This document provides an overview of the primary market in India, including its key players and functions. It discusses the various intermediaries that facilitate capital raising in the primary market, such as merchant bankers, underwriters, bankers to an issue, brokers to an issue, registrars to an issue, debenture trustees, and portfolio managers. It outlines their registration requirements with SEBI, obligations and responsibilities, and potential penalties for non-compliance. Overall, the primary market deals with new security issuances and facilitates capital formation, which is crucial for corporate and economic growth.

1. Primary Market
Shabarisha N., M.Com, PGDHRM, UGC-NET
Assistant Professor
SBSSS, Christ (Deemed to be University)
Bengaluru
E-mail: professorshabarisha@gmail.com

2. Introduction
• Fast growth since mid eighties
• Structural lacunae
• No instrumental mechanism to originate capital
• Role of DFIs
• ICICI, SBI and few commercial banks – Merchant Bankers to
facilitate raising funds
• Absence of system to fill gap
• Urgent need of market- to raise capital at reasonable cost
• Development of institutional facility mitigated structural lacunae
 Growth of diversified structure of mutual funds
 Liberalization of regulations
• New issue market- governed by CCI under the provisions of CICA
then replaced by SEBI.

3. Structure of Capital Market In India
SEBI
Primary Market Secondary Market
Private Co's
Public Co’s
MFs
Private Co's
Public Co’s
MFs
New Issue
Right Issue
Private
Placement
Shares
Debentures
Units of MFs
Depositories
Custodians
Clearing House
Stock Brokers
Stock Exchange
Retail Investors
FIIs
MFs
Institutional Investors
Credit Rating
Merchant Bankers
Underwriters

4. New Issue Market/ Primary Market
• Deals with new securities
• Capital Formation
• Supplies additional funds to corporate directly
• No organizational set up located in particular place (intangible)
• Recognized only by specialist institutional services that tenders to the
lenders/borrowers of capital
• Performs triple service function
 Origination
 Underwriting
 Distribution
• Is that part of capital market that deals with issue of new securities
• A market that issues new securities on an exchange. Companies,
Government, and other groups obtain financing through debt or equity
based securities. These are facilitated by underwriting groups, lead
managers, which consists of investment banks that will set a beginning
price range for a given security and then oversee its sale directly to
investors.

5. Features of Primary Market
• Market for New long-term equity capital
• Securities are issued by companies directly to investors
• Company receives money and issues new security certificates to
investors
• Primary market issues are used by companies for;
 To promote for a new company
 To expand an existing company
 To diversify the operation
 To meet the regular working capital requirements
 To capitalize the reserves
• It performs crucial function of facilitating capital formation to the
economy
• Does not include other sources of new long term external finance
• Going Public
• Methods of issues- Public issue, right issue, preferential issue.

6. Role of Primary Market
• Capital Formation
• Liquidity
• Diversification
• Reduction in cost
Functions of Primary Market
• Origination- Investigation, analysis and processing of new issue
proposals
• Underwriting- Guarantee towards selling issues
• Distribution- Distribution of securities to investors

7. Primary Market
Intermediaries/ Players

8. 1. Merchant Bankers:
• Determination of composition of capital structure
• Drafting Prospectus and application form
• Compliance with procedural formalities
• Appointment of registrars to an issue and deals with
 Share application forms
 Listing of securities
 Arrangement of underwriting
 Placing of issue
 Selection of brokers and bankers
 Publicity and advertising

9. Registration of Merchant Bankers
• Compulsory registration with SEBI
• Categories of Merchant Bankers
 Category I- Carry out activity of issue management, acts as adviser,
consultant, manager, underwriter, portfolio manager
 Category II- Acts as adviser, consultant, co-managers, underwriters, portfolio
managers
 Category III- Acts as underwriters, advisers, consultants
 Category IV- Acts as advisers, or consultants
Capital adequacy requirement
Category of Merchant Bankers Capital adequacy requirement
Category I Rs. 5 Crore
Category II Rs. 0.5 Crore
Category III Rs. 0.2 Crore
Category IV Nil

10. Registration Fee
Obligations and Responsibilities
• Code of Conduct
 Efforts to protect investors interests
 Maintaining high standards of integrity, fairness in business
 Fulfillment of its obligations in prompt, ethical manner
 Adequate disclosures to investors
 Made available of prospectus, letter of offer to investors
 No discrimination among its clients
 Avoid conflicts of interests
 Best possible advise to their clients
 Not indulge in UTP
Category of Merchant Bankers First 2 years Third year onwards
Category I Rs. 2.5 lakh Rs. 1 lakh
Category II Rs. 1.5 lakh Rs. 50,000
Category III Rs. 1 lakh Rs. 25,000
Category IV Rs. 5,000 Rs. 1000

11. • Restriction on business (asset/fund based business)
• Maximum number of lead managers
• Due diligence certificate
• Submission of documents to SEBI (2 weeks before filing
with ROCs, or SE) with fee
• Acquisition of shares (prohibited)
• Disclosures to SEBI
• Appointment of compliance officer
Issue size No. of Lead Managers
< Rs. 50 crore 02
> Rs. 50 crore <Rs. 100 crore 03
>Rs. 100 crore <Rs. 200
Crore
04
>Rs. 200 crore <Rs. 400 crore 05
>Rs. 400 crore 05 or more as agreed by the SEBI

