1. Capital Markets Nishant Dhruv Department of Management
Atmiya Institute of Tech. & Science

2. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Contents :
Capital Market : Primary & Secondary
Primary Market: Public Issue, Right Issue & Private Placement
Eligibility Norms, Procedures for IPOs.
Book Building Process
Green Shoe Option
Fund Raising from International Market : ECB, FCCBs, ADRs.
Dematerialization of Securities
Rolling Settlement
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

3. Segments of the Capital Market
Primary market
-Channel for creation of new securities
Secondary market
-The new securities issued in the primary
market are traded the secondary market
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

4. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Primary Market
The primary market is the market for new issues/shares.
Primary market provides opportunity to issuers of securities; Government as well as corporates, to raise resources to meet their requirements of investment.
They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc.
Company may issue the securities in domestic market and/or international market.
Here I will talk about why do companies raise funds or need to issue shares,what is face value of share and premium and discount. Explain the concept of equity and debt
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

5. Classification of Issues
Private Placement
Private Placement
Preferential Issue
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

6. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Public Issue
Public issue means an invitation by a company to the public to subscribe the securities/shares
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

7. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Initial Public Offer
Initial Public Offering (IPO) is when an unlisted company makes a fresh issue of securities for the first time to the public. This paves way for listing and trading of the issuer’s securities.
A Follow-On Public Offering (Further Issue) is when an already listed company makes a fresh issue of securities (additional new shares) to the public.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

8. Eligibility Norms for raising funds through IPOs and FPOs.
Entry Norm I :
Net tangible assets : 3 crores for three full years (out of which monetary assets should not be more than 50 %)
Distributable Profit : 3 out of 5 years.
Net worth : At least Rs. 1 crore in three years
Issue Size : Should not exceed 5 times of net worth.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

9. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Entry Norm II :
Issue shall be through book building root.
At least 50% of the issue is mandatorily allotted to QIB (qualified institutional investors).
Minimum post issue face value capital shall be Rs. 10 crores.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

10. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Entry Norm III
The project is being appraised and participated by FIs/Scheduled Commercial Banks.
Minimum post issue face value capital shall be Rs. 10 crores.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

11. Procedure – Offer Documents
Offer documents means prospectus in case of a public issue.
Pre-Issue EPS, P/E Ratio, Avg. Net worth.
Other information like credit rating, risk involved – internal & external, schedule of implementation of projects.
The company needs to submit ‘offer documents’ to SEBI.
After 21 days, ‘offer documents’ will be filed to ROC, SEs.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

12. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
The issuer (company) is allowed to freely price the issue.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

13. Pricing of an IPO/Issue/shares
Fixed Price
Book Building (Price discovery through Book Building Process)
There is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The company and
merchant banker are however required to give full disclosures of the parameters which they had considered while deciding the issue price
Fixed price decided by company and lead manager
Book building company and the Lead Manager (LM) stipulate a floor price or a price band and leave it to market
forces to determine the final price
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

14. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Book Building Process
Book Building is basically a process used in IPOs for efficient price discovery.
It is a mechanism where, during the period for which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. The offer price is determined after the bid closing date.
Explain book building with example and explain floor price, cut off price, price bands
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

15. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
The issue price is called the ‘cut off rate’.
After the closure of Issue, the bids are segregated under different categories e.g. QIB, Non-institutional investors, Retailers.
QIB, qualified institutional buyers, refers to mutual fund, FIIs, Scheduled banks registered with SEBI.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

16. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
No companies can make public issue of debt instruments, unless it fulfills the two conditions :
Credit Rating
It should not be in defaulters list of RBI.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

17. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Rights Issue
Rights Issue is when a listed company which proposes to issue fresh securities to its existing shareholders (on pro-rata basis.)
It is generally issued at a price lower than the currently traded market price of the share.
In addition to this, right issue has to be kept open for 30 days.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

18. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Private Placement
A Private Placement is the direct sale of newly issued securities, to a limited number of subscribers such as banks,financial institutions,mutual funds and high net worth individuals.
Private placement can be done through the subscription of 50 investors.
Advantages : * Time and Cost * Tailor made * Disclosure and compliance norms
Disadvantage : * Hostile takeover
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

19. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Preferential Issue
A Preferential issue is an issue of shares by listed companies to a select group of persons which is neither a rights issue nor a public issue.
The allotment is made to various STRATEGIC GROUPS (promoters, foreign partners, technical collaborators)
This is a faster way for a company to raise equity capital.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

20. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
SEBI Norms :
Lock in period for 3 years for promoters.
The amount utilised should be disclosed.
which share allotment should be done ?
Advantages :
Company prefer to allot shares to its promoters (to pledge shares with banks and get cash)
Raising the commitment towards the company.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

21. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Green Shoe Option
It is a mechanism to provide post-listing price stability.
A Green Shoe Option means allocating shares in excess of shares included in public-issue.
The company should appoint merchant banker who will be working as SA (Stabilizing Agent).
The SA will be responsible for price stabilization process.
The price stabilization period should not exceed more than 30 days.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

22. International Markets – Fund Raising
External Currency Borrowing (ECB)
Foreign Currency Convertible Bond (FCCB)
American Depository Receipts (ADRs)
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

23. External Commercial Borrowing (ECB) (- one type of loan)
It refers to commercial loans (e.g. bank loans, seller’s credit) availed from non-resident lenders with minimum average maturity of 3 years.
When the company will go for ECB ?
What is the risk associated with ECB ? – Interest risk and currency risk
The first floating rate ECB was issued by Global Telesystems in the year 1996.
What is the regulatory formality ? – 1. Automatic Route 2. Approval Route
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

24. Foreign Currency Convertible Bonds
A bond issued by an Indian company and subscribed by non-resident in foreign currency (dollars) for a minimum period of 5 years.
They carry a fixed interest and are convertible into ordinary shares.
Till the conversion take place, the company has to pay interest in dollars.
If the conversion into shares does not happen then company has to pay (redeem) back principal amount in dollars (foreign currency in which it’s being issued)
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

25. FCCB - How can it be issue ?
Regulatory Requirement :
Bonds upto $50 mn – No approval required.
Bonds upto $100 mn – RBI approval required.
Bonds above $ 100 mn – Approval required from Finance Ministry.
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

26. American Depository Receipts (ADRs)
A non-US company that seeks to list in US, deposit its shares with bank which ultimately enable the company to issue ADRs.
Wipro wants to list ?
Non- Us Company
US (Nasdaq/ DowJones) 1 2
The company will deposit its shares with US bank
The bank issue receipts which enables the company to issue ADR)
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

27. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Assignments
ADR/GDR/IDR – Difference ?
Reverse Book Building
BRLM (Book Running Lead Manager)
Red Herring Prospectus
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

28. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Review of Chapter
CHECK ……
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science

29. Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science
Questions
State the reasons for the growth of Private Placement market in India.
What is Green-shoe option ? What are the advantages and drawbacks of Green-shoe option ?
Briefly explain the different methods the company is adopting for fixing the price of IPOs.
How are funds mobilised from International Markets ?
Explain Terms : i) FPO ii) Right Issue iii) Reverse Book Building iv) Book Running Lead Manager (BRLM) v) Red Herring Prospectus
More company prefers to bring Public Issue during boom period of economy. – Explain
Instructor : Nishant Dhruv, Atmiya Institute of Technology & Science