Professional Documents
Culture Documents
• Tender/book building
• Offer for sale
• Placement/Private placement
• Rights issue
PUBLIC ISSUE THROUGH PROSPECTUS
• Corporate enterprise raise capital through
issue of securities by means of prospectus
PRIMARY MARKET
amount of prestige.
As long as there is market demand, a public company can
always issue more stock. Thus, mergers and acquisitions
are easier to do because stock can be issued as part of the
deal.
Disadvantage
It is a highly expensive method
In view of high cost involved in raising capital, it is suitable
for large issues and not for small issues
PROSPECTUS
DEFINITION
• Any document described or issued as prospectus
PRIMARY MARKET
• Three parts
o Part 1 (General information)
o Part 2 (Detailed information)
o Part 3 (Explanation of certain terms and
expressions used under Part – I and Part – II)
PROSPECTUS
Part – I (General information)
1. General information
PRIMARY MARKET
made
c) Declaration about refund of issue if minimum subscription of 90%
is not received within 120 days from the closure of the issue
d) Declaration about the issue of allotment letter/refunds within
period of 10 weeks and interest in case of default at the
prescribed rate given in S-73
e) Dates of opening and closing of the issue
f) Names and addresses of auditors and lead managers
g) Rating from CRISIL and any rating agency
h) Names and addresses of the underwriters and the amount
underwritten by them
PROSPECTUS
CAPITAL STRUCTURS OF THE COMPANY
a) Authorised, issued, subscribed and paid-up capital
PRIMARY MARKET
GENERAL INFORMATION
a) Consent of directors, auditors, solicitors, managers
to the issue, Registrar to the issue, bankers of the
company and experts
b) Change, if any, in directors and auditors, during the
last 3 years and reasons therefor
c) Procedure and time schedule for allotment and
issue of certification
PROSPECTUS
GENERAL INFORMATION
d) Names and addresses of Company Secretary, ,
Legal Adviser, Lead Manager, Co-manager,
PRIMARY MARKET
Firm allotment
Offer to public
Price band
Floor and cap prices
Composite issue and justification
issue capital
For listed company: 20% of the proposed
issue capital or to ensure shareholding to
the extent of20% of the post-issue capital
For composite issues: At the option of the
promoters, the contribution would be
either 20% of the proposed public issue
capital or 20% of the post-issue capital
excluding the rights issue component
A FEW PRIMARY MARKET TERMS
• Exemption from Promoters’ contribution
Public issue by a company listed on a
PRIMARY MARKET
10. The public portion opens and the allotment and listing
of this portion is done. The price determined in the book
building process is applicable to the public portion.
11. In case the public portion stands oversubscribed, then
the allotment is made on a proportionate basis. In case,
the public portion remains undersubscribed, the
shortfall is distributed amongst those who have opted
for placement. In case the placement portion is
undersubscribed, the size of the public issue is
enhanced.
Thus the book building enables issuers to reap benefits
arising from price and demand discovery.
A FEW PRIMARY MARKET TERMS
INITIAL PUBLIC OFFERING (IPO)
• The first sale of stock by a private company to the
PRIMARY MARKET
UNDERWRITING
• New issues are usually brought to market by an
underwriting syndicate in which each firm takes
the responsibility (and risk) of selling their specific
allotment. The process by which investment
bankers raise investment capital from investors
on behalf of corporations and governments that
are issuing securities (both equity and debt).
• The process of issuing insurance policies.
A FEW PRIMARY MARKET TERMS
NEGOTIATED UNDERWRITING
• A process in which both the purchase price
PRIMARY MARKET
BOOK BUILDING
• It is a mechanism through which an offer
price for IPOs based on investor’s demand is
determined.
• It is basically an auction of shares.
A FEW PRIMARY MARKET TERMS
PLACEMENT PORTION
• It is the portion of the issue offered to the public
PRIMARY MARKET
PUBLIC PORTION
• It refers to the offer to the public. By and large, it
is responded to by retail offering. The price
arrived at in the book building method is
applicable to the public offer.
FINANCIAL SECURITY
A Security is a certificate that represents
a claim on the issuer.
Money market securities
– Maturity less than a year
– High degree of liquidity
– Low expected return but also a low degree of
risk
Capital market securities
Capital market securities
Bonds/Debentures and Mortgages
– Bonds/debentures are long-term debt obligations issued by
corporations and government agencies to support operation, whereas
mortgages are long-term debt obligations created to finance the
purchase of real estate.
– If investors does not want to hold it, or requires money, debt securities
can be sold in the secondary market
– Provide a return to investor in the form of interest income at a given rate
and periodicity. At maturity, investors are paid the principal amount
– Expected return is higher than money market securities, but has more
risk as well.
Stocks
– They are certificates representing partial ownership in the corporations
that issued them
– It has no maturity so they are classified as capital market securities.
– Some co. provide income to the stockholders by distributing a portion
of their earnings, while may retain and reinvest all or part of their
earnings for subsequent expansion or growth.
– Investors can earn a capital gain from selling the stocks for a higher
price than they paid for it, if co is doing well. Alternatively, they lose if
co is not well.
– Exhibit higher degree of risk
Capital market securities
Sweat Equity
– Equity shares allotted to certain employees
of a company either on discount or for
consideration other than cash, as a reward
for providing know-how or sharing
intellectual rights or some other value
addition to the company.