12. • Pre issue obligations
 Due diligence
 Requisite fee
 Submission of documents
 Appointment of intermediaries
 Advertising
 IPO Grading
• Post issue obligations
 Post issue monitoring reports
 Redresses of investors grievance
 Co-ordination with intermediaries
 Post issue advertisement
 Proportionate allotment of shares
Inspection by SEBI
 Inspection of books of accounts, records, documents
 Rules and regulations complied by MBs
 Investigating complaints by investors/clients

13. Action in Defaults
 Suspension of registration
 Cancellation of registration
 Show-cause notice
Default Points
a). General defaults
 Non receipt of draft prospectus
 Non receipt of allocation of responsibilities of lead managers
 Non receipt of due diligence
b). Minor defaults
 Advertisement, circulars, brochures, press releases are not in conformity with
prospectus
 Failure to substantiate matters connected with prospectus
 Violation of regulation(MBs Regulations 1992)
 Failure to exercise due diligence
 Failure to provide adequate disclosure
 Delay in allotment of shares
 Non handling of clients grievances

14. c). Major defaults
 Mandatory underwriting not taken by managers
 Excess number of lead managers
 Association of unauthorized MBs
d). Serious defaults
 Unethical practices
 Non-cooperation with SEBI

15. 02. Underwriters
• Provides guarantee to minimum subscription
• A commitment to get the issue subscribed by others or by themselves
• Is not mandatory after April 1995, but is an important player in
market
• Appointed by issuers in consultation with merchant bankers
Registration
• Certification of registration obtained from SEBI
• SEBI considers;
 Necessary infrastructure- office, equipment, manpower etc
 Past experience in underwriting
 Any person directly/indirectly connected with applicant is not registered with
SEBI as underwriter
 Previous application of any such person has been rejected
 Any disciplinary action has been taken against such person by SEBI
 Capital adequacy requirement of not less than net worth of Rs. 20 lakh

16.  Fit and proper person
• Has to pay registration fee of Rs. 5 lakh at the time of grant of certificate
• Renewal fee of Rs. 2 lakh every three years from the 4th year from the
date of initial registration
Obligations and Responsibilities
• Code of conduct (same as MBs)
• Agreement with clients
• General responsibility- cannot derive direct or indirect benefit form
underwriting other than commission. The maximum obligation under all
the underwriting agreements cannot exceed 20 times his net worth.
• Appointment of compliance officer
• Power to call for information
• Inspection and disciplinary proceedings
• Action in case of default
 Non compliance with SEBI rules and conditions subject to registration
 Gaining any direct or indirect benefits

17. 03. Bankers to an Issue
• Engaged in activities such as acceptance of applications along with
application money
• Refund of application money
Registration
• Certification of registration obtained from SEBI
• SEBI considers;
 Necessary infrastructure- communication and data processing facilities,
manpower etc.
 Applicant/ any directors of the applicant is not involved in any litigation
(security market or economic offence)
 Applicant is a scheduled bank
 Grant of certificate in the interest of investors
 Applicant is a fit and proper person
• Annual fee of Rs. 5 lakh as initial registration fee and Rs. 2.5 lakh
renewal fee every three years from the 4th year from the date of
initial registration.

18. General obligations and responsibilities
• Code of conduct (Same as MBs)
• Furnish information
 Number of issues
 Number of applications/ application money received
 Dates on which applications forwarded to issuers/ Registrar to an issue
 Dates/ amounts refund to the investors
• Books of accounts (minimum 3 years)
• Agreement with issuing companies
• Disciplinary action by SEBI
• Appointment of compliance officer
• Inspection
• Action in default

19. 04. Brokers to an Issue
• Members of a recognized SE, who buys, sells, or deals with
securities
• Concerned with procurement of subscription to the issue
• Not compulsory to appoint
• Preliminary distribution of securities and procure direct
subscription from investors
• Regulated by Stock Exchange
• A copy of consent letter from issue managers to ROC to register
brokers
• Brokerage should be paid within limit as prescribed
 Public issue- 1.5 per cent
 Private Placement- 0.5 per cent

20. Registration:
• An application must be forwarded to recognized exchange
• The application will be forwarded to SEBI by SE within 30 days of from the date of
receipt
• A statement about no complaints/arbitration cases are pending against the applicant
• SEBI checks and then grants registration
Payment of fee
 Registration fee based on annual turnover (aggregate of sale and purchase prices of
securities received and receivable)
 Annual turnover up to Rs. 1 crore, Rs. 5,000
 >Rs. 1 crore, Rs. 5,000 plus 1 per cent on turn over.
Obligations and Responsibilities
• Required to maintain ;
 Register of transactions
 Client ledger
 General ledger
 Journals
 Cash book
 Bank pass book
 Documents of register (demat, physical sale and purchase of securities)

21.  Margin deposit book
 Registers of accounts of sub-brokers
• Appointment of compliance officer
• Not deal with unregistered sub-brokers
• Protection of clients’ interests
Action in Default:
• Liability for contravention of the SEBI Act, Rules,
Regulations
• Liability for monetary penalty
• Liability for action under the enquiry proceeding
regulations

