Professional Documents
Culture Documents
Primary Market
The primary market is the market for new issues/shares.
Primary market provides opportunity to issuers of securities;
Government as well as corporates, to raise resources to meet
their requirements of investment.
They may issue the securities at face value, or at a
discount/premium and these securities may take a variety of
forms such as equity, debt etc.
Company may issue the securities in domestic market and/or
international market.
Classification of Issues
Private Placement
Private Placement
Preferential Issue
Public Issue
Public issue means an invitation by a company
to the public to subscribe the
securities/shares
Cont
Entry Norm II :
Commonly known as QIB route.
Issue shall be through book building root.
At least 50% of the issue is mandatorily allotted
to QIB (qualified institutional investors).
Minimum post issue face value capital shall be
Rs. 10 crores.
Cont
Entry Norm III
Commonly known as Appraisal route.
The project is being appraised and participated to the
extent of 15% by FIs/Scheduled Commercial Banks of
which atleast 10% comes from appraiser.
Pricing of issues
Companies eligible to make public issue
can freely price their equity shares or any
security.
Fixed Price
Book Building
Fixed Price
In the fixed-price issue method, the issuer fixes
the issue price well before the actual issue.
For this very reason, it is cautious and
conservative in pricing the issue so that the
issue is fully subscribed.
Underwriters also do not like the issue to
devolve on them and hence favour conservative
pricing of the issue. For these practical reasons,
the issue price in the case of traditional fixed
price method generally errs on the lower side
and, therefore, in the investors favour.
Book building
Book building is a process by which demand
for the proposed issue is elicited and built
up and the price at which the securities will
be issued is determined on the bids
received.
The company first appoints one or more
merchant banker as book runner and their
names are disclosed in draft prospectus.
The lead book runner shall compulsorily
underwrite the issue .
Book building
Book-building is a process of price
discovery used in public offers. The issuer
sets a floor price and a band within which
the investor is allowed to bid for shares.
The upper price of the band can be a
maximum of 1.2 times the floor price.
The investor had to bid for a quantity of
shares he wished to subscribe to within
this band.
Book building
A public issue shall be kept open for at
least three working days but not more
than ten working days.
Only electronic bidding is permitted
Bidding demand is displayed at the end of
every day.
The lead manager analyses the demand
generated and determines the issue price
or cut-off price in consultation with the
issuer.
Cut-off price
The cut-off price is the price discovered by the
market. It is the price at which the shares are
issued to the investors.
Investors bidding at a price below the cut-off
price are ignored.
Book Building
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Rights Issue
Rights Issue is when a listed company which
proposes to issue fresh securities to its
existing shareholders (on pro-rata basis.)
Private placement
It involves issues of securities to a limited number of
subscribers, such as banks, FIs, MFs and high net worth
individual.
It is arranged through a merchant banker, an agent of
issuers, who brings together the issuers and investor(s).
Securities offered are exempt from public disclosers
regulations and registration requirements of the regulatory
body.
This market is preferred by small and medium size firms,
particularly new entrants who do not have track record of
performance.
Private Placement
A Private Placement is the direct sale of newly issued
securities, to a limited number of subscribers such as
banks,financial institutions,mutual funds and high net worth
individuals.
made
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3.
Public Issues
is
Preferential Issue
A Preferential issue is an issue of shares by listed companies
to a select group of persons which is neither a rights issue nor
a public issue.
The allotment is made to various STRATEGIC GROUPS
(promoters, foreign partners, technical collaborators)
This is a faster way for a company to raise equity capital.
SEBI Norms :
Lock in period for 3 years for promoters.
The amount utilised should be disclosed.
PRICE @ which share allotment should be done ?
Advantages :
Company prefer to allot shares to its promoters (to
pledge shares with banks and get cash)
Raising the commitment towards the company.