Primary Marketprovides the channel for sale ofnew securitiesto raise resources to meet theirrequirementsissue the securities in domesticmarket and/or international market.
Terminology • Nominal or stated amountFace value assigned by issuer • When security sold above itsPremium face value • When security sold at lessDiscount than face value
Classification of issue of shares Fresh Issue Initial Public Offering Offer for Sale Public Fresh IssueIssues Further Public Rights Offering Offer for Sale Private Placement
Initial Public Offering (IPO) Made by Unlisted CompaniesEither Fresh An offer for sale Both for the first issues of of its existing time to the public securities securities
Advantage of IPONo Cost of Huge amount capital can be raised CorrectBrand Value Valuation
Disadvantage of IPO Disclosure of information Decision’s take time Cost of IPO
Parties to IPO Registrar Underwriter Lead Merchant Manager Banker
Who decides the price of an issue? • When issuer & Lead Merchant Banker fix a Fixed Price pricePrice discovery • When the company and Lead Manager stipulate through Book the price and leave it to Building market forces
Further Public OfferingWhen an already listed company makes Either fresh issue of securities to the public Or an offer for sale to the public Through offer document
Rights IssueWhen listed company issue fresh securities To existing shareholderSuites for companies who would like to raise capital
Private Placement / Preferential Issue • Issue of shares or convertible securities by 1. listed companies • Which is neither right issue nor a public issue 2. • Faster way for company to raise equity 3. capital
Issue Price Price at which company shares are offered Initially in primary market
Market Capitalization1. • Market value of a quoted company2. • MC = Market Price * No. of Shares
Difference between Public Issue & Private Placement Public Issue Private Placement• When issue made for • Issue is made to a select general public and any set of people. investor at large.• As per companies • An allotment is made to act, 1956, an issue less than 50 persons. becomes public when result it allotment to 50 persons or more.
Cut –Off PriceAny price which above the floor price Decided by Issuer & Lead Manager After considering the book &investors appetite for the stock
Floor PriceIt is the minimum price at which bids can be made
Price Band The prospectus may containEither the floor price for the Price Band within which the securities investor can bidCap should not be more than 120% of the floor price Price decided by The Company consultant with The Merchant Banker
Documents in IPO Draft Offer AbridgedProspectus Document Prospectus
Draft Offer Document Offer document in draft stage Filled with SEBIAt least 2 days prior to the filling of the offer document with ROC
Abridged Prospectus Shorter version of the prospectus Contains all the salient features of a prospectus Applications form of public issues.
Lock inFreeze on the sale of shares for a certain period of timeEnsure that company should continue to hold some minimum percentage After public issue
Listing of Securities Admission of securities of an issuer to trading Dealing on a stock exchange through a formal agreement Provide liquidity and marketability to securities Provide mechanism for effective control & supervision of trading
Listing Agreement • Specifies the terms & conditions1. of listing • Disclosures shall be made by a2. company on continuous basis to the exchange
Delisting of SecuritiesPermanent removal of securities of a listed company From the stock exchange Securities of that company nolonger be traded that stock exchange