22. 05. Registrars to an issue and Share transfer agents
Registrars to an issue:
• Collection of application from the investors
• Keeping proper record of applicants
• Assisting issuers in allotment
• Dispatching allotment letters, share certificates, refund orders
Share Transfer Agents:
• Maintain the records of holders of securities on behalf of companies
• Deal with transfer/redemption of securities
Registration:
• Mandatory registration with SEBI
• Registered under;
 Category I- Act as a registrar to an issue and share transfer agent
 Category II- Act as either registrar to an issue or share transfer agent
• Fit and proper person

23. Capital Adequacy and fee:
• Capital adequacy- in terms of net worth
 Category I- Rs. 6 lakh
 Category II- Rs. 3 lakh
• Registration fee
 Category I- Rs. 50,000 and renewal fee Rs. 40,000 every three years
 Category II- Rs. 30,000 and renewal fee Rs. 25,000.
General obligations and Responsibilities
• Code of conduct
• Maintenance of records
• Appointment of compliance officer
Action in Default
• Fails to comply with Rules/regulations
• Contravention with SEBI Act/ SCRA

24. 06. Debenture Trustees
• A trustee for a trust deed needed for securing any issue of debentures by a
company
• A trust deed means a deed executed by the body corporate in favour of the
trustees named therein for the benefit of the debenture holders
• An issue means an offer for sale or purchase of securities by any body corporate/
other person/ group of persons on behalf of their public/holders of securities of
the body corporate
Registration:
• Mandatory registration with SEBI
• Only banks, PFIs, insurance companies, body corporates fulfilling capital
adequacy requirement of Rs. 1 crore(net worth) can act as trustees
• SEBI considers;
 Necessary infrastructure
 Past experience
 Employment of at least one person with professional qualification in law
 Any directors/managers/secretary/ connected with management or
administration not convicted under any offence
 Fit and proper person
 Rs. 5 lakh registration fee and Rs. 2.5 lakh as renewal fee for every three years

25. Obligations and Responsibilities
• Obligations before appointment;
 Has to enter into a written agreement with body corporate it should contain
consent of debenture trustee and Time limit
 Debenture trustee cannot act as trustee when;
 It is an associate of body corporate
 Director who exercise his control
 Defaulted in repayment of loan
Duties of debenture trustee;
• Call for period reports from body corporate
• Take possession of trust property in accordance with provisions of
trust deed
• Enforce security in the interest of debenture holders
• Ascertain and satisfy about;
 Allotment letter
 Debenture certificates
 Interest warrants

26. • Exercise due diligence
• Inform to SEBI in breach of trust deed
• Appoint nominee director on the BOD
• Communication with debenture holders
• Call for meeting
• Inspect records, books of accounts of body corporate.

27. 07. Portfolio Managers
• Who contracts with clients, advise/direct/undertake/management/ administration
of portfolio of securities/funds of clients on behalf of them.
• Portfolio Management –
 Discretionary: Permits the exercise of discretion with regard to investment/
management of the portfolio of securities/ funds
 Non-discretionary: Manages funds in accordance to the directions of the
clients.
Registration:
 Mandatory registration with SEBI
 Application fee is Rs. 25,000
 Registration fee Rs. 5 lakh and renewal fee of Rs. 2.5 lakh for every 3 years
 SEBI considers;
 Necessary infrastructure
 Employ atleast 2 persons with experience of portfolio management
 Capital adequacy not less than net worth of Rs. 50 lakh
 Applicant not convicted by any offence/ litigation
 Professional qualification in finance, accounting, law, business management
 Grant certificate in the interests of investors
 Applicant is fit and proper person

28. Obligations and responsibilities:
 Code of conduct
 Contract with clients
 Discretionary PMs manage individually funds of each clients
 Non- discretionary PMs manage funds of each clients on their direction
 Not derive direct/indirect benefit out of clients funds
 Not pledge, lend securities held on behalf of clients
 Timely handling of clients grievances
 Maintenance of books of accounts
 Audit of accounts
 Reports furnished to clients
 Disclosures to the SEBI
 Appointment of compliance officer
Action in default

29. Primary Market
activities and
procedures

30. Terms used in stages of Issues and types of issues;
• Draft offer document: is an offer document filed with SEBI for specifying changes,
if any, in it, before it is filed with the Registrar of companies (ROCs).
• Red herring prospectus: is an offer document used in case of a book built public
issue. It contains all the relevant details except that of price or number of shares being
offered. It is filed with ROC before the issue opens.
• Prospectus: is an offer document in case of a public issue, which has all relevant
details including price and number of shares being offered. This document is
registered with ROC before the issue opens in case of a fixed price issue and after the
closure of the issue in case of a book built issue.
• Letter of offer: is an offer document in case of a Rights issue and is filed with Stock
exchanges before the issue opens.
• Abridged prospectus: is an abridged version of offer document in public issue and is
issued along with the application form of a public issue. It contains all the salient
features of a prospectus.
• Abridged letter of offer: is an abridged version of the letter of offer. It is sent to all
the shareholders along with the application form.
• Shelf prospectus: is a prospectus which enables an issuer to make a series of issues
within a period of 1 year without the need of filing a fresh prospectus every time.
• Placement document: is an offer document for the purpose of Qualified Institutional
Placement and contains all the relevant and material disclosures.

