1. Investment Management
UNIT-2
SECURITIES MARKETS

2. 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

3. 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

4. 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

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

6. Merchant Banker
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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

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

8. Cont…
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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

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

10. Promoters Contribution
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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

11. Lock-in Requirement
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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

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

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

14. 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

15. 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

16. 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

17. 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

18. 5/30/2018
Thanks…
V.Prabakaran, AP/MBA - Securities Market