Ipo fpo


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Ipo fpo

  1. 1. IPO , FPO AND RIGHTS ISSUE Presented By : Lekshmi Nair Linda James
  2. 2. Introduction • Companies (Private and Public) need capital either to increase their productivity or to increase their market reach or to diversify or to purchase latest modern equipments. • Companies go in for IPO for funding and non funding needs and if they have already gone for IPO then they go for FPO.
  3. 3. • IPO: Initial Public Offering • FPO: Further Public Offering • The main thing a company does in either IPO or FPO is to sell the shares or debentures to investors.(the term investor here represents retail investors, financial institutions, government, high net worth individuals, banks etc).
  4. 4. Why IPOs and FPOs? For Funding Needs •Funding Capital Requirements for Organisational Growth •Expansion through Projects •Diversification •Funding Global Requirements •Funding Joint Venture and Collaborations needs •Funding Infrastructure Requirements, Marketing Initiatives and Distribution Channels •Financing Working Capital Requirements
  5. 5. •Funding General Corporate Purposes •Investing in businesses through other companies •Repaying debt to strengthen the Balance Sheet •Meeting Issue Expenses For Non-funding Needs •Enhancing Corporate Stature •Retention and incentive for Employees through stock options •Provide liquidity to the shareholders
  6. 6. Issues • Primarily, issues made by an Indian company can be classified as Public, Rights, Bonus and Private Placement. While right issues by a listed company and public issues involve a detailed procedure, bonus issues and private placements are relatively simpler.
  7. 7. • Public issue: When an issue / offer of securities is made to new investors for becoming part of shareholders’ family of the issuer it Is called a public issue. Public issue can be further classified into Initial public offer (IPO) and Further public offer (FPO).
  8. 8. • Initial public offer (IPO): When an unlisted company makes either a fresh issue of securities or offers its existing securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing and trading of the issuer’s securities in the Stock Exchanges.
  9. 9. • IPO is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange, for the first time. • Initial public offerings are used by companies to raise expansion capital. • Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus
  10. 10. • Most companies undertake an IPO with the assistance of an investment banking firm acting in the capacity of an underwriter. • Underwriters provide several services, including help with correctly assessing the value of shares (share price), and establishing a public market for shares (initial sale)
  11. 11. • Further public offer (FPO) or Follow on offer: When an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, it is called a FPO. • A company uses FPO after it has gone through the process of an IPO and decides to make more of its shares available to the public or to raise capital to expand or pay off debt.
  12. 12. Merchant banking • Merchant banking primarily involves financial advice and services for large corporations and wealthy individuals. • Merchant banker deals with management of public Issues i.e. IPOs, FPOs, Right Issues, etc. as Book Running Lead Manager.
  13. 13. Role of merchant banker • The most familiar role of the merchant bank is stock underwriting. • A large company that wishes to raise money from investors through the stock market can hire a merchant bank to implement and underwrite the process. • The merchant bank determines the number of stocks to be issued, the price at which the stock will be issued, and the timing of the release of this new stock. • The merchant bank files all the paperwork required with the various market authorities, and is also frequently responsible for marketing the new stock, though this may be a joint effort with the company and managed by the merchant bank. • For really large stock offerings, several merchant banks may work together, with one being the lead underwriter.
  14. 14. • IPO Grading: IPO grading is the grade assigned by a Credit Rating Agency registered with SEBI, to the initial public offering (IPO) of equity shares or other convertible securities. The grade represents a relative assessment of the fundamentals of the IPO in relation to the other listed equity securities. Disclosure of “IPO Grades”, so obtained is mandatory for companies coming out with an IPO.
  15. 15. Pricing in IPO and FPO • During the IPO or FPO, the company offers its shares to the public either at fixed price or offers a price range, so that the investors can decide on the right price. The method of offering shares by providing a price range is called as book building method.
  16. 16. • FIXED PRICE ISSUE: - When the issuer at the outset decides the issue price and mentions it in the offer document, it is commonly known as fixed price issue. • BOOK BUILT ISSUE:-When the price of an issue is discovered on the basis of demand received from the prospective investors at various price levels, it is called as book built issue.
  17. 17. Advantages of IPO • The financial benefit in the form of raising capital • Increased public awareness of the company because IPOs often generate publicity by making their products known to a new group of potential customers. • An increase in market share for the company.
  18. 18. RIGHTS ISSUE
  19. 19. • A company always needs funds for its operations and for the fulfillment of its functions ,this need securities are issued . • And whenever company needs further capital then it has to further issue those securities to its existing shareholders . • Just then it can issue them to general public. This right to existing shareholders is called right issue.
  20. 20. Guidelines by SEBI • Once a company has announced the right issue then it cannot withdraw its proposal . It has to issue the securities as per the announcement. • Underwriting of right issue is optional.Underwriting can be done on the discretion of the company.
  21. 21. • Before right issue company has to take prior approval of the registrar of the companies(ROC’s) • Right issue must be kept open for atleast 30 days . • The amount of securities offered should not exceed the amount specified in the prospectus or letter of offer.
  22. 22. • Reservation is not allowed on rights shares. • If a company does not receive minimum subscription of 90% of the issue then entire subscription will be refered within 42 days . • If a company recieves over subscription of right issue then the excess amount will be refunded to the respective applicants .
  23. 23. • If a company delay the refund of over subscription for more than 8 days after the period of 42 days then it will be liable to pay interest @15 % p.a. Partly paid up shares must be made fully paid up.
  24. 24. • The ex-rights price should fall by the value of the right attached to each share. The theoretical value of a right (R) is given by: • The theoretical value of a share ex-rights • (X) is given by: • Theoretically, a rights issue has no value to shareholders. • However, the announcement can have an impact on shareholders’ wealth — information content, rights issues are usually bad news, with information about expected future cash flows. 1 N M S R N 1 NM S X N
  25. 25. THANK YOU