31. Primary Issues
Public Issues Private PlacementRight Issue
IPO (by
an
unlisted
Company
FPO (by
an
listed
Company
QIP
(by an
listed
Company
Preferential
Issue-
Allotment of
shares to
some select
group of
persons
under section
81 of the
Companies
act
Private
Placement-
By unlisted
companies-
Direct sale of
securities to
some selected
people or to
FIs

32. 1. Public issue: When an issue / offer of securities is made to new investors for becoming part of
shareholders’ family of the issuer3 it is called a public issue. Public issue can be further classified
into Initial public offer (IPO) and Further public offer (FPO).
a. 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.
b. 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.
2. Rights issue (RI): When an issue of securities is made by an issuer to its shareholders existing as on a
particular date fixed by the issuer (i.e. record date), it is called an rights issue. The rights are offered
in a particular ratio to the number of securities held as on the record date.
3. Private Placement
a. Private Placement: When an issuer makes an issue of securities to a select group of persons not
exceeding 49, and which is neither a rights issue nor a public issue, it is called a private
placement.
b. Preferential allotment: When a listed issuer issues shares or convertible securities, to a select
group of persons in terms of provisions of Chapter XIII of SEBI (DIP) guidelines, it is called a
preferential allotment. The issuer is required to comply with various provisions which inter‐alia
include pricing, disclosures in the notice, lock‐in etc, in addition to the requirements specified in
the Companies Act.
c. Qualified institutions placement (QIP): When a listed issuer issues equity shares or securities
convertible in to equity shares to Qualified Institutions Buyers only in terms of provisions of
Chapter XIIIA of SEBI (DIP) guidelines, it is called a QIP.

33. 1. Eligibility Norms:
Companies issuing securities through offer documents need to ;
a. Filing of offer document
• Public issue/ issue by listed companies through right issue in excess of Rs.
50 lakh- A draft prospectus filed with SEBI through MBs at least 21 days
prior to filing with ROCs.
• Right issue less than Rs. 50 lakh- prepare a letter of offer and file with SEBI
• Listing in recognized SE is mandatory
• All issues must;
 Enter an agreement with DP for dematerialization
 Give an option to subscribers/ shareholders to dematerialize their security certificates
b. IPO / Offer for Sale by Unlisted Companies
An unlisted issuer making a public issue i.e. (making an IPO) is required to
satisfy the following provisions:
a. Entry Norm I (commonly known as “Profitability Route”)
 Net Tangible Assets of at least Rs. 3 crores in each of the preceding three full
years.

34.  Distributable profits in at least three of the immediately preceding five years.
 Net worth of at least Rs. 1 crore in each of the preceding three full years
 If the company has changed its name within the last one year, at least 50%
revenue for the preceding 1 year should be from the activity suggested by the
new name.
 The issue size does not exceed 5 times the pre‐ issue net worth as per the
audited balance sheet of the last financial year
b. Entry Norm II (Commonly known as “QIB Route”)
 Issue shall be through book building route, with at least 50% to be mandatory
allotted to the Qualified Institutional Buyers (QIBs).
 The minimum post‐issue face value capital shall be Rs. 10 crores or there
shall be a compulsory market‐making for at least 2 years
• c. Entry Norm III (commonly known as “Appraisal Route”)
 The “project” is appraised and participated to the extent of 15% by Financial
Institutions / Scheduled Commercial Banks of which at least 10% comes
from the appraiser(s).
 The minimum post‐issue face value capital shall be Rs. 10 crores or there
shall be a compulsory market‐making for at least 2 years.
 In addition to satisfying the aforesaid entry norms, the Issuer Company shall
also satisfy the criteria of having at least 1000 prospective allotees in its
issue.

35. c. Public issue (FPO) by an listed company:
A listed issuer making a public issue (FPO) is required to satisfy the following
requirements :
(a) If the company has changed its name within the last one year, at least 50%
revenue for the preceding 1 year should be from the activity suggested by the
new name.
(b) The issue size does not exceed 5 times the pre‐ issue net worth as per the audited
balance sheet of the last financial year
• Any listed company not fulfilling these conditions shall be eligible to make a
public issue by complying with QIB Route or Appraisal Route as specified for
IPOs.
• Certain category of entities which are exempted from the aforesaid entry norms,
are as under :
(a) Private Sector Banks
(b) Public sector banks
(c) An infrastructure company whose project has been appraised by a Public
Financial Institution or IDFC or IL&FS or a bank which was earlier a PFI and not
less than 5% of the project cost is financed by any of these institutions.
d. Right Issue- there is no entry norm for a listed company making a rights issue

36. 02. Pricing of Issues:
Listed company (FPO/ Right issue), Unlisted Company (IPO- after listing or
desirous to listing) can freely price their securities.
a. Differential Pricing:
• Listed / Unlisted companies may issue shares/convertible securities to
applicants in the firm allotment category( DFIs, MFs, FIIs) at a price different
from the net offer made to public(excluding firm allotment, reservations,
promoters contributions). (Firm allotment price > Net offer to public Price)
• A listed company making a composite issue(public issue and right issue
through single offer document) can issue at different prices in its public and
right issues.
b. Price Band:
• The issuer can mention a price band of 20 per cent (cap [limit] in the price
band should not exceed 20 per cent of the floor price) in the offer document
filed with the SEBI and the actual price can be determined at a later date
before filing it with the ROCs.
• If BOD of the issuing company has been authorized to determine the offer
price within a specified price band, a resolution would have to be passed by
them to determine such a price.

