1. Capital structureThe main problem of the capital structure is how to raise the capital. The structure of varioussources of capital is called „Capital Structure‟. The capital structure of a company may consistof equity shares only, or of equity shares and preference shares both, or of equity shares,preference shares and debentures too etc. it may be simple or may be complex. The debts in thecapital structure impose fixed burden of interest on the company while equity in the capitalstructure does not involve such burden of payment.Meaning of Capital Structure:simply saying, it‟s the „composition of capital‟. Also we can say that “Capital structure of acompany refers to the make up of its capitalization”.The ratio of equity shares to the total of preference shares and debt is called „Capital Gearing.‟ Ifthe ratio of preference shares and debt is high, the capital structure is said to be highly geared. Ifthe ratio of equity shares is high, the capital structure is said to be low geared. Future VentureIncorporated in 1996, Future Ventures India Ltd is part of Future Group (led by Kishore Biyaniand owners of Future Bazaar, Pantaloons, Central, Big Bazaar, Food Bazaar, Home Town and E-zone).Future ventures India Ltd is in the business of creating, building, acquiring, investing in andoperating innovative and emerging businesses in consumption-led sectors in India. Within theconsumption-led sectors, Future ventures has primary focus on opportunities in the businesssegments of Fashion, FMCG, Food Processing, Home Products, Rural Distribution andVocational Education.As of date, company has 13 Business Ventures, six of which are its subsidiaries. Companybelieves in applying a disciplined investment approach and building strong partnerships withmanagement and promoters. Company Promoters:The Promoters of the company are:Individual Promoter: Kishore Biyani
2. Corporate Promoters:1. Future Capital Investment Private Limited;2. Future Corporate Resources Limited (erstwhile PFH Entertainment Limited);3. Future Knowledge Services Limited;4. Pantaloon Industries Limited; and5. Pantaloon Retail (India) Limited. CAPITAL STRUCTURE BEFORE AN IPOThe share capital of the Company as at the date of the Red Herring Prospectus is set forth below: (In Rs., except share data) Aggregate Value at Aggregate Face value Value at Issue PriceA) AUTHORISED SHARE CAPITAL 5,00,00,00,000 Equity Shares of ` 10 each 50,00,00,00,000B) ISSUED, SUBSCRIBED AND PAID UP EQUITY SHARE CAPITAL BEFORE THE ISSUE 82,62,43,700 Equity Shares of ` 10 each 8,26,24,37,000C) PRESENT ISSUE IN TERMS OF THIS RED HERRING PROSPECTUS [●] Equity Shares of face value of ` 10 each [●] [●]D) ISSUED, SUBSCRIBED AND PAID UP EQUITY SHARE CAPITAL AFTER THE ISSUE [●] Equity Shares of ` 10 each fully paid up shares [●] [●]E) SHARE PREMIUM ACCOUNT Before the Issue Nil After the Issue [●] Changes in Authorized Share Capital
3. The initial authorized share capital of ` 1,00,00,000 divided into 10,00,000 Equity Shares was increased to 5,00,00,000 divided into 50,00,000 Equity Shares pursuant to the resolution of the shareholders dated August 10, 2007. The authorized share capital of the Company was further increased from 5,00,00,000 divided into 50,00,000 Equity Shares to ` 30,00,00,00,000 divided into 3,00,00,00,000 Equity Shares through a resolution passed by the members of the Company at the EGM held on October 11, 2007. The authorized share capital of the Company was further increased from 30,00,00,00,000 divided into 3,00,00,00,000 Equity Shares to 50,00,00,00,000 divided into 5,00,00,00,000 Equity Shares through a resolution passed by the members of the Company at the EGM held on February 5, 2008. Notes to Capital Structure Share Capital History(a) The following is the history of the equity share capital and securities premium account of theCompany:Date of No. of Face Issu Nature Cumulative Cumulative Cumulati Nature ofallotmen Equity Valu e of no. of Paid-up ve Allotmentt Shares e Pric Consider Equity Equity share Shareof the Allotted (`) e ation Shares capital (`) PremiumEquity (`) (`)SharesAugust 700 10 10 cash 700 7000 Nil Issue of9,1996 shares on subscription to Memorandu m and Articles of AssociationNovemb 58000 10 10 Cash 58700 587000 Nil Preferentialer allotment16, 1996Decemb 10000 10 10 Cash 68700 687000 Nil Preferentialer allotment5, 1996June 25, 183000 10 10 Cash 251700 2517000 Nil Preferential1997 allotmentSeptemb 72000 10 10 Cash 323700 3237000 Nil Preferentialer allotment23, 1997Septemb 22000 10 10 Cash 345700 3457000 Nil Preferentialer allotment25, 1997Februar (52000) 10 - - 293700 2937000 Nil -y26, 2002October 4706300 10 10 Cash 5000000 50000000 Nil Preferential
