1.Public Issues (PI): –IPO(Initial Public Offerings): Unlisted company makes a fresh issue of securities for the first time to the public. –FPO(Follow on Public Offerings): Already listed company makes a fresh issue of securities to the public. –
2.Rights Issues(RI): •Listed company issue fresh securities to its existing shareholders as on a recorded date. •Normally offered in a particular ratio to the number of shares held prior to the issue. •Company raises capital without diluting the stake of its existing shareholder.
3.Preferential Issues (Private placements): •Issue of shares to a select group of persons. •QIP is a private placement of equity shares or securities convertible into equity shares to QIBs only.
Eligibility norms for making capital issues
•There is no eligibility norm for a listed company that is QIP. • •Any company making a public issue or a listed company making a right issue of a value of more than Rs 50 lac is required to file a draft offer document with SEBI for its observation. •This is done 21 days prior to filing with ROC/SE • •Company has to open its issue within a period of 3 months. •
Pricing of the issue: •There is no price formula fixed by SEBI. • •There are two type of issues: Fixed price and price discovery through book building process. • In book building issue, price band is 20% (Cap in the price band should not be more than 20% of the floor price). Allocation among Retail Institutional Investors, Non Institutional Investors and Qualified Institutional Buyers are in the ratio of 35:15:50 respectively.
Intermediaries in an issue in the Primary Market
•Intermediaries in an issue: –Merchant Bankers to the issue or –Book Running Lead Managers(BRLM), –syndicate members, –registrars to the issue, –Banker to the issue, –auditors of the company, –underwriters to the issue, –solicitors etc.
•Safety net: –A safety net arrangement ( Buy back by the Co.) shall be made available to original resident individual allottees –limited to a maximum of 1000 shares per allottee and –the offer is kept open for a period of 6 months
•Cut off price: –In a book building issue, the issuer is required to indicate either the price band or a floor price in the RHP (Red Herring Prospectus) –The actual discovered issue price band be any price in the price band. –This issue price is called the Cut Off Price. –Retail individual investors to have an option of applying at the cut off price.
Applications supported by blocked amount (ASBA)
•ASBA is an application containing an authorization to block the application money in the bank account for subscribing to an issue.
•If an investor is applying through ASBA, his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized. •
Qualified Institutional Placement (QIP)
•QIP is a capital raising tool, whereby a listed company can issue equity share to a QIBs (qualified institutional buyers). • • •
•To enable listed companies raise money from domestic markets in a short span of time rather than depending on overseas market •The specified securities can be issued only to QIBs, who shall not be promoters or related to promoters of the issuer.
Securities Exchange Board of India (SEBI)
•registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and other intermediaries. • •
Registering and regulating depositories, custodians of securities, FIIs, Credit rating agencies. •
Registering and regulating venture capital funds and collective investment scheme, including mutual funds. • •
Prohibit insider trading. •Promoting investors’ education and training of intermediaries of security markets. •Regulating substantial acquisition of share and takeover of companies.
•Conducting research on these purposes.
•Inspection of Companies
•SEBI has powers of a Civil Court
Qualified Institutional Buyers (QIBs)
•QIBs are possess an expertise and the financial muscle to invest in the capital market.
•A QIB shall mean: (Not required to be registered with SEBI as QIBs) –Public FIs –Schedule Commercial Bank –
FIIs registered with SEBI –Mutual Funds –Multilateral and bilateral development financial Institutions –
Venture Capital Funds Registered with SEBI –
Foreign Venture Capital Investors Registered with SEBI – State Industrial Development Corporations –
Insurance Companions registered with IRDA. –
Provident Funds with a min corpus of Rs 25 Cr –
Pension Funds with min corpus of Rs 25 Cr