37. c. Denomination of shares:
• Public issue/ right issue of equity shares can be made in any denominations
as per section 13(4) of the Companies Act.
• IPO by an unlisted company,
 If the issue price is Rs.500 or more, company to fix face value below Rs. 10
subject to a minimum of Re. 1 per share.
 If the price is less than Rs. 500, face value of Rs. 10.
 Companies already issued shares in the denominations of Rs. 10 or Rs. 100 may
change their standard denominations by splitting/consolidating them.
• The issue of shares in any denominations or change in the standard
denominations is subject to;
 Shares should not be issued in the denomination of a decimal of a rupee
 Denomination of the existing shares should not be altered to a denomination of a
decimal of a rupee
 At any given time, there would be only one denomination for the shares of the
company
 Companies seeking to change the standard denomination may do so only if their
MOA and AOA permit
 Disclose the same with SEBI

38. 03. Promoters Contribution and Lock-in Requirements
a. Promoters Contribution:
• Public issue by unlisted Company(IPO) - Promoters should contribute at least 20
per cent of the post-issue capital
• Offer for sale by unlisted company (IPO) – The promoters’ shareholding after
offer for sale, should be at least 20 per cent of the post-issue capital
• Public issue by listed companies (FPO) – The participation of the promoters
should be;
 To the extent of 20 per cent of the proposed issue or
 To ensure shareholding to the extent of 20 per cent of the post-issue capital
• Composite issues (Public issue + Rights issue) by listed company – Contribution
would be either 20 per cent of the proposed public issue or 20 per cent of the
post-issue capital, excluding the rights issue component of the composite issue.
A minimum contribution of Rs. 25,000 per application for each individual and
Rs. 1 lakh from dealers, distributors, firms and companies other than associates.
Exemption from requirement of Promoters Contribution
 Public issue by a company listed on a SE for at least 3 years and having a track record of
dividend payment for at least 3 years.
 When no identifiable promoter/ promoter group exists
 Rights issue

39. b. Lock-in requirements of Promoters contribution
Promoters contribution is subject to a lock-in period as;
• Lock-in of minimum required contribution- In case all issues of capital to
the public, the minimum promoters’ contribution would be locked-in for a
period of 3 years.(The period start from the date of allotment in the
proposed issue and last date would be reckoned as 3 years from the date
of commencement of commercial production)
• Lock- in of excess promoters contribution- in case of public issue by an
unlisted company for the period of 1 year.
• Securities issued last to be locked-in first (before allotment of shares to
promoters)
c. Other requirements with respect to lock-in
• Pledge of securities with Banks/FIs
• Inter-se transfer of securities to any other person by holders other than
promoters
• Inscription of Non-transferability- Securities that are subject to a lock-in
period should carry the inscription ‘non-transferable’ along with the
duration of non transferability

40. 04. Issue Advertisement
• Defined to include notices, brochures, pamphlets, circulars, show cards, catalogues,
hoardings, posters, insertions in newspapers, pictures, films, cover pages of offer
documents, any other print medium, radio, television programmes through electronic
medium.
• An issue advertisement shall have the following features;
 It should be truthful, fair and clear. Not misleading
 Reproduce information contained in an offer document in full and disclose all
relevant facts
 It should be set clear, concise, and in understandable language
 Extensive use of technical, legal terminology or complex language should be
avoided
 It should not be in the form of crawlers
 Not include any slogans, or brand names for the issue except normal commercial
name of the company
 No models, celebrities, fictional characteristics should be displayed in offer
document or issue advertisement
 If advertisement carries financial data, it should also contains data for the past 3
years
 All issue advertisements in newspapers, magazines, brochures containing
highlights about risk factors

41. 05. Issue of Debt Instruments
A company offering convertible/ non-convertible debt instruments through offer
document should comply with the following provisions;
a. Requirement of Credit Rating
A public issue or rights issue of all debt instruments should be obtain credit rating
from at least 2 registered credit rating agencies and disclose the same in the offer
document (all ratings including rejected one)
b. Requirement in respect of debenture trustees
• A company must appoint one or more debenture trustees in accordance with
provisions of companies act before issuing prospectus/letter of offer to the public
and name should be disclosed in offer document
• A trust deed should be executed by company with DT within 3 months of the
closure of the issue.
• MB should file DT Certificates with bankers and FIs to obtain NOC for assets on
which security is created
• DT are vested with powers to protect interests of debenture holders and right to
appoint nominee director to BOD
• DT should demand for reports from the company about the issues
• DT should obtain audit report of the company.

