primary market ajahar husain ndim
DESCRIPTION
TRANSCRIPT
PRIMARY MARKET
Primary Market
Provides the channel for sale of new securities
to raise resources to meet their requirements
issue the securities in domestic market and/or international market.
Terminology
• Nominal or stated amount assigned by issuer Face value
• When security sold above its face value Premium
• When security sold at less than face value Discount
Classification of issue of shares
Issues
Public
Initial Public Offering
Fresh Issue
Offer for Sale
Further Public Offering
Fresh Issue
Offer for Sale
Rights
Private Placement
Initial Public Offering (IPO)
Made by Unlisted Companies
Either Fresh issues of
securities
An offer for sale of its existing
securities
Both for the first time to the public
Advantage of IPO
No Cost of capital
Huge amount can be raised
Brand Value Correct Valuation
Disadvantage of IPO
Disclosure of information
Decision’s take time
Cost of IPO
Parties to IPO
Registrar Underwriter
Lead Manager
Merchant Banker
Who decides the price of an issue?
• When issuer & Lead Merchant Banker fix a price
Fixed Price
• When the company and Lead Manager stipulate the price
and leave it to market forces Price discovery through Book
Building
Further Public Offering
When an already listed company makes
Either fresh issue of securities to the public
Or an offer for sale to the public
Through offer document
Rights Issue
When listed company issue fresh securities
To existing shareholder
Suites for companies who would like to raise capital
Private Placement / Preferential Issue
1.
•Issue of shares or
convertible securities by listed companies
2.
•Which is
neither right
issue
nor a
public
issue
3.
•Faster way
for company to
raise
equity capital
Issue Price
Price at which company shares are
offered
Initially in primary market
Market Capitalization
•Market value
of a quoted compa
ny
1.
•MC = Market Price * No.
of Shares
2.
Chart TitleChart Title
Series1
CAPS IN MARKET
Large capMid capSmall cap
Difference between Public Issue & Private Placement
Public Issue
When issue made for general public and any investor at large.
As per companies act, 1956, an issue becomes public when result it allotment to 50 persons or more.
Private Placement
Issue is made to a select set of people.
An allotment is made to
less than 50 persons.
Book Building
A process used in IPOs
For efficient price discovery
Offer price is determined after bid closing date
Cut –Off Price
Any price which above the floor price
Decided by Issuer & Lead Manager
After considering the book & investors appetite for the stock
Floor Price
It is the minimum price at which bids can be made
Price Band
Price decided by The Company consultant with The Merchant Banker
Cap should not be more than 120% of the floor price
The prospectus may contain
Either the floor price for the securities
Price Band within which the investor can bid
Documents in IPO
Prospectus Draft Offer Document
Abridged Prospectus
Draft Offer Document
Offer document in draft stage
Filled with SEBI
At least 2 days prior to the filling of the offer document with ROC
Abridged Prospectus
Shorter version of the prospectus
Contains all the salient features of a prospectus
Applications form of public issues.
Lock in
Freeze on the sale of shares for a certain period of time
Ensure that company should continue to hold some minimum percentage
After public issue
Listing of Securities
Admission of securities of an issuer to trading
Dealing on a stock exchange through a formal agreement
Provide liquidity and marketability to securities
Provide mechanism for effective control & supervision of trading
Listing Agreement
• Specifies the terms & conditions of listing
1.
• Disclosures shall be made by a company on continuous basis to the
exchange2.
Delisting of Securities
Permanent removal of securities of a listed company
From the stock exchange
Securities of that company no longer be traded that stock exchange
How to apply in IPO’s ?
Online
Offline