Private Placement -presented by Nirooj Fidin Amrita Kumari
DefinitionA process of inviting subscription to the securities of acorporate issuer by means other than public offering.Private placement usually refers to non-public offering ofshares in a public company.Instruments issued in private placements are commonstock, preferred stock or other forms of membershipinterests, warrants or promissory notes (including convertiblepromissory notes), bonds and debentures.Unlike public offerings, the number of investors can be atmost 49.The company has to be listed on a stock exchange.
Why private placement?Public offerings have limitations w.r.t marketvariables, cost and time.Strategic objectives Consolidation of stakes of promoters Induct a strategic investor or joint venture partner Provide management stakes to working directors and senior management Implement a employee stock option plan
AdvantagesFast and cost effective.Choice of investors.Flexibility in type and amount of funding.Easier to negotiate on return.Less amount of scrutiny.
DisadvantagesDifficult to find investors.Danger of insufficient funds.Limited investors.Illiquidity.
Preferential AllotmentPrivate placement of shares or of convertiblesecurities by a listed company to selected groupof investors is called preferential allotment.Investors may have a lock-in period.The listed companies has to abide by the guidelines asper Chapter XIII of SEBI (DIP), in addition torequirements in Companies Act, 1956.
GuidelinesPricing – Issue, warrants, convertible debentures)Currency of financial instrumentsNon-transferability of financial instruments.Currency of shareholders’ resolutionOther requirements Certified by auditor Copies to shareholders Independent valuation
Qualified Institutional PlacementQIP is another tool, whereby a listed company canissue equity shares, fully and partly convertibledebentures, or any securities other than warrantswhich are convertible to equity shares to a QIB.Introduced by SEBI to prevent listed companies inIndia from developing an excessive dependence onforeign capital.Compliance with guidelines in Chapter XIIIA of SEBI(DIP).
GuidelinesListingInvestorsPricingAdjustments in priceCurrency of securityShareholders’ resolutionPlacement documentNumber of alloteesRestrictions on amount raisedTransferability of securitiesRole of Merchant Bankers
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