public issue management

8/4/2019 Public Issue Management

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Public issue management

Compiled by-Shivakriti Kapoor

Sec.A



Introduction

• The management of securities of the corporate sector offered to the

public on a regular basis, and existing shareholders on a rights basis,is known as Public Issue Management.

• Issue management is an important function of merchant bankersand lead managers.

•

The management of issues for raising funds though various types of instruments by companies is known as Issue Management.

• The function of capital issues management in India is carried out by merchant bankers who have the requisite professional skill andcompetence. One of their functions, in fact, is issue management.

• Factors such as the tremendous growth in the number and size of public listed companies, and the complexity arising due to the everincreasing SEBI requirements have all attributed to the increasingly significant role played by merchant bankers in the recent past.



• The definition of merchant baker as contained in SEBI (MerchantBanker) Rules and Regulations, 1992 clearly brings out thesignificance of Issue Management as follows; “any person who is

engaged in the business of issue management either by making arrangement regarding selling, buying or subscribingto securities as manager, consultant advisor or renderingcorporate advisory services in elation to such issuemanagement” .

• The merchant bankers provide their skills and expertise tocompanies in the management of capital issues.

• This essentially aims at channelling household savings into the

corporate sector through the issue of corporate securities.• Companies raise funds for the purposes of financing new projects,

expansion/modernization/diversification of existing units andaugmenting long term resources for working capital purposes.



Functions

The general functions that form part of the capital issues managementof merchant bakers are as follows:

• Obtaining approval for the issue from SEBI.• Arranging for underwriting the proposed issues.• Preparation of draft and finalization of the prospectus and

obtaining its clearance from the various agencies concerned.• Preparation of draft and finalization of other documents such as

application forms, newspaper advertisements and other statutory requirements.

• Making a choice regarding registrar to the issues, printing press,advertising agencies brokers and bankers to the issue and

finalization of the fees to be paid to them.• Arranging for press conference and the investors’ conferences.• Coordinating printing, publicity and other work in order it get

everything ready at the time f the public issue.• Complying with SEBI guidelines after the issue is over by sending

various reports as required by the authorities.



Categories Of Securities Issue

Corporate enterprises use several sources for raisingfunds from the capital market. Issue of securitiesconstitutes an important mode of raising suchfinances. Security takes the following forms:

1. Public Issue

2. Right Issue

3. Private Placements



Public Issue of Securities:

• When capital funds are raised through the issue of a prospectus, it is

called public issue of securities.• It is the most common method of raising funds in the capital

market.

• A security issue may take place either at par, or at a premium or at adiscount.

• The prospectus has to disclose all the essential facts about thecompany to the prospective purchasers of the shares.

• Further, the prospectus must conform to the format set out inSchedule II of the Companies Act 1956, besides taking into the

account SEBI guidelines.• SEBI insists on the adequacy of disclosure of information that

should serve as the basis for investors take a decision about theinvestment of their money.



Rights Issue:

• When shares are issued to the existing shareholders of a company on a privileged basis, it is called as Rights Issue.

• The existing shareholders have a pre-emptive to subscribe to thenew issue of shares.

• Rights shares are offered as additional issues by corporate to mopup further capital funds.

• Such shares are offered in proportion to the capital paid up on theshares held by them at the time of the offer.



Private Placements:

•

When the issuing company sells securities directly to the investorsespecially institutional investors, it takes the form of privateplacement.

• In this case no prospectus is issued since it is presumed that theinverts have sufficient knowledge and experience and are capable of

evaluating of the risk of the investment.• Private placement covers shares, preference shares and debentures.

The role of the financial intermediary such as the merchantBankers and lead managers assumes greater significance in privateplacement.

• They involve themselves in the task of preparing a offermemorandum and negotiating it investors.



Issue Manager Any financial institution / intermediary which can carry out the

activities connected with issue management is registered with SEBIand follow its regulations and guidelines is capable of venturing into

issue management. Issue management is an important activity formerchant bankers.

Requirements:The issue manager needs to satisfy the following requirements before

being allowed by the SEBI to carry out various issue managementactivities:

i. Adequate and necessary infrastructure such as adequate officespace, equipments and manpower to various issue managementactivities.

ii. Minimum number of two persons needed, who are professionally qualified in Law, Finance or Business Management and have theexperience to conduct the business of the merchant banker.

iii. Fulfilling the capital adequacy requirements i.e. a minimum net worth of Rs 5 crores.



Categories of Issue Managers:

SEBI has classified Issue Managers into four categories:

1) Category I: Merchant banker who is authorized to act as issue manager,advisor, consultant, underwriter and portfolio manager.

2) Category II: Merchant banker who is authorized to act only as advisor,consultant, underwriter and portfolio manager.

3) Category III: Merchant banker who is authorized to act as underwriter,advisor and consultant to an issue.

4) Category IV: Merchant banker who is authorized to act only as advisor orconsultant to an issue.

The registration requirements for the respective categories are progressively lessstringent. However, with a view to facilitating only high net worth companiesto operate as merchant, so as to ensure the provision of quality service and to

have a screening effect, merchant bankers of categories II, III and IV wereabolished through an amendment, dated December 9, 1997 to the SEBIMerchant Bankers Regulations, 1992.

Similarly, only corporates, and not proprietorship firms will be registered withSEBI as merchant bankers. The objective was to enhance corporate disciplineand professionalism in the sphere of issue management.



Restrictions on Issue Managers:

SEBI regulations have prescribed restrictions on the number of

issue managers who can be associated with an issue.

This is presented below:

Issue Size Permissible Number of Lead Managers

Less than Rs 50 crores 2

Rs 50 crores but less than Rs 100crores

3

Rs 100 crores but less than the

Rs 200 crores

4

Rs 200 crores but less than Rs400 crores

5

Rs 400 crores & above 5 & more



Role of Issue ManagerThe merchant banker as an issue manager is helpful in the following

ways:

1) Easy floatation: An issue manager acts as an indispensable pilotfacilitating a public / rights issue. This is made possible with thehelp of a repository of special skills possessed by him to execute themanagement of issue.

2) Financial consultant: An issue manager essentially acts a

financial architect, by providing advice relating to capitalstructuring, capital gearing and financial planning for the company.

3) Underwriting: An issue manager allows for underwriting theissues of securities made by corporate enterprises. This ensures due

subscription of the issue.4) Market makers: Merchant bankers, as issue managers often act as

the market makers for the issues lead managed by them. They invest, continue to old and provide, buy and sell quotes for thelisted scrips of the company



5) Due diligence: The issue manager has to comply with SEBIguidelines. The merchant banker will carry out activities with due

diligence and furnish a Due Diligence Certificate to SEBI. Thedetailed diligence guidelines that are prescribed by the Associationof Merchant Bankers of India (AMBI) have to be strictly observed.SEBI has also prescribed a code of conduct for merchant bankers.

6) Coordination: The issue manager is required to co-ordinate with a

large number of institutions and agencies while managing an issuein order to make it successful.

7) Liaison with SEBI: The issue manager, as a part of merchantbanking activities, should register with SEBI. While managing

issues, constant interaction with the SEBI is required by way of filing of offer documents, etc. In addition, they should file anumber of reports relating to the issues being managed.



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public issue management

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