4. 11, 2007 allotmentNovemb 222043700 10 10 Cash 227043700 2270437000 Nil Preferentialer allotment28, 2007January 36800000 10 10 Cash 263843700 2638437000 Nil Preferential28, 2008 allotmentMarch 100000000 10 10 Cash 363843700 3638437000 Nil Preferential28, allotment2008July 23, 5000000 10 10 Cash 368843700 3688437000 Nil Preferential2008 allotmentJanuary 162400000 10 10 Cash 531243700 5312437000 Nil Preferential30, 2010 allotmentMarch 45000000 10 10 Cash 576243700 5762437000 Nil Preferential4, allotment2010May 29, 100000000 10 10 Cash 676243700 6762437000 Nil Preferential2010 allotmentAugust 150000000 10 10 Cash 826243700 8262437000 Nil Preferential6, allotment2010 History of the Equity Share Capital held by the Promoters(a) Details of the build up of the Promoter’s shareholding in the Company:Date of No. of Equity Cumulative Face Total Issue / Nature of Nature ofAllotment Shares No. of Value Acquisition Consideration Transaction/ Issued/Transferred Equity (`) Price (`)Transfer SharesFuture Capital Investment Private LimitedJanuary 18,00,000 18,00,000 10 1,80,00,000 Cash Preferential28, allotment2008May 29, 10,00,00,000 10,18,00,000 10 100,00,00,000 Cash Preferential2010 allotmentFuture Corporate Resources LimitedJanuary 1,94,00,000 1,94,00,000 10 19,40,00,000 Cash Preferential30, allotment2010March 4, 4,50,00,000 6,44,00,000 10 45,00,00,000 Cash Preferential2010 allotmentMarch 11, 36,45,000 6,80,45,000 10 3,64,50,000 Cash Purchase2010Future Knowledge Services LimitedAugust 6, 2,77,93,700 2,77,93,700 10 28,08,00,000 Cash Purchase2010PIL Industries Limited (formerly known as Pantaloon Industries Limited)January 12,20,00,000 12,20,00,000 10 122,00,00,000 Cash Preferential30, allotment
5. 2010Pantaloon Retail (India) LimitedAugust 6, 15,00,00,000 15,00,00,000 10 1,50,00,00,000 Cash Preferential2010 allotmentKishore BiyaniN.A. Nil Nil N.A. N.A. N.A. N.A.Details of Promoters’ contribution and Lock-in:The Promoters shall contribute Equity Shares in the Issue constituting not less than 20% of thepost-Issue capital, which shall be locked in for a period commencing from the date of Allotmentin the Issue and shall remain locked-in for a period of (i) three years thereafter, or (ii) three yearsfrom the date of complete utilization of the Net Proceeds, or (iii) three years from the date whenthe Net Proceeds or any part thereof are distributed to the shareholders of the Company in themanner indicated in the section entitled “Objects of the Issue” beginning on page 82, whicheveris later. The requirement regarding lock-in of the Equity Shares for the period of three years fromthe date of commencement of commercial production shall not be applicable as the Company isnot a manufacturing company. The Equity Shares constituting Promoters‟ contribution shall beeligible therefor in terms of the SEBI Regulations.As of the date of this Red Herring Prospectus, the Promoters hold 46,96,38,700 Equity Shareswhich constitutes 57% of the pre-Issue paid-up equity share capital of the Company. Out of theaggregate shareholding of the Promoters of 46,96,38,700 Equity Shares, the Promoters haveacquired 46,78,38,700 Equity Shares during the one year preceding the date of the Draft RedHerring Prospectus at a price which may be lower than the Issue Price of which 43,64,00,000Equity Shares (the “Available Contribution Shares”) are available to be contributed towardsminimum Promoters‟ contribution.The Promoters shall provide the difference between (a) the acquisition price of Equity Shares tobe contributed towards minimum Promoters‟ contribution from the Available ContributionShares and (b) the Cap Price, for an amount aggregating ` [●] lakhs. The said amount will