42. c. Creation of Debenture Redemption Reserves (DRR)
A company has to create DRR as per the requirements of the companies act and
comply with;
• If debentures are issued for project finance, DRR created up to the date of
commercial production in equal installments or higher amounts of profits so
permit.
• In case of partly convertible debentures, DRR created in respect to the non-
convertible portion
• DRR should be treated as general reserve for bonus issue proposals and for
price fixation related to post-tax return
• Companies need to create DRR to 50 per cent of the amount of debenture issue
before redemption
d. Distribution of dividend
• Companies which have defaulted in payment of interest on debentures or their
redemption, or in creation of security, as per terms of the issue, distribution of
dividend would require approval by DT.
• Dividends are distributed out of profit of particular year only after transfer to
DRR.
• If residual profits after transfer to DRR are inadequate to distribute, company
may distribute dividends out of general reserves

43. e. Creation of charge
• The offer document should specifically state the asset on which the security
would be created as also the ranking of charge/s
• If the company proposes to charge for debentures of maturity less than 18 months
it should file the particulars of charge with ROCs.
f. Letter of option
• When the company desires to rollover (reinvesting/buyback) the debentures
issued by it, it should file with SEBI a copy of notice of the resolution to be sent
to debenture holders through MBs
• Notice should contain disclosures relate to credit rating, resolution of debenture
holders
• If a company wishes to convert the debentures into equity it should file a letter of
option with SEBI
g. Roll-over of PCDs/ NCDs
The non-convertible portions of PCDs/ NCDs issued by a listed company, the value
exceeds Rs. 50 lakh, can be rolled over without change in interest rate
h. Fully convertible Debentures
No company should issue FCDs having a conversion period of more than 36 months
unless conversion is made optional with put and call option

44. 6. Book- building
• Book-building means a process by which a demand for the securities proposed
to be issued by a body corporate is elicited and built up and the price for such
securities is assessed for the determination of the quantum of such securities to
be issued by means of a notice, circular, advertisement offer document. A
company proposing to issues capital through book-building has to comply with;
 75 per cent Book-building Process
 Offer to public through book-building process
a. 75 per cent Book-building process
In case of issue of securities to the public through a prospectus the option for 75 per
cent book-building is available for subject to;
 The option of book-building is available to all companies eligible to make an
issue to the public to the extent of percentage of issue which can be reserved for
firm allotment
 Issuer can either reserve the securities for firm allotment or issue them through
book-building process should be separately indicated as ‘placement portion
category; in the prospectus. Securities available for public identified as ;net offer
for public’. 25 per cent of securities should be offered to public and underwriting
is mandatory.

45.  A draft prospectus containing all information except price be filed with the SEBI
and one of the lead merchant banker should be nominated as book runner. Copy
of prospectus filed with the SEBI should be circulated by book runners to
institutional investors and intermediaries.
 Along with prospectus indicate price band (intended) then book runners need to
maintain records about number of securities ordered and willing prices of firm
category.
 Book runner and issuer need to identify the price at which securities may offered
to the public. Issue price should be same for placement portion category and net
offer to public and file the prospectus with ROCs within 2 days of price
determination
b. Offer to public through book-building process
 An issuer company may make an issue to public through prospectus in the
following manner;
 100 per cent of the net offer to the public through book-building process
 75 percent of net offer to the public through book-building process and 25 per cent at the price
determined through book building
 Issuer should appoint merchant bankers as book runners and enter an agreement
with SE(online offer) and with them. Same should be specified in the draft
prospectus and filed with SEBI.

46. a red herring prospectus with floor price or price band should be disclosed
in offer document. Once the final price is determined securities should be
allotted to all the successful bidders.
Additional Disclosures;
• Particulars of syndicate members (intermediaries)
• ‘basis for issue price’ – issue price determined by the issuer with book
runner on the basis of assessment of market demand for securities by
way of book-building
• Following accounting ratios should be given under basis for issue price;
 EPS, pre-issue for the last 3 years
 P/E ratio
 Average return on net worth in last 3 years
 NAV per share on last balance sheet
Underwriting:
Company offering to the public through book-building, the entire net
offer(100% and 75%) should be compulsorily underwritten by book-
runners

47. Allocation/ Allotment Procedure;
a. In case of 100 per cent of the net offer to the public through 100 per cent
book-building process:
 At least 35 per cent of net offer to the public should be available for
allocation to retail investors
 At least 15 per cent to non-institutional investors(investors other than
retail investors and QIBs)
 Not more than 50 per cent to QIBs.
b. In case of 75 per cent of the net offer to the public through book-
building and 25 per cent at the price determined through book building;
 At least 25 per cent of the net offer to the public
 Not more than 50 per cent should be available for allocation to non-QIBs
and QIBs respectively
 The balance 25 per cent should be allocated to retail investors who have
either not participated or have not received any allocation in the book-
built portion.

