Institutional investors like venture funds, private equity funds etc., invest in unlisted company when it is very small or at an early stage. Subsequently, when the company becomes large, these investors sell their shares to the public, through issue of offer document and the company’s shares are listed in stock exchange. This is called as offer for sale.
PI- Public Issue OfS- Offer For Sale RI- Rights Issue ROC- Registrar Of Companies S.E.- stock Exchanges
MB- Merchant Banker
PRESENTED BY:Suravi Sanchita
primary market deals with those securities
which are issued to the public for the first time.
It is a market for new issue, so it is also called as
New Issue Market(NIM).
In this market borrowers exchange new financial
securities for long term funds.
companies that issue their shares are
called issuers and the process of issuing
shares to public is known as public issue.
intermediaries like Merchant Banker, Bankers
to the Issue, Underwriters, and Registrars to
the Issue etc.
Public Issue: When a company raises funds by selling
(issuing) its shares (or debenture / bonds) to the public
through issue of offer document (prospectus), it is
called a public issue.
Initial Public Offering: When a (unlisted) company makes a
public issue for the first time and gets its shares listed on stock
exchange, the public issue is called as initial public offering
Further Public Offering: When a listed company makes
another public issue to raise capital through an offer document,
it is called further public / follow-on offering (FPO).
Right Issue: When an existing company wants to raise
additional capital, securities are first offered to the
existing shareholders on a pre-emptive basis.
Preferential Issue: This is an issue of shares by listed
companies to a selected group of persons (U/S 81 of
Companies Act 1956).
Offer for Sale
Offer for Sale
Offer Document: It means Prospectus in case of
a PI or OfS and Letter of Offer in case of a RI,
which is filled with the RoC and S.E.
Draft Offer Document: It is the offer document
in the draft stage. The draft offer documents are
filled with SEBI, at least 21 days prior to the
filling of the offer document.
Red Herring Prospectus: It is a prospectus,
which does not have details of either price, or
number of shares being offered, or the amount of
Abridged Prospectus: It contains all the salient
features of a prospectus. It accompanies the
application form of PI.
Legal & Other Information
Issue price: SEBI does not play any role in price
fixation. The company and the MB are required to
give full disclosure of the parameters, which they
have considered while deciding the issue price.
There are two types of issues;
one where company and Lead Manager(LM) fix a
price called the fixed price and
the other, where the company and the LM
stipulate a floor price or a price band and leave it
to market forces to determine the final price.
Fixed Price Offer: An issuer company is allowed
to freely price the issue. The basis of issue is
disclosed in the offer document where the issuer
discloses in detail about the qualitative and
quantitative factors justifying the issue price.
Price Discovery: It happens through the BOOK
‘Book Building’ means a process undertaken, by
which a demand for the securities proposed to be
issued by a body corporate is elicited and built up
and the price for the securities is assessed on the
basis of the bids obtained for the quantum of
securities offered for subscription by the issuer.
BOOK BUILDING PROCESS
In this the issuer company mentions
the Price Band, which contains Minimum (FLOOR)
and Maximum (CAP) prices at which it will sell
(issue) its shares.
The spread between the floor & cap of the price
band shall not be more than 20%.
Thus the offer document (or Red Herring
Prospectus) contains only the price band instead
of the price at which its shares are offered to the
Within this price band the investor can choose
the price at which the investor are willing to buy
the shares and also the quantity.
As this process is similar to bidding in an auction,
the application form for book built issue is also
known as the bid form.
times the issuer may revise the price band
(revision of price band) which has to be
Bids by various investors are entered into the
stock exchange system through the broker’s
(also called syndicate member) terminal.
The list of the bid received from investors at
various price bands is known as the ‘book’
(Open Book/Closed Book) and can be seen in
the website(s) of the stock exchange for each
Based on the total demand in the ‘book’, the
cut off price is then decided by the issuer
and merchant banker.
LEAD MANAGERS: A Merchant Banker
possessing a valid SEBI registration in
accordance with the SEBI(Merchant Bankers)
Regulations, 1992 is eligible to act as a Book
Running Lead Manager to an issue.
SAFETY NET: It refers to a scheme of buyback arrangements of the shares proposed in
any public issue with the objective of
protecting the investors in the event of share
prices go down after the issue is made.
e-IPO: A company proposing to issue capital
to public through the online system of the
S.E. for offer of securities, known as e-IPO.
LOCK-IN: The term indicate a freeze on shares.
requirements on shares of promoters mainly to
ensure that the promoters or main persons who
are controlling the company, shall continue to
hold some minimum percentage in the company
after the public issue.
PROMOTERS: This has been defined as a person
who are in overall control of the company.
‘Promoter Group’ includes the promoter, an
immediate relative of the promoter( i.e. spouse,
parent, brother, sister, child).
DIFFERENTIAL PRICING: Pricing of an issue
where one category is offered, shares at a
different price from the other category.
Institutional investors like venture funds,
private equity funds etc., invest in unlisted
company when it is very small or at an early
stage. Subsequently, when the company
becomes large, these investors sell their
shares to the public, through issue of offer
document and the company’s shares are listed
in stock exchange. This is called as Offer For
IPO grading: It is the professional assessment
of a Credit Rating Agency (CRAs) on the
fundamentals of a company in relation to the
other listed equity shares in India.
An IPO grade is NOT a suggestion or
recommendation as to whether an investor
should subscribe to the IPO or not. IPO grade
needs to be read together with the disclosures
made in the offer document including the risk
factors as well as the price at which the shares
are being offered.
Below average fundamentals
Above average fundamentals
Credit rating: It is an opinion of a Credit Rating
Agency (CRA) on the likelihood of timely
payment of interest and principal (credit risk) on
the rated debt instrument.
It is an unbiased, objective, and independent
assessment of the issuer's capacity to meet its
financial obligations and is conveyed with
SEBI has issued ICDR (Issue of Capital and
Disclosure Requirements) Regulations with a
view to protect the interest of investors.
These regulations provides for disclosure of
material information including risk factors to
enable the investors to take an informed