bebrought into an escrow account at least one day prior to the Bid/Issue Opening Date and will beutilized in accordance with the SEBI Regulations if the conditions specified in Regulation33(1)(b) of the SEBI Regulations are not complied with. In the event that the Issue Price is lowerthan the Cap Price, the difference between the Issue Price and the Cap Price lying to the credit ofthe escrow account will be refunded to the Promoters. The Company undertakes that the EquityShares constituting minimum Promoters‟ contribution in the Issue, which shall be locked-in forthree years, shall be eligible for minimum Promoters‟ contribution in terms of the SEBIRegulations.The details of the Equity Shares, which shall be locked-in for a period commencing from thedate of Allotment in the Issue and shall remain locked-in for a period of (i) three years thereafter,or (ii) three years from the date of complete utilization of the Net Proceeds, or (iii) three yearsfrom the date when the Net Proceeds or any part thereof are distributed to the shareholders of theCompany.
6. The minimum Promoters contribution has been brought to the extent of not less than thespecified minimum lot and from the persons defined as Promoters under the SEBI Regulations.The Promoters contribution constituting not less than 20% post-Issue paid-up equity share capitalshall be locked-in for a period commencing from the date of Allotment in the Issue and shallremain locked-in for a period of (i) three years thereafter, or (ii) three years from the date ofcomplete utilization of the Net Proceeds, or (iii) three years from the date when the Net Proceedsor any part thereof are distributed to the shareholders of the Company in the manner indicated inthe section entitled “Objects of the Issue” beginning on page 82, whichever is later. Details of pre-Issue Equity Share capital locked in for one year:In addition to the 20% of the post-Issue equity shareholding of the Company held by thePromoters and locked in for three years as specified above, the entire pre-Issue equity sharecapital will be locked-in for a period of one year from the date of Allotment. Other requirements in respect of lock-in:The Equity Shares held by the Promoters may be transferred to and amongst the Promoter Groupor to a new promoter or persons in control of the Company, subject to continuation of the lock-inin the hands of the transferees for the remaining period and compliance with the SEBI TakeoverRegulations as applicable.The Equity Shares held by person other than the Promoters prior to the Issue may be transferredto any other person holding Equity Shares which are locked-in along with the Equity Sharesproposed to be transferred, subject to continuation of the lock-in in the hands of the transfereesfor the remaining period and compliance with the SEBI Takeover Regulations, as applicable.The Equity Shares held by the Promoters which are locked-in for a period of three years from thedate of Allotment in the Issue can be pledged with any scheduled commercial bank or publicfinancial institution as collateral security for loans granted by such banks or institution, providedthat the pledge of Equity Shares can be created when the loan has been granted by such bank orfinancial institution for financing one or more of the objects of the Issue and pledge of EquityShares is one of the terms of sanction of the loan.The Equity Shares held by the Promoters which are locked-in for a period of one year from thedate of Allotment in the Issue can be pledged with any scheduled commercial bank or publicfinancial institution as collateral security for loans granted by such bank or financial institution,provided that the pledge of the Equity Shares is one of the terms of sanction of the loan. The shareholding pattern of the CompanyThe table below presents the shareholding pattern of the Company as on the date of filing thisRed Herring Prospectus: Category of No. of Total No. of Total No. of Total Shareholding as Shares pledged or Shareholder Shareholde Shares Shares held in a % of total No. of otherwise encumbered rs Dematerialized Shares Form