48. 07. Green Shoe Option(GSO)
• A company making an IPO of equity shares can avail of the GSO for stabilizing
the post-listing price of its shares.
• GSO means an option of allocating shares in excess of the shares included in the
public issue and operating a post-listing price stabilizing mechanism through a
stabilizing agent(SA).
• Company seeking authorization for the possibility of allotment of further issues
to the SA at the end of stabilization period together with the authorization for the
public issue in GBM of shareholders
• Appoint one of the book runner/merchant banker amongst issue management
team as the SA
• SA should enter an agreement with issuing company , prior to filing offer
document with SEBI;
 Clearly stating terms of the GSO agreement
 Fee charged/ expenses incurred
• Agreement with promoters and pre-issue shareholders (lend their shares) and
borrowed number of shares should not exceed 15 per cent of the issue
• Details of two agreements should be disclosed in draft prospectus/ draft red-
herring prospectus/ red herring prospectus/ final prospectus.

49. • The draft prospectus/ draft red-herring prospectus/ red herring prospectus/ final
prospectus should contain;
 Name of the SA
 Maximum number of the shares and percentage of the proposed issue
 Period of stabilization(30 days from the date when trading permission granted by SE)
 Maximum amount of funds to be received by the company in case of further allotment
 Details of the agreement (SA & issuing company and SA & Promoters and pre-issue
shareholders)
• Money received from applicants against over-allotment in the GSO(further
allotment) kept in GSO Bank account to be used for buying of securities(from
promoters and pre-issue shareholders {holding more than 5 per cent of the issue
in only demat form}) during stabilization period and shares credited to GSO
Demat account
• SA should remit the issue price(further issue allotted by issuer to GSO Demat
account) to the company from the GSO Bank account
• The remaining balance (net of deduction of expenses incurred by SA) transferred
to IPF of the concerned SE and the GSO Bank account would be closed
• SA should maintain records for at least 3 years from the date of end of stabilizing
period

50. 08. IPO through stock exchange online system (E-IPO)
Companies seeking IPO issue through online system need to comply
with;
• Agreement with Stock Exchange
• Appointment of Brokers (collection centers)
• Appointment of Registrars to an Issue
• Listing
• Mode of operation
 Issue advertisement in English/Hindi daily with nationwide circulation
before filing offer document with ROC
 Advertisement should contain salient features of the offer document as
specified in Form 2-A of the companies (central government’s) general rules
and forms, 1956
 Contain;
 Date of opening / closing of issue
 Method and process of application/allotment
 Names/addresses/telephone numbers of the brokers/centers for accepting applications

51. • During the course of opening of issue through online system;
 Applicants should approach the brokers of stock exchange through online system
 Brokers need to accept the orders and place with Registrar to an issue through online
system with cheque/DD for the application money
 In case of issue more than 10 crore Registrar to an issue should open collection centers at 4
metropolitan cities (Delhi, Kolkata, Chennai and Mumbai)
• Broker should collect client registration form from the applicants, dully filled and
signed as per KYC (Know your Client Rule) specified by the SEBI
• Broker need to enter buy order on behalf of applicants and enter their details, names,
addresses, telephone numbers, category of the applicant, number of shares applied
for, beneficiary ID, DP Code etc.
• Broker need to collect 100 per cent of the application money as margin from clients
and should open a separate bank account(escrow) with the CH bank for primary
issues and deposit the same.
• After allocation of shares to applicants, brokers need to inform them and collect the
application money in total and refund the same to the applicants who are not allotted
• Maintain records;
 Orders received
 Applications received
 Details of allocation and allotment
 Details of margin collected and refunded
 Details of refund of application money

52. 09. Issue of capital by designated financial institutions(DFIs)
DFIs approaching capital market for funds through offer document comply with;
Promoters Contribution- No requirement in case of any issue made by DFIs
Reservation for Employees- The DFIs should reserve shares out of proposed issue
for their permanent employees, MD or any full time director. Such reservations
restricted to number of permanent employees of the DFIs as on the date of offer
document multiplied by 200 shares of Rs. 10 each or 20 shares of Rs. 100 each.
Pricing of Issue- DFIs can freely price their issues in consultation with lead
manager, subject to;
 DFIs should have track record of consistent profitability(EAIT) shown in statements.
 Issue price should be authorized by a resolution passed at GBM of shareholders
Specific Disclosures; (offer document)
 Present equity and equity after conversion to FCDs/PCDs
 Actual and desirable DER
 Servicing behaviour on existing debentures
 Outstanding principal/interest or lease rentals
 Asset classification- Standard, Sub-standard, doubtful, loss

53. Issues of debentures including bonds-
 Credit rating is mandatory
 Conversion/redemption falls after 18 months
 Premium amount on conversion, time of conversion, redemption amount, period of
maturity, yield on redemption should be disclosed in offer document
 Appointment of Trustee is mandatory
Rollover of debentures/bonds- The non-convertible portions of PCDs/ NCDs
issued by a listed company, the value exceeds Rs. 50 lakh, can be rolled over
without change in interest rate
Protection of interest of debenture holders//bond holders
New financial instruments- disclose in offer document about new financial
instruments like deep discount bonds, debentures with warrants, secured
premium notes etc.
Utilization of money before allotment- DFIs can utilize money raised by them out
of the public issue of debt instruments before allotment or listing of instruments
provided.
Shelf Prospectus- A public sector bank/ scheduled bank/ PFIs issuing debt
instruments should file a shelf prospectus along with draft prospectus with SEBI.

