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Introduction To promote a new company To expand an existing company To diversify the production To meet the regular working capital requirements To capitalize.

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Presentation on theme: "Introduction To promote a new company To expand an existing company To diversify the production To meet the regular working capital requirements To capitalize."— Presentation transcript:

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2 Introduction To promote a new company To expand an existing company To diversify the production To meet the regular working capital requirements To capitalize the reserves Companies raise funds to finance their projects through various methods. The promoters can bring their own money or borrow from financial institutions or mobilise capital by issuing securities. The funds may be raised through issue of fresh shares at par, premium and discount. The main objectives of a capital issue are given below:

3 Parties involved in the new issue Drafting the prospectus Preparing the budget of expenses related to the issue Suggesting the appropriate timings of the public issue Assisting in marketing the public issue successfully Advising the company in the appointment of registrars to the issue, underwriters, brokers, etc. Directing the various agencies involved in the public issue. Managers to the issue:

4 Registrar to the issue After the appointment of the lead managers to the issue, in consultation with them the registrar to the issue is appointed. Quotations containing the details of various functions they would be performing and charges for them are called for selection.

5 underwriters Experience in primary market Past performance Outstanding underwriting commitment The network of underwriter His overall reputation Aspects considered before selecting underwriter are

6 Bankers to the issue Bankers to the issue have the responsibility of collecting the application money along with the application form. If the size of issue is too big 3 or 4 bankers may be appointed.

7 Advertising agents They advertise for the issue. A comparative analysis is done for to find suitable advertisement agent from the agents available.

8 The financial institutions They generally act as underwriters and provide long term loans to the company

9 Govt. and statutory agencies SEBIRegistrar of companiesRBIStock exchangesIndustrial licensing authoritiesPollution control authorities

10 Collection centre’s Generally there should be at least 30 collection centers' inclusive of places where stock exchanges are located.

11 RegionExchangeCity Northern regionLudhiana stock exchangeLudhiana Delhi stock exchangeDelhi Jaipur stock exchangeJaipur U.P. stock exchangeKanpur Southern regionHyderabad stock exchangeHyderabad Banglore stock exchangeBangalore Mangalore stock exchangeMangalore Madras stock exchangeChennai Coimbatore stock exchangeCoimbatore Cochin stock exchangecochin

12 RegionExchangeCity Eastern regionCalcutta stock exchangeCalcutta Gauhati stock exchangeGauhati Magadh stock exchangePatna Bhubaneshwar stock exchangeBhubaneshwar Western regionBombay stock exchangeMumbai National stock exchangeMumbai OTCEI stock exchangeMumbai M.P. stock exchangeIndore Pune stock exchangePune Vadodra stock exchangeVadodra Ahemdabad stock exchangeAhemdabad Saurashtra kutch stock exchangeRajkot

13 Placement of issue Offer through prospectusBought out deal (offer for sale)Private placementRight issueBook building

14 Offer through prospectus According to companies act 1985, application forms of shares of a company should be accompanied by a memorandum. In simple terms a prospectus document gives details regarding the company and invites offers for subscription or purchase of any share or debentures from the public. The draft prospectus has to be sent to the regional stock exchange where the shares of company are to be listed and also to all other stock exchanges where the shares are proposed to be listed. The stock exchange scrutinies the draft prospectus. After scrutiny if there is any clarification needed, the stock exchange writes to the company and also suggest modification if any.

15 Salient features of prospectus are: Name and address of the registered office of company The name of stock exchanges where applications have been made for permission to deal in and for official quotation of shares Opening closing and earliest closing date of issue Name and address of lead managers Name and addresses of trustees under debenture trust deed Rating if obtained from CRISIL General information:-

16 Issued subscribed and paid up capital Size of present issue giving separately reservation for preferential allotment to promoters and others. Paid up capital- After the present issue After the conversion of debenture (IV) Details regarding the promoters contribution 2. Capital structure of company

17 Authority for the issue, terms of payment, procedure and time schedule for allotment, issue of certificate and rights of the instrument holder. How to apply- availability of forms, prospectus and mode of payment. Special tax benefits to the company and shareholders under the income tax act if any 3. Terms of the present issue

18 Particulars of the issue(I) objects of issue(II) Project cost (III) Means of financing (including promoters contribution)

19 History of present business Subsidiary companies if any Promoters and their background Name and address of M.D. Location of project Plant and machinery, technological process etc. Collaboration, any performance guarantee by collaborators Infrastructures facilities for raw material and utilities 5. Company management and project

20 (IX) Schedule of implementation of project and progress so far (X) The product Nature of product. Industrial/ consumer Approach to marketing and proposed set up Export possibilities and export obligations (XI) Future prospects (XII) Stock market data for shares

21 6. Particulars about other listed companies under the same management if any 7. Details of outstanding litigations pertaining to matters likely to affects the operations and finances of the company including dispute tax liability if any 8. Management perception of risk factors like sensitivity to foreign exchange rate fluctuations 9. Justification of the issue premium.10. Financial information11. Statutory information

22 Bought out deal Here the promoter places his shares with an investment banker who offers it to the public at later date. In other words in a bought out deal, an existing company off-loads a part of the promoters capital to a wholesaler instead of making a public issue. In addition to main sponsor, there could be individuals and other smaller companies participating in the syndicate. The hold on period may be as low as 70 days and as long as one year.

23 Private placement In this method issue is placed with a small no. of financial institutions, corporate bodies and high net worth individuals. The financial intermediaries purchases the shares and sell them at a suitable price to investors later.

24 Right issue According to sec 81 of companies act 1956, if a public company wants to increase its subscribed capital by allotment of further shares after two years from date of its formation or one year after date of first allotment. It should offer shares at first to the existing share holders in proportion to the shares held by them at the time of offer. According to section 81, the company has to satisfy certain conditions to issue right shares. In same proportion of their holding Time not less than 15 days After the issue the shares can be disposed in a way beneficial for company.

25 Book building Book building is a mechanism through which the initial public offerings take place in U.S. In this process the price determination is based on order placed and investors have an opportunity to place orders at different prices as practiced in international offerings. In this process book runner is appointed and his name is mentioned in the draft prospectus. The book runner has to circulate the copy of the draft prospectus to be filed with SEBI among the institutional buyers who are eligible for firm allotment. The draft prospectus should indicate the price band within which the securities are being offered for subscription.

26 The offers are sent to book runners. He maintains a record of the names and number of securities offered and the price offered by the institutional buyer with in the placement portion. Underwriters should also intimate the orders received by the him within the placement portion and the price for which the order is received to the book runner. The price is finalized by book runner and the issuer company.

27 Allotment of shares At parAt premiumAt discount

28 Factors to be considered before investing Promoters credibilityEfficiency of managementProject detailsProductFinancial dataRisk factorsAuditors reportStatutory clearanceInvestors service

29 Investors protection in the primary market Provision of all the relevant information Provision of accurate information Transparent allotment procedures without any bias The principal ingredients of investors protection are:

30 Project appraisal Underwriting Disclosures in prospectus Clearance by stock exchange Signing by board of directors SEBI’s role Redressal of investor grievances To provide the above mentioned factors several steps have been taken. They are:

31 Factors needed to make the investor protection effective Investors awarenessStrict norms for premium fixationSafety netsPunitive actionPromoters stake

32 Recent trends in the primary market Aggressive pricingGood liquidityLow returnsLow volumeEconomic slow down


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