9. The special resolution passed by the Company at its AGM dated August 10, 2010 approved thegrant of up to 5,00,00,000 equity shares (including up to 1,00,00,000 equity shares in aggregatefor non-executive directors including independent directors on the Board) of face value of Rs. 10each. As per the resolution, the maximum number of stock options under the ESOP Scheme toany employee in any financial year shall not exceed 1% of the paid-up equity share capital of theCompany. Out of that options were granted for 1,32,80,000 INITIAL PUBLIC OFFERING Objects of the issue:The objects of the issue are:1. To create, build, invest in or acquire, and operate business ventures2. For general corporate purposes3. To meet the issue expenses and achieve the benefits of listing on the stock exchanges. Issue details: Issue open : Apr 25, 2011 – Apr 28, 2011 Issue type : 100% Book Built issue IPO Issue size : 75,00,00,000 Equity shares of Rs. 10 Face value : Rs. 10 per Equity share Issue price : Rs. 10 – Rs. 11 per equity share Market lot : 600 shares Minimum order quantity : 600 shares Listing at : BSE, NSE Book Building Number of Times Issue is Subscribed (BSE + NSE) As on Date & Time Qualified Non Retail Total Institutional Institutional Individual Buyers Investors Investors (QIBs) (NIIs) (RIIs) Shares Offered / Reserved 375,000,000 112,500,000 262,500,000 750,000,000Day 1 - Apr 25, 2011 17:00 IST 0.1800 1.2100 0.0200 0.2800Day 2 - Apr 26, 2011 17:00 IST 0.1800 3.4800 0.0500 0.6300Day 3 - Apr 27, 2011 17:00 IST 0.2600 5.1300 0.1600 0.9500Day 4 - Apr 28, 2011 18:15 IST 0.2600 7.8100 0.6100 1.5200
10. BASIS OF ALLOTMENTPublic issue of 75,00,00,000 equity shares of rs.10 each ("equity shares") of future ventures Indialimited (the "company" or the "issuer") for cash at a price of rs.10 per equity share aggregatingup to rs.75,000 lacs (the "issue"). The issue constitutes 47.58% of the post issue paid-up capitalof the company.The face value of the equity shares is rs.10 each. The issue price of the equity share is rs.10 eachand is 1 time the face value.Issue opened on April 25, 2011. Issue closed on April 27, 2011 for QIB bidders and on April 28,2011 for retail and non institutional bidders.This is an issue for more than 25% of the post-Issue capital in accordance with Rule 19(2)(b)(i)of the Securities Contracts Regulations Rules, 1957 ("SCRR"). The Issue is being made throughthe Book Building Process wherein not more than 50% of the Issue shall be allocated on aproportionate basis to Qualified Institutional Buyers ("QIB") Bidders. 5% of the QIB Portionshall be available for allocation on a proportionate basis to Mutual Funds only, and the remainderof the QIB Portion shall be available for allocation on a proportionate basis to all QIB Bidders,including Mutual Funds, subject to valid Bids being received at or above the Issue Price. Further,not less than 15% of the Issue shall be available for allocation on a proportionate basis to Non-Institutional Bidders and not less than 35% of the Issue shall be available for allocation on aproportionate basis to Retail Individual Bidders, subject to valid Bids being received at or abovethe Issue Price.The Issue received 35,165 applications for 1,106,504,400 Equity Shares resultingin 1.4753 times subscription. The details of the applications received in the Issue from QualifiedInstitutional Buyers, Non-Institutional, Retail Individual Investor and Anchor Investors are asunder: (Before technical rejections) Category No. of Applications No. of Shares No. of times subscriptionA Retail Individual Bidders 35087 143559600 0.5469B Non Institutional Bidders 69 865543200 7.6937C Qualified Institutional Bidders 9 97401600 0.2597 Total 35165 1106504400
