1. Private Placement i
Dr.P.Saradhamani, Professor
7/29/2017

2. Definition
A process of inviting subscription to the securities of a corporate issuer by means other than public offering.
Private placement usually refers to non-public offering of shares in a public company.
Instruments issued in private placements are common stock, preferred stock or other forms of membership interests, warrants or promissory notes (including convertible promissory notes), bonds and debentures.
Unlike public offerings, the number of investors can be at most 49.
The company has to be listed on a stock exchange.
Dr.P.Saradhamani, Professor
7/29/2017

3. Why private placement?
Public offerings have limitations w.r.t market variables, cost and time.
Strategic objectives
Consolidation of stakes of promoters
Induct a strategic investor or joint venture partner
Provide management stakes to working directors and senior management
Implement a employee stock option plan
Dr.P.Saradhamani, Professor
7/29/2017

4. Advantages Fast and cost effective. Choice of investors.
Flexibility in type and amount of funding.
Easier to negotiate on return.
Less amount of scrutiny.
Dr.P.Saradhamani, Professor
7/29/2017

5. Disadvantages Difficult to find investors.
Danger of insufficient funds.
Limited investors.
Illiquidity.
Dr.P.Saradhamani, Professor
7/29/2017

6. Preferential Allotment
Private placement of shares or of convertible securities by a listed company to selected group of investors is called preferential allotment.
Investors may have a lock-in period.
The listed companies has to abide by the guidelines as per Chapter XIII of SEBI (DIP), in addition to requirements in Companies Act, 1956.
Dr.P.Saradhamani, Professor
7/29/2017

7. Guidelines Pricing – Issue, warrants, convertible debentures)
Currency of financial instruments
Non-transferability of financial instruments.
Currency of shareholders’ resolution
Other requirements
Certified by auditor
Copies to shareholders
Independent valuation
Dr.P.Saradhamani, Professor
7/29/2017

8. Qualified Institutional Placement
QIP is another tool, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares to a QIB.
Introduced by SEBI to prevent listed companies in India from developing an excessive dependence on foreign capital.
Compliance with guidelines in Chapter XIIIA of SEBI (DIP).
Dr.P.Saradhamani, Professor
7/29/2017

9. Guidelines Listing Investors Pricing Adjustments in price
Currency of security
Shareholders’ resolution
Placement document
Number of allotees
Restrictions on amount raised
Transferability of securities
Role of Merchant Bankers
Dr.P.Saradhamani, Professor
7/29/2017

10. Thank you
Dr.P.Saradhamani, Professor
7/29/2017