Published on February 25, 2014
Primary Market Primary markets are the market for first time issuance of shares and being listed on the stock exchanges. Public issue When an issue/offer of securities is made to new investors to become a part of the shareholders family of the issuer it known as public issue. Kind of issue (a) Public Issue (i)Initial Public Offer(IPO) When an unlisted company makes a fresh issue or offer its existing securities it paves way for listing and trading. (ii) Further public offer (FPO) FPO is when listed company makes either a fresh issue of securities to the public or an offer. for sale to the public. (b) Rights issue (RI) A issue made by the issuer to the existing shareholders(on a record date) is right issue. (c) Bonus issue: an issue to existing shareholders without any consideration from them,. The issue is made from free reserve or share premium account in a ratio to the number of securities held. (d) Private placement: a issue made to a select group of persons not exceeding 49. It is neither a right issue nor a public issue. Private placement is of 2 types. (i) Preferential allotment: shares are issued to a select group of persons in terms of provisions of Chapter XIII of SEBI (DIP) guidelines. (ii) Qualified institutions placement (QIP): when shares are issued to Qualified Institutions Buyers only in terms of provisions made in Chapter XIIIA of SEBI.
Issue requirement Entry norm have been laid by SEBI for an unlisted company Entry Norm I ( “Profitability Route”) The Issuer Company shall meet the following requirements: (a) Net Tangible Assets of at least Rs. 3 crores in each of the preceding three full years. (b) Distributable profits in atleast three of the immediately preceding five years. (c) Net worth of at least Rs. 1 crore in each of the preceding three full years. (d) If the company has changed its name, atleast 50% of it revenue should be from the activity under new name. (e) The issue size does not exceed 5 times the pre‐ issue net worth as per the audited balance sheet of the last financial year SEBI has provided two other alternative routes to companies not satisfying any of the above condition Entry Norm II ( “QIB Route”) (a) Issue shall be through book building route, with at least 50% allotted to (QIBs). (b) The minimum post‐issue face value capital shall be Rs. 10 crores Entry Norm III (“Appraisal Route”) (a) The “project” is appraised and participated to the extent of 15% by Financial Institutions / Scheduled Commercial Banks of which at least 10% comes from the appraisers. (b) The minimum post‐issue face value capital shall be Rs. 10 crores or there shall be a compulsory market‐making for at least 2 years.
(ii) A listed issuer making a public issue (FPO) is required to satisfy the following requirements : (a) If the company has changed its name atleast 50% of it revenue for the preceding year should be from the activites in the new name. (b) The issue size does not exceed 5 times the pre‐ issue net worth . (i) Certain category of entities which are exempted from the above norms are (a) Private Sector Banks (b) Public sector banks (c) An infrastructure company whose project has been appraised by a Public Financial Institution or IDFC or IL&FS and not less than 5% of the project cost is financed by these institutions. Provisions to be mentioned in guidelines for making a public issue (a) Minimum Promoter’s contribution and lock‐in promoters should contribute not less than 20% of the post issue capital which will be locked in for a period of 3 years. (b) IPO Grading Credit Rating Agency registered with SEBI should grade IPOs . this should be disclosed in the public issue offer. (c) Pricing of an Issue The issuer in consultation with merchant banker decides the price . the offer document disclosed the price parameters. There are 2 types of price (i) Fixed Price Issue The issuer decide the price at the outset (ii) Book built issue The price is discovered on the basis ofdemand received from prospective investors at various level. (d)
(e) Book building Book building is a process of price discovery. The issuer discloses a price band Within which demands are received. Book Running Lead Manager (BRLM) and issuer arrives at a price at which the security offered. (f) Price band The price band is disclosed in the red herring rospectus. The spread between the floor price and the cap
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