11. Final DemandBid Price No. of Equity Shares % to Total Cumulative Total Cumulative % to total 10 111,149,400 9.653 111,149,400 9.653 11 898,806,600 78.061 1,009,956,000 87.714CUTOFF 141,462,000 12.286 1,151,418,000 100.000TOTAL 1,151,418,000 100.000 Allocation to Retail Individual Investors (After Technical Rejections) The Basis of Allocation to the Retail Individual Investors, who have bid at cut-off or at the Issue Price of Rs. 10 per Equity Share, was finalized in consultation with the BSE. This category has been under subscribed to the extent of 0.5414 times. The total number of shares allotted in Retail Individual Investor category is 142,114,200 Equity Shares to 34,693 successful applicants. The under subscribed portion of 120,385,800 Equity Shares have been spilled over to Non-Institutional Bidders. The category-wise details of the Basis of Allotment are (sample) as under:Category No. of % to Total No. of % to No. of Ratio Total No. of Applns. total Equity Shares total Equity Shares Equity Shares applied allocated allocated 600 12,294 35.44 7,376,400 5.19 600 1:1 7,376,400 1200 6,675 19.24 8,010,000 5.64 1,200 1:1 8,010,000 1800 2,825 8.14 5,085,000 3.58 1,800 1:1 5,085,000 2400 1,716 4.95 4,118,400 2.9 2,400 1:1 4,118,400 3000 1,491 4.3 4,473,000 3.15 3,000 1:1 4,473,000 3600 464 1.34 1,670,400 1.18 3,600 1:1 1,670,400 4200 715 2.06 3,003,000 2.11 4,200 1:1 3,003,000 5400 218 0.63 1,177,200 0.83 5,400 1:1 1,177,200 6000 755 2.18 4,530,000 3.19 6,000 1:1 4,530,000 7200 100 0.29 720,000 0.51 7,200 1:1 720,000 7800 70 0.2 546,000 0.38 7,800 1:1 546,000 9600 139 0.4 1,334,400 0.94 9,600 1:1 1,334,400 10200 61 0.18 622,200 0.44 10,200 1:1 622,200 14400 6 0.02 86,400 0.06 14,400 1:1 86,400 15000 41 0.12 615,000 0.43 15,000 1:1 615,000 15600 9 0.03 140,400 0.1 15,600 1:1 140,400 16200 12 0.03 194,400 0.14 16,200 1:1 194,400 16800 12 0.03 201,600 0.14 16,800 1:1 201,600 19200 2 0.01 38,400 0.03 19,200 1:1 38,400 19800 55 0.16 1,089,000 0.77 19,800 1:1 1,089,000 Allocation to Non Institutional Investors (After Technical Rejections)
12. The Basis of Allocation to the Non-Institutional Investors, who have bid at the Issue Price of Rs.10 per Equity Share, was finalized in consultation with BSE. This category has been over-subscribed to the extent of 1.3798times. The total number of Equity Shares allotted in thiscategory is 510,484,200 Equity Shares to 64 successful applicants. As per the Red HerringProspectus, the spill over portion from Retail Category (120,385,800 Equity Shares) and QIBCategory (277,598,400 Equity Shares) added to this category and were allotted Equity Shareson proportionate basis. The category-wise details of the Basis of Allotment are (Sample) under:Category No. of % to Total No. of % to No. of Ratio Total No. of Applns. total Equity Shares total Equity Shares Equity Shares applied allocated allocated 18600 3 4.69 55,800 0.01 13,480 1:1 40,440 19200 1 1.56 19,200 0 13,915 1:1 13,915 19800 1 1.56 19,800 0 14,350 1:1 14,350 21000 1 1.56 21,000 0 15,220 1:1 15,220 36000 1 1.56 36,000 0.01 26,091 1:1 26,091 72000 2 3.13 144,000 0.02 52,181 1:1 104,362 90000 2 3.13 180,000 0.03 65,227 1:1 130,454 100200 1 1.56 100,200 0.01 72,619 1:1 72,619 117600 1 1.56 117,600 0.02 85,230 1:1 85,230 181800 2 3.13 363,600 0.05 131,758 1:1 263,516 225000 1 1.56 225,000 0.03 163,067 1:1 163,067 300000 1 1.56 300,000 0.04 217,423 1:1 217,423 600000 1 1.56 600,000 0.09 434,845 1:1 434,845 909000 2 3.13 1,818,000 0.26 658,791 1:1 1,317,582 4317600 1 1.56 4,317,600 0.61 3,129,145 1:1 3,129,145 9090600 1 1.56 9,090,600 1.29 6,588,338 1:1 6,588,33845454200 1 1.56 45,454,200 6.45 32,942,558 1:1 32,942,55879920000 1 1.56 79,920,000 11.35 57,921,364 1:1 57,921,36486363400 1 1.56 86,363,400 12.26 62,591,165 1:1 62,591,16591809600 2 3.13 183,619,200 26.07 66,538,254 1:1 133,076,508 Allocation to QIBsAllocation to QIBs has been done on a proportionate basis in consultation with the BSE. As perthe SEBI Regulations, Mutual Funds and other QIBs were allocated the availableshares (97,401,600 Equity Shares) on proportionate basis. The under subscribed portionof 277,598,400 Equity Shares have been spilled over to Non-Institutional Bidders. Category Fls/Banks Flls Total No. of Shares 62270400 35131200 97401600The IPO Committee of the Company at its meeting held on May 5,2011, has taken on record thebasis of allocation of shares approved by the designated Stock Exchange viz., the BSE, Mumbai,
