EQUITY SHARES AND ITS WAY TO ISSUE.

Submitted to: Submitted by:Dr. Shailendra Kumar Preet Inder Singh Nagi (50801057)

Navneet Bajwa (50801102)Nitesh Bansal (50701513)Sharanjeet Singh (50701517)

LMT SCHOOL OF MANAGEMENT THAPAR UNIVERSITY , PATIALA

Topics to be discussed -

Capital Market Primary Market Features of Primary Market Secondary Market Equity Shares Features of Equity shares Issues Placement of issue Intermediaries of issues

Capital Market

The capital market is the market for securities, where companies and governments can raise long term funds. It is a market in which money is lent for periods longer than a year.

It consist of: Primary Market Secondary Market

Primary Market

The primary market is that part of the capital market that deals with the issuance of new securities.

Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue.

Include all types of securities being sold for the first time. After being offered in primary market it becomes the part of secondary

market.

Primary offer consists of :

IPO(initial public offering) :-where unlisted company is selling the securities to the public for the first time.

FPO(follow on public offering) :-new offering of the listed company that have sold securities before.

Features of primary markets are:

This is the market for new long term capital. Therefore it is also called the new issue market (NIM).

In a primary issue, the securities are issued by the company directly to investors.

The company receives the money and issues new security certificates to the investors.

Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.

The primary market performs the crucial function of facilitating capital formation in the economy.

The new issue market does not include certain other sources of new long term external finance, such as loans , debts etc.

The secondary markets are where existing securities are sold and bought from one investor or speculator to another, usually on an exchange

Also Secondary market is the market where stocks are traded after they are

initially offered to the investor in primary market (IPO's etc.) and get listed to stock exchange. Secondary market comprises of equity markets and the debt markets.

Secondary market is a platform to trade listed equities, while Primary market is the way for companies to enter in to secondary market

Secondary market

Equity Shares

In business and finance, a share (also referred to as equity share) of stock means a share of ownership in a corporation (company).

Features of equity:

Maturity Right to income Claim on asset Right to control Pre-emptive rights Limited liability

Placement of Issue

Offer through prospectus

Offer for sale

Private placement

Book building

Right issue

Red herring prospectus

Offer through prospectus

Invites offer for subscription or purchase of any share…

The salient feature of prospectus are:

1. General information of company Capital structure of company Terms of the present issue Particulars of the issue Company management and project Details of the outstanding litigations Management perception of risk factors Justification of the issue premium Cost of project, projected earning

Offer for sale

Promoter places his share with an investment banker who offer it to the public at later date. Hold on period is 70 to year Bought out dealer decide the price after analyzing the viability and future projections Bought out dealer sheds the share at the premium to the public

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Advantages of the issuing company:

Helps the promoters to realize the fund without any loss of time. The cost of raising fund is reduced. Helps the new entrepreneurs, not familiar with capital market, to raise adequate fund. Company with no track record of the project , public issue at premium may pose problems. Possess low risk to the investors since the sponsor have already held the share for certain

period.

Disadvantage:

Sell at a hefty premium. Manipulation of the results. Insider trading and price rigging .

Private placement

Small number of financial intermediaries like unit trust of India, mutual funds, insurance companies purchase the shares and sell them to the investor at later at suitable prices.

Advantages:

Cost effective Time effective Access effective Structure effectiveness

Right issue

Offers shares at the first to existing share holder. In proportion to the share held by them at time of offer. Offered at advantageous rate compared to the market.

Certain conditions:

1. A notice should be issued to specify the number of shares issued

2. The time given to accept should not be less than 15 days

3. Right of share holder to renounce the offer in favor of other

Book building

Process of price discovery. Not a fixed priced for its shares. Indicate a price band which give highest

(the cap price) and lowest (the floor) prices. The spread between floor and cap of the price

band should not be more than 20%.

The cap should not be more than 120% of the

floor. The price is finalized by the book runner

and issuer .

Red herring

Prospectus without either details of price and number of shares being offered or the amount of issue.

A preliminary registration statement that must be filed with SEBI describing a new issue of stock and prospectus of the issuing company.

It is known as red herring because it contains a passage in red that states the company is not attempting to sell their shares before the registration is not approved by the SEBI

PRICING OF ISSUE

Prior to 1992, governed by the controller of capital Issues Act of 1947, fixation of a fair price on the basis of the net asset value per share.

Era of free pricing 1992, SEBI does not play any role in price fixation.

Issuer in consultation with merchant banker shall decide the price.

Price discovery through book building.

1. At premium companies are permitted to price their issue at premium if subscription is very high

2. At par value some times company have to give at par value.

Intermediatries to issue

Lead Managers. Registrar to the issue. Underwriter to the issue. Financial Institutions Advertising agencies Government agencies

Lead Manager

Appointed by the company to manage public issue program He should posses valid SEBI registration

Main duties:

Drafting of Prospectus. Preparing Budget of expenses related to issue. Suggesting appropriate timings of the issue. Assisting in marketing of the public issue. Advising the company in appointing registrars ,underwriter , brokers, advertising

agency , bankers etc.

The banking division of financial institutions, subsidiary of commercial banks, foreign banks, private sector bank and private agencies are available to act as lead manager.

Some of them are SBI capital market Limited, Bank of Baroda,canera bank,ICICI securities etc.

Role of Lead Manager in the Pre & post Issue

Pre issue Post issue

Due diligence Management of escrow a/c

Design of prospectus , memo etc. Co-ordinate non-institutional allocation

Ensure the formality. Intimation of allocation

Appointment with intermediatries Dispatch of refund to bidders

Marketing strategy Look at the functioning of agencies

Registrar

Finalizes the list of eligible allotees after deleting the invalid application.

Action for crediting the shares to demat account of applicants.

Dispatch of refund order to those applicable.

Receive the share application from various collection centre.

Arrange for dispatching of shares certificate.

Bankers to the issue

Ensure that funds are collected and transferred to escrow accounts.

Estimate of collection and advising the issuer about the closer of the issue.

Underwriters

Underwriting means they will subscribe to the balance share if all share are not picked up at IPO.

Can be a banker ,broker or financial institutions. Done for a commission.

Aspect considered before appointing: Reputation. Network of investor Clientele Past performance Experience.