New issue market

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:

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:

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.

underwriters

•Experience in primary market•Past performance•Outstanding underwriting commitment•The network of underwriter•His overall reputation

Aspects considered before selecting underwriter are

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.

Advertising agents

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

The financial institutions

They generally act as underwriters and provide long term loans to the company

Govt. and statutory agenciesSEBI

Registrar of companies

RBI

Stock exchanges

Industrial licensing authorities

Pollution control authorities

Collection centre’s

Generally there should be at least 30 collection centers' inclusive of places where stock exchanges are located.

Region Exchange City

Northern region

Ludhiana stock exchange

Ludhiana

Delhi stock exchange Delhi

Jaipur stock exchange Jaipur

U.P. stock exchange Kanpur

Southern region

Hyderabad stock exchange

Hyderabad

Banglore stock exchange

Bangalore

Mangalore stock exchange

Mangalore

Madras stock exchange Chennai

Coimbatore stock exchange

Coimbatore

Cochin stock exchange cochin

Region Exchange City

Eastern region

Calcutta stock exchange Calcutta

Gauhati stock exchange Gauhati

Magadh stock exchange Patna

Bhubaneshwar stock exchange

Bhubaneshwar

Western region

Bombay stock exchange Mumbai

National stock exchange Mumbai

OTCEI stock exchange Mumbai

M.P. stock exchange Indore

Pune stock exchange Pune

Vadodra stock exchange Vadodra

Ahemdabad stock exchange Ahemdabad

Saurashtra kutch stock exchange

Rajkot

Placement of issueOffer through prospectus

Bought out deal (offer for sale)

Private placement

Right issue

Book building

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.

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:-

•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 structur

e of compan

y

•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

Particulars of the issue

(I) objects of issue

(II) Project cost

(III) Means of financing (including promoters

contribution)

•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 manage

ment and project

(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

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 information

11. Statutory information

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.

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.

Right issueAccording 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.

• 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.

According to section 81, the company has to satisfy certain conditions to issue right shares.

Book buildingBook 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.

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.

Allotment of shares

At par

At premium

At discount

Factors to be considered before investingPromoters credibility

Efficiency of management

Project details

Product

Financial data

Risk factors

Auditors report

Statutory clearance

Investors service

Investors protection in the primary market

•Provision of all the relevant information•Provision of accurate information •Transparent allotment procedures without any bias

The principal ingredien

ts of investors protectio

n are:

•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:

Factors needed to make the investor protection effective

Investors awareness

Strict norms for premium fixation

Safety nets

Punitive action

Promoters stake

Recent trends in the primary marketAggressive pricing

Good liquidity

Low returns

Low volume

Economic slow down