13. of the Issue and has authorized the corporate action for the transfer of the shares to varioussuccessful applicants.The CAN-cum-Refund Orders and allotment advice and/ or notices have been dispatched to theaddress of the investors as registered with the depositories on or prior to May 6,2011. In case thesame is not received within ten days, investors may contact at the address given below. TheRefund Orders have been over-printed with the bank account details as registered, if any, withthe depositories. The Equity Shares allocated to successful applicants are being credited to theirbeneficiary accounts subject to validation of the account details with the depositories concerned.Future Ventures India Ltd IPO Grading:CARE has assigned an IPO Grade 3 to Future Ventures IPO. This means as per CARE, companyhas „Average Fundamentals‟. CARE assigns IPO Grading on a scale 5 to 1, with Grade 5indicating strong fundamentals and Grade 1 indicating poor fundamentals.Determining the Capital Structure:1. Nature of Business: The nature of business can have a strong effect on the pattern of capital structure. A business with fixed and regular income can safely rely on debentures and preference shares which necessitates regular payment of fixed interest and dividends. But if business is risky and its income is unstable, ordinary shares should be relied upon. Because it‟s not compulsory to pay dividends on them regularly. Future Ventures India Limited, a part of the Future Group, creates, builds, acquires and operates innovative and emerging businesses in India‟s rapidly growing consumption-led sectors. In addition to allocating and providing capital, they create, operationally manage and strategically mentor the Business Ventures. Hence, it‟s clear that they are the „Venture Capitalists‟ and since the business of venture capital is much risky and the income is not fixed and regular, they have decided to go for the equity and not for debt.2. Money Market Conditions:
14. During boom period the investors go in for equity shares with the expectation of high dividends. But in time of depression, they will look more to safety than income and will be willing to invest in debentures rather than in equity shares. Thus, ordinary shares should be issued during boom period, while debentures and preference shares should be issued in times of depression. If we consider the time period before one month of the Future Venture IPO, i.e. from 21 st March to 25th April, the stock market was in a boom period. So, this can be considered as one reason for coming up with equity and not debt. Also the goodwill of the Future Group is very high. So, they must be confident about the subscription of IPO.3. Capital Requirement: Decision about the type of securities to be issued should be taken in the context of overall capital requirement of the company. If a small amount of capital is needed, only one type of security such as equity shares can be issued. But if a large amount of capital is required, it will be necessary to issue different types of securities. If we consider the recent era, where the companies are coming up with huge public offerings like for example, Coal India with Rs. 15,000 crore, Reliance Power with Rs. 11,700 crore, Power finance with Rs. 4,578 crore. And also the Future Group is a huge group and for Future Group IPO of Rs. 750 crores is not that much large for which they need to come up with equity and debt both. Also as we said that Future Venture is in the business of venture capital which is much risky business. So it‟s better for them to come up only with equity.4. Retaining Control: When the existing management wants to retain control in their hands, they will issue less of equity shares and raise more funds through preference shares and debentures. Since preference shares and debentures have no voting rights, more funds can be raised through their issue and at the same time control of the company can be retained by the existing management. Here in case of Future Venture, the promoters are holding 33.13% shares, other companies are holding 40.76% shares, general public is holding 22.86% shares and the rest by others. So, here the management control is not in the hands of only promoters. Also the majority of the shares are held by the other companies. So, it‟s clear that company doesn‟t want to retain control in their hands only and that‟s why they come up with the equity shares and not by the debts.
