Investment Management UNIT-2 SECURITIES MARKETS

Methods of floating new issues Public Issue When a company raises funds by selling/issuing its shares (or debenture / bonds) to the public through issue of offer document (prospectus). 1) Initial Public Offer: When a company makes a public issue for the first time and gets its shares listed on stock exchange. 2) Further public offer: When a listed company makes another public issue to raise capital, it is called further public / follow-on offer (FPO). 5/30/2018 V.Prabakaran, AP/MBA - Securities Market

Methods of floating new issues -Contd Rights Issue When a company raises funds from its existing shareholders by selling (issuing) them new shares / debentures, it is called as rights issue. The offer document for a rights issue is called as the Letter of Offer. Existing shareholders are entitled to apply for new shares in proportion to the number of shares already held. 5/30/2018 V.Prabakaran, AP/MBA - Securities Market

Methods of floating new issues -Contd Private Placement Sale of securities privately by a company to a selected group of investors such as institutional investors, mutual funds or other financial institutions. Directly negotitiated with the investors. Prospectus and Underwriting arrangements not required. Useful for small companies. 5/30/2018 V.Prabakaran, AP/MBA - Securities Market

IPO Process Appointment of merchant banker and other intermediaries 5/30/2018 Appointment of merchant banker and other intermediaries  Registration of offer document  Marketing of the issue  Post- issue activities  V.Prabakaran, AP/MBA - Securities Market

Merchant Banker 5/30/2018 One of the crucial steps for successful implementation of the IPO is the appointment of a merchant banker. A merchant banker should have a valid SEBI registration to be eligible for appointment. A merchant banker can be any of the following –  lead manager, co-manager, underwriter or advisor to the issue. V.Prabakaran, AP/MBA - Securities Market

Cont… Size of the Issue No. Of lead Managers 50 cr. 2 50 – 100 cr. 3 5/30/2018 Size of the Issue No. Of lead Managers 50 cr. 2 50 – 100 cr. 3 100 – 200 cr. 4 200 - 400 cr. 5 Above 400 cr. 5 or more as agreed by the board V.Prabakaran, AP/MBA - Securities Market

Cont… 5/30/2018 The number of co- managers should not exceed the number of lead managers. There can only be one advisor/consultant to the issue. There is no limit on the number of underwriters. V.Prabakaran, AP/MBA - Securities Market

Other Intermediaries Registrar to the issue Banker to the issue 5/30/2018 Registrar to the issue Banker to the issue Underwriter to the issue Broker to the issue V.Prabakaran, AP/MBA - Securities Market

Promoters Contribution 5/30/2018 In the public issue of an unlisted company, the promoters shall contribute not less than 20% of the post issue capital as given in Chapter- IV of the SEBI Act, 1992.The entire contribution should have been made before the opening of the issue. V.Prabakaran, AP/MBA - Securities Market

Lock-in Requirement 5/30/2018 The minimum promoters contribution will be locked in for a period of 3 years. The lock-in period commences from the date of allotment or from the date of commencement of commercial production, whichever is earlier. V.Prabakaran, AP/MBA - Securities Market

Marketing of the Issue Timing of the Issue Retail distribution 5/30/2018 Timing of the Issue  Retail distribution  Reservation of the Issue  Advertising Campaign  V.Prabakaran, AP/MBA - Securities Market

Post-Issue Activities 5/30/2018 Principles of Allotment Formalities Associated With Listing V.Prabakaran, AP/MBA - Securities Market

Book Building is a process of price discovery. In a Book Building issue the issuer company mentions the minimum and maximum price (price band) at which it will sell (issue) its shares. Thus the offer document (in this case, called the Red Herring Prospectus) contains only the price band instead of the price at which its shares are offered to the public. 5/30/2018 V.Prabakaran, AP/MBA - Securities Market

Book Building - Process Issuer appoints merchant banker Book runner forms a syndicate of underwriters. (syndicate consists of book runner, lead manager, joint lead managers, advisors, co-managers, underwriting members.) Draft prospectus submitted to SEBI with a price band. (known as Red Herring prospectus). Book runner conducts awareness campaigns. Investors place their orders with syndicate members. 5/30/2018 V.Prabakaran, AP/MBA - Securities Market

Book Building - Process Book runner builds up a record known as “Book” after receiving orders from the syndicate. On the basis of offers received, the book runner and the issuer company determines the price at which the securities shall be sold. The book runner finalises the allocation to syndicate members. Final prospectus along with procurement agreements is filed with ROC within 2 days of determination of offer price. 5/30/2018 V.Prabakaran, AP/MBA - Securities Market

Book Building - Process The book runner collects from the institutional buyers and the underwriters the application forms along with the application to the extent of the securities proposed to be allotted to them/subscribed by them. The merchant banker in a book built public issue is known as Book Running Lead Managers (BRLM) and the issues is kept open for 3‐7 working days, and is extendable by 3 days in case of a revision in the price band by the issuer. 5/30/2018 V.Prabakaran, AP/MBA - Securities Market

5/30/2018 Thanks… V.Prabakaran, AP/MBA - Securities Market