54. 10. Preferential Issues
Preferential issue of equity/FCDs/PCDs or any other financial instruments should comply
with section 81 (IA) of the companies act on a private placement basis. Need to
comply with;
Pricing of issue- Issue of shares on a preferential basis can be made at a price not less
than the higher of the following;
 The average of the weekly high and low of the closing prices of the related shares
quoted on the SE during the 6 months preceding the relevant date(30 days prior to
GBM)
 The average of the weekly high and low of the closing prices of the related shares
quoted on a SE during 2 weeks preceding the relevant date.
Pricing of the shares arising out of the warrants- If warrants are issued on a
preferential basis, issuer company should determine the price of the resultant shares in
accordance with the provisions as stipulated above.
Pricing of shares on conversion- If PCDs/FCDs are issued on a preferential basis, issuer
need to determine the price at which shares could be allotted in accordance with the
provisions as stipulated in warrants
Non-transferability of financial instruments- The instruments allotted on a preferential
basis to the promoters/promoters group are subject to a lock-in period of 3 years from
the date of their allotment (20 per cent). During the lock-in period financial
instruments should not be transferred to any other person.
Preferential allotments to FIIs- Governed by guidelines issued by the GOI/SEBI/RBI

55. 11. Qualified Institutional Placement
• Introduced with effect from May 2006
• When a listed issuer issues equity shares or securities convertible in to equity
shares to Qualified Institutions Buyers only in terms of provisions of Chapter
XIIIA of SEBI (DIP) guidelines, it is called a QIP.
• The QIBs should neither be promoters, nor should they related to promoters of
the issuer directly or indirectly.
• Any QIB who has;
 Rights under shareholders/voting agreement
 Veto rights
 Right to appoint a nominee director
• Private placement should comply with section 67(3)(a) of the companies act.
 A minimum of 10 per cent of the securities in each placement should be allotted to
MFs
 Unsubscribed portions may allotted to other QIBs
 Issue size up to Rs. 250 crores- 2 allottees
 Issue size more than Rs. 250 crores- 5 allottees
 Maximum of 50 per cent of the issue size can be allotted to a single allottee (QIB
belonging to same group/under common control)
 Aggregate funds that can be raised through QIP in a financial year not exceed 5 times
of the net worth of the issuer at the end of previous financial year.

56.  The floor price of the securities should be determined on a basis similar to
GDR/FCCB and should be subject to adjustment for corporate actions-stock
splits, rights issues, bonus issue, consolidation of shares, reclassification of
shares into other securities etc.
 Issue of shares on a QIP can be made at a price not less than the higher of ;
the average of the weekly high and low of the closing prices of the related
shares quoted on the SE during the 6 months preceding the relevant date(30
days prior to GBM) or the average of the weekly high and low of the closing
prices of the related shares quoted on a SE during 2 weeks preceding the
relevant date.
 Furnish all the relevant documents with SEBI (Placement document):
 Disclaimer that no offer is being made to the public or any other class of
investors
 Glossary of terms/abbreviations
 Financial Statements
 Merchant Bankers/managers/advisers
 Summary of offering and instrument
 Risk factors
 Market price information

57.  Disclosures about;
High, low, average Market prices of shares(last 3 years)
Monthly high, low prices of shares for 6 months prior to placement
Number of shares traded
Volume of securities traded
 Use of proceeds
 Dividends
 Management’s discussions
 Industry description
 Business description
 Organization structure and major shareholders
 BOD
 Taxation aspects relating to instrument
 Legal proceedings
 Accountants
 Investors’ useful information

58. 12. OTCEI Issues
Companies making IPO of equity/convertible securities and proposing to list them
on the OTCEI has to comply with;
Eligibility norms
• Unlisted companies subject to exemption from eligibility norms only when;
 It is sponsored by a member of the OTCEI
 Has appointed at least 2 market makers(one is compulsory and another is
additional)
• Any offer for sale of equity shares or convertible securities resulting from Bought
out deal(BOD) registered with OTCEI is also exempted from eligibility norms
Pricing norms
• Any offer for sale of equity shares or convertible securities resulting from Bought
out deal(BOD) registered with OTCEI is also exempted from pricing norms for
unlisted companies subject to;
 Promoters contribution at least 25 per cent of post-issue capital
 Lock-in period requirement to the extent that of 3 years from the date of
allotment
 At least two market makers

59. Book building Model Time frame;
Time Frame Activities
T: Book closed
T + 1 •Price determination
•Determination of offer size
T + 2 •Registrar draws the allocation list
•All entered bids assumed as valid
T + 3 •Stock exchanges approve basis of allocation
•Final prospectus printed and dispatched
•CANs(Confirmation of Allocation Notes) send to QIBs
•Allocation details electronically communicated by Registrar to an issue/
company to brokers
T + 4 •Pay-in (only high values)
•Bankers to confirm clearance of funds
•Board Meeting
•Stock Exchanges to issue the listing and trading permission
•Company to instruct NSDL/CDSL to credit shares to the demat accounts of
brokers
T + 5 •Brokers account to be credited with shares
•Brokers to credit shares to the demat account of investors
T + 6 Trading Commences

60. Thank You…