15. But one point which is to be considered here is that in other companies which are holding 40.76%, most of the companies are of the Future Group. So, actually the management control is in their hands.5. Stability of Earnings: The decision about the type of securities to be issued should be taken in the context of earnings of the company. If earnings are regular and steady, preference shares and debentures can be issued. As we already discussed in the very first point that Future Ventures India Limited, a part of the Future Group, creates, builds, acquires and operates innovative and emerging businesses in India‟s rapidly growing consumption-led sectors. In addition to allocating and providing capital, they create, operationally manage and strategically mentor the Business Ventures. Hence, it‟s clear that they are the „Venture Capitalists‟ and since the business of venture capital is much risky and the income is not fixed and regular, they have decided to go for the equity and not for debt.6. Long Term Interest of the Company: Sometimes it happens that the type of security which seems appropriate from the view point of money market conditions, is not appropriate from the view point of the long term interest of the company. During depression, for instance, debentures can be easily issued, but looking to the nature of business, the company may not be in a position to bear the burden of interest payments. Under such circumstances, long term interest of the company should be given more importance. Here the Future Venture in future may or may not be in a position to bear the burden of interest payment as they are in the business of venture capital. So, considering the long term interest of the company, it is better for them to go for the equity rather than debt.7. Nature of Assets of the Company: If a company does not possess fixed assets of high value, and therefore it cannot mortgage its assets, it cannot issue debentures. Similarly, if the value of a company‟s assets is subject to wide fluctuations, it will not be advisable to issue debentures. The company will have to rely on equity shares. Here Future Venture have fixed assets of value of Rs. 16,12,959 at the end of the year 2010- 11. Fixed assets consist of office equipments, computers, furniture & fixtures, vehicles and software. As the total amount of fixed assets is very small to be mortgaged, they should go for the equity rather than debt. Also the company‟s assets are subject to wide fluctuations. In
16. the last year, the fixed assets were worth Rs. 40,92,659 and the depreciation of Rs. 24,79,700 has been provided on them which is almost 60% of the total fixed assets which shows that the assets are subject to wide fluctuations. So, from this point of view also they should go for the equity rather than debt and that‟s why they came up with an IPO of equity shares of Rs. 750 crore.8. General Level of Interest Rates: The rates of the interest should be taken into account while deciding the types of securities to be issued. If interest rates are high, it is better to issue ordinary shares. If the interest rates are low, it is advisable to issue debentures. As the RBI has increased the interest rates 8 times in the last year, the base rate has reached to its highest level of 7%. And if they want to come up with the issue of debt than they must have to pay higher interest than 7%. So, the interest rates are very high in the current times in India. So, if the Future Venture comes up with the debts than they must have to pay higher amount of interest rates. Also they are already in the process of making their profits positive. Hence, they should come up with the issue of equity shares and that‟s why they came up with that.9. Attitude of Investors: There is a diversity of attitudes among the investors. Some investors prefer safety of high income. To meet their needs, debentures and preference shares should be issued. Some investors prefer high income to safety. To meet their needs, equity shares should be issued. Thus, it is desirable to issue securities of different kinds to obtain subscriptions from people with different attitude and preferences. This will also ensure wide distribution of securities.10. Taxation policy of the Government: When rates of tax on company‟s profits are very high, they prefer to issue debentures, because debenture is regarded as a debt and hence interest on it is considered as deductible expenditure in the income tax law. Therefore by issuing debentures, they can reduce their tax liability and pay a high rate of dividend to the shareholders. If dividends are taxed, then also the companies prefer to raise funds through debentures rather than shares. Tax reliefs are different for investors in new shares issued by VCTs and investors who purchase second-hand shares, for example on the stock market, For second-hand shares, the reliefs are Exemption from income tax on dividends on ordinary shares in VCTs Exemption from capital gains tax on disposal of shares in VCTs For new shares, the same reliefs are available, and in addition
