GROUP PROJECT WORK ON PRIMARY

MARKET

Financial Institution and Markets

GROUP MEMBERS

Chhitiz Shrestha Digaj Amatya Dikshya Acharya Leeza Shrestha

INTRODUCTION TO CAPITAL STRUCTURE

Represents long term investment Includes funds raised through:

Ordinary and Preference shares Bonds Debentures Term loans from financial institutions Earned revenue Capital surpluses And so on..

INTRODUCTION TO CAPITAL STRUCTURE

Represents the proportionate relationship between debt and equity

Types:o Primary marketo Secondary market

PRIMARY MARKET

Also known as “New Issue Market” Success of the capital market depends on primary

market Is the market for new issuers Can be directly bought from the shareholders Small and medium scale business, enter the

primary market to raise money from the public Accelerates the process of capital formation in a

country's economy

Three methods to issue primary marketo Rights Issue, o Initial Public Offer (IPO), o Preferential Issue.

PRIMARY MARKET

PRIMARY MARKET

FEATURES OF PRIMARY MARKET

This is the market for new long term equity capital. The primary market is the market where the

securities are sold for the first time. In a primary issue, the securities are issued by the

company directly to investors. The company receives the money and issues new

security certificates to the investors. Primary issues are used by companies for the

purpose of setting up new business or for expanding or modernizing the existing business.

The new issue market does not include certain other sources of new long term external finance

Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."

FEATURES OF PRIMARY MARKET

THE NEED FOR PRIMARY MARKET

To raise funds for certain purpose. To create market for new issues of securities. To establish the magnitude of the market. To mobilize Resource the economy. For overall development of companies.

FUNCTIONS OF PRIMARY MARKET

Household Savings Global Investments Sale of Government Securities Primary Market Participants Marker Risk

IMPORTANCE It studies needs, wants and expectations of the

customers. It finds out reactions of customers to products of

the company. It evaluates company's sales promotion measures

for suitable adjustment and improvements. It studies current marketing problems and

opportunities for suitable follow up.

It suggest introduction of new products, modification of existing products.

It studies marketing competition, channel of distribution and pricing for suitable changes if necessary.

It find methods for making the product popular and raising its goodwill and marketing reputation.

HISTORICAL PERSPECTIVES OF NEPALESE SECURITIES MARKET

The history of capital market in Nepal dates back to 1936.

First issue of government bonds made in the year 1964.

carried 6 percent rate of interest and had the maturity period of five years.

In 1974, industrial policy was announced.

HISTORICAL PERSPECTIVES OF NEPALESE SECURITIES MARKET

In 1976 Securities exchange center was established .

The interim government (1990/91) initiated financial reform program and two indirect investment vehicles-Citizen's Investment Fund and NIDC Capital Markets Ltd.

Nepal (SEBO/N) and Nepal Stock Exchange Ltd. (NEPSE) at the policy level in 1993.

Since then they are operating as the main constituents of securities market in Nepal.

DISCLOSURE IN PRIMARY MARKET

The directors need to submit a copy of prospectus to the concerned authorities

After that the prospectus is approved for initial public offering.

Possible financial risks involved in running the business, financial arrangements made, detail list of the names and particulars of all those involved in companies and other important matters to be clearly stated in prospectus.

DISCLOSURE IN PRIMARY MARKET

The issuance of shares worth Rs 7.77 billion in fiscal year 2010-11.

Nepal Rastra Bank (NRB) has stopped giving license to new financial institutions lessening the pressure of new share issues.

Every public company must publish its prospectus before issuing securities.

DISCLOSURE IN PRIMARY MARKET

Last fiscal year shows17 companies got approval to float their primary shares

31 listed companies were allowed to issue right shares.

Yet the depreciating value of securities has reduced the market capitalization of the secondary market.

The capital market regulator shave witnessed the registration of bonus shares worth Rs 4.41 billion of 62 companies and promoters shares worth Rs 1.8 billion of 18 companies in the last fiscal year.

PROCESS OF ISSUING PRIMARY IN NEPAL Originating the Securities Underwriting the Securities Formation of Syndicate Risk Diversification Distribution of Securities Stabilization of the Market

In Nepal, the company should follow the company act.

This is a legal document containing the various financial, corporate and business information, which will help investors make rational investment decisions

the various guidelines developed by SEBON have to be followed and issue managers have to obtain Due Diligence Certificate in dealing in the primary market issues.

ISSUE PROCEDURE IN NEPAL

ISSUE PROCEDURE IN NEPAL

Companies take the help of the investment bankers to provide guarantee of funds

Investment bankers may act either as agents or as principals in any given transactions

The investor banker in this principal transaction is often called an underwriter

ROLES OF AN ISSUE MANAGER

Easy floatation Financial consultant Underwriting Market makers Due diligence Coordination Liaison with SEBI

ROLES OF UNDERWRITER

Primarily responsible for subscription of the

unsold portion o f the securities .

And also to make payment for the related

security.

FUNCTIONING OF UNDERWRITER

SUBSCRIPTION RATIOS

For shares the original cost of the stock shown on the certificate

For bonds the amount paid to the holder at maturity.

For a debt security, face value is the amount repaid to the investor when the bond

matures (usually, Government securities and corporate bonds have a face value of Rs. 100).

The price at which the security is traded depends on the fluctuations in the interest rates in the economy

Securities are generally issued in denominations of 5, 10 or 100 known as the Face Value or Par Value of the security.

CONCLUSION Securities market plays a pivotal role in mobilizing

savings and channeling them in productive purposes and many more.

It provides the channel for sale of new securities. It helps government and corporate to raise

resources to meet their requirements of investment and/or discharge some obligation.

Nepalese capital market now is passing through a bearish situation.

Finally, it is a vital part of the economy

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