANT FACE VALUE OF SHARES ISSUED TO VENDOR = 4 CR - 120,00,000 = 2,80,00,000
ACCRUES TO SH PREM A/C ON ACCOUNT OF THE NOTIONAL PREMIUM CHARGED TO SELLER OF BUILDING

TOTAL ON LIABILITIES SIDE

=4,00,00,000

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ISSUE MANAGEMENT
BONUS ISSUE - COMPUTING MAX BONUS RATIO
COST OF PLANT LESS FACE VALUE OF SHARES ISSUED TO VENOR = 4 CR - (12,00,000 X 10) = RS 2,80,00,000
THE ABOVE IS SHARE PREMIUM NOT COLLECTED IN CASH BUT SHOWN IN SH PREM A/C & THEREFORE EXCLUDED FROM BONUS ISSUE WHILE COMPUTING ELIGIBLE RESERVE

WE USE RESERVES COLLECTED IN CASH ONLY THUS SH PREM RESERVE AFTER 7,00,00,000 - 2,80,00,00 = 4,20,00,000 ADJUSTMENT =

4,20,00,000 IS ONLY ELIGIBLE SH PREMIUM RESEVE TO BE INCLUDED IN CAPITALISATION 20 February 2013

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ISSUE MANAGEMENT
BONUS ISSUE - COMPUTING MAX BONUS RATIO
PART B OF FCDs TO BE CONVERTED INTO EQUITY WITHIN 1 YEAR OF BONUS ISSUE HENCE ANY DECISION WILL AFFECT FCD HOLDERS CONVERSION OF PART B WILL RESULT IN ADDITIONAL SHARES OF 45,00,000 (I.E. 15 LAKH FCDs EACH CONVERTED INTO 3 EQUITY SHARES) WHICH ARE TO BE CONSIDERED

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ISSUE MANAGEMENT
BONUS ISSUE - COMPUTING MAX BONUS RATIO
RESERVES ELIGIBLE FOR CAPITALIZATION (RS CR) GENERAL RESERVES 17,00,00,000 SHARE PREMIUM 4,20,00,000 TOTAL RESERVES 21,20,00,000 SHARES ELIGIBLE FOR BONUS EQUITY SHARES SHARES ARISING FROM CONVERSION TOTAL 90,00,000 45,00,000 1,35,00,000

HENCE MAX PERMISSIBLE BONUS RATIO IS 21.20/13.5= 1.570 Assuming 100% Reserves Utilised
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ISSUE MANAGEMENT
BONUS ISSUE - COMPUTING MAX BONUS RATIO
TOTAL PAID UP CAPITAL EARLIER PAID UP CAPITAL GENERAL RESERVE CONVERTED SHARE PREMIUM CONVERTED PCD CONVERTED TOTAL

9 CR 17 CR 4.2 CR 4.5 CR 34.7 CR

AFTER BONUS & CONVERSION THE INCREASED CAPITAL IS 34.70 CR WHICH IS MORE THAN AUTHORISED CAPITAL OF 20 CR.
RESOLUTION TO BE PASSED TO INCREASE THE AUTHORISED CAPITAL
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ISSUE MANAGEMENT
THROUGH OFFER FOR SALE
A STATEMENT IN LIEU OF PROSPECTUS SHOULD BE FILED IN 3 DAYS BEFORE ALLOTMT

Co SELLS ENTIRE ISSUE TO ISSUE HOUSE AT AN AGREED PRICE (GENERALLY BELOW PAR VALUE)
SHARES RESOLD BY ISSUE HOUSE TO PUBLIC BODs AN EMERGING MECHANISM
CONVERT A FEE BASE ACTIVITY INTO FUND BASED ISSUE BOUGHT IN FULL OR IN LOTS MUTUAL AGREEMENT BETWEEN MERCHANT BANKER & CO.

SHARES HELD UNTIL READY FOR PUBLIC PARTICIPATION

OFF LOADED LATER IN MARKET BY RESELLING TO PUBLIC ELIMINATEST RETAILING, SAVES TIME & COST CHEAPEST & QUICKEST SOURCE OF FINANCE FOR Cos 20 February 2013
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Private Placements
Direct sale of securities to a limited number of institutional investors (Banks, FIs, Mutual Funds, High Networth Ind) Exempt from SEBI registration,

Dominated by institutions
Very active market for debt securities than equity

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Private Placements
Private Placement Public Issues

1.
2. 3.

Issues are offered to mature and 1. sophisticated institutional investors. No discloser requirements. Issues are not screened and this 2. increases the risk. 3.

Issues are primarily offered to retail investors.

Discloser requirement is there. All issues are screened.

Avoids lengthy and costly registration process

Private investors typically require tighter and more restrictive loan covenants. Investors typically higher yields. demand

Speed of placement
Minimizes disclosure of strategically sensitive information

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Can be tailored to meet the needs of borrowers and lenders

Easier to negotiate terms relative to a public offering

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The Securities Industry

Investment Banking Issuing Securities = Primary Market Institutional Investor Investment/ Private Wealth Management

The merchant banking activity in India is governed by SEBI (Merchant Bankers) Regulations, 1992. All merchants bankers have to be registered with SEBI. It provides all kinds of required services to the issuers for new issues.

THE SECONDARY MARKET

Rating Agencies Equity / Fixed Income Research 20 February 2013

Sales & Trading

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ISSUE MANAGEMENT
MIN APPLICATION (Rs 5000-7000) MIN SUBSCRIPTION (90%) OPTIONAL UNDERWRITING COMPLIANCE REPORT (WITHIN 45 Days of closure) PROPORTIONATE ALLOTMENT (WITHIN 10 weeks of closure)

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