17. Income tax relief at the rate of 30% on the amount subscribed for the shares (on or after 6 April 2006). This relief is available on investments up to £200,000 in a tax year (£100,000 before 6 April 2006), if they are held for at least 5 years (3 years for shares issued before 6 April 2006). For shares issued before 6 April 2004, capital gains tax deferral (that is, tax on the gains on the disposal of other assets within 12 months before or after the investment could be postponed until the VCT shares were disposed of) Hence, there are many tax reliefs available for the investors in the venture capital firms. So, it‟s easy to attract investors by issuing equity shares and that must be one of the reason of going through equity and not through debt.11. Cost of Financing: The cost of financing differs from security to security. It is relatively high if finance is raised through the issue of equity shares. Because it necessitates advertisement on a large scale, payment of underwriting commission and brokerage etc. on the other hand, issue of debentures necessitates lower expenses as debentures are regarded as safety investment. The law also requires to pay comparatively low underwriting commission on debentures because maximum underwriting commission on debentures is 2.5% and on shares it is 5%. This point is discussed in detail in other part of this project.12. Future Plan: Capital plan of a company is not decided on the basis of present situation only but it is determined on the future plans of the company also. Thus authorized capital is kept to such a level that in future, if requirement arises, further capital can be raised. FVIL seeks to create, build, acquire, invest in and operate innovative and emerging businesses in India‟s consumption-led sectors, which we define as sectors whose growth and development will be determined primarily by the growing purchasing power of Indian consumers and their changing preferences, lifestyle, aspirations and spending habits. Within the consumption led sectors, they intend to focus primarily on opportunities in the following business segments: (i) Fashion, (ii) Food, (iii) FMCG and (iv) Rural Distribution. They intend to exercise significant management control or influence in the Business Ventures in which they invest in addition to allocating and providing capital. As at March 2011, they have in their portfolio 13 Business Ventures of which 5 are subsidiaries. They seek to access
18. opportunities at various stages of the enterprise growth cycle, from nascent to more mature businesses, with a view towards medium to long-term value creation for our shareholders. Hence, it is clear from its future plans that they will need more and more funds for the investment. So, this is also one of the reason for going through the equity route. Also it is clear from the „Audit Report 2010-11‟ that they have the Authorized capital of 500 crore shares and they have issued only 82.62 crore shares. They have created a large base for their investment and kept the Authorized capital high seeking the Future plans.13. Different Types of Securities: Psychology of different investors is different. Some investors are satisfied with fixed income, but they want safety of their money. For such investors the company must issue debentures and preference shares. While some investors want high return for which they are ready to take risk. For such persons equity shares must be issued. Thus, if a company can issue different types of securities, it can make wide distribution of its securities. So that concentration of power in few hands is avoided. Hence, we can say here that they are targeting the investors who are risk takers.14. Legal Restrictions: The companies have to comply with legal provisions regarding the issue of different securities. Recent Capital Structure & Shareholding Pattern Ownership No. of shares % Holding Promoter’s Holding Indian Promoters 52,21,58,846 33.13 Foreign Promoters - - Non Promoter’s Holding Institutional Investors Banks, fin. Ins. & Insurance 3,74,57,445 2.38 FII’s 24,34,800 0.15 Sub Total 3,98,92,245 2.53 Other Investors Private Corporate Bodies 642408173 40.76 NRIs/OCBs/Foreign Others 2287156 0.15 Others 9173645 0.58 Sub Total 653868974 41.48 General Public 360323635 22.86 Grand total 1576243700 100.00