PRIMARY MARKET

Primary Market

Provides the channel for sale of new securities

to raise resources to meet their requirements

issue the securities in domestic market and/or international market.

Terminology

• Nominal or stated amount assigned by issuer Face value

• When security sold above its face value Premium

• When security sold at less than face value Discount

Classification of issue of shares

Issues

Public

Initial Public Offering

Fresh Issue

Offer for Sale

Further Public Offering

Fresh Issue

Offer for Sale

Rights

Private Placement

Initial Public Offering (IPO)

Made by Unlisted Companies

Either Fresh issues of

securities

An offer for sale of its existing

securities

Both for the first time to the public

Advantage of IPO

No Cost of capital

Huge amount can be raised

Brand Value Correct Valuation

Disadvantage of IPO

Disclosure of information

Decision’s take time

Cost of IPO

Parties to IPO

Registrar Underwriter

Lead Manager

Merchant Banker

Who decides the price of an issue?

• When issuer & Lead Merchant Banker fix a price

Fixed Price

• When the company and Lead Manager stipulate the price

and leave it to market forces Price discovery through Book

Building

Further Public Offering

When an already listed company makes

Either fresh issue of securities to the public

Or an offer for sale to the public

Through offer document

Rights Issue

When listed company issue fresh securities

To existing shareholder

Suites for companies who would like to raise capital

Private Placement / Preferential Issue

1.

•Issue of shares or

convertible securities by listed companies

2.

•Which is

neither right

issue

nor a

public

issue

3.

•Faster way

for company to

raise

equity capital

Issue Price

Price at which company shares are

offered

Initially in primary market

Market Capitalization

•Market value

of a quoted compa

ny

1.

•MC = Market Price * No.

of Shares

2.

Chart TitleChart Title

Series1

CAPS IN MARKET

Large capMid capSmall cap

Difference between Public Issue & Private Placement

Public Issue

When issue made for general public and any investor at large.

As per companies act, 1956, an issue becomes public when result it allotment to 50 persons or more.

Private Placement

Issue is made to a select set of people.

An allotment is made to

less than 50 persons.

Book Building

A process used in IPOs

For efficient price discovery

Offer price is determined after bid closing date

Cut –Off Price

Any price which above the floor price

Decided by Issuer & Lead Manager

After considering the book & investors appetite for the stock

Floor Price

It is the minimum price at which bids can be made

Price Band

Price decided by The Company consultant with The Merchant Banker

Cap should not be more than 120% of the floor price

The prospectus may contain

Either the floor price for the securities

Price Band within which the investor can bid

Documents in IPO

Prospectus Draft Offer Document

Abridged Prospectus

Draft Offer Document

Offer document in draft stage

Filled with SEBI

At least 2 days prior to the filling of the offer document with ROC

Abridged Prospectus

Shorter version of the prospectus

Contains all the salient features of a prospectus

Applications form of public issues.

Lock in

Freeze on the sale of shares for a certain period of time

Ensure that company should continue to hold some minimum percentage

After public issue

Listing of Securities

Admission of securities of an issuer to trading

Dealing on a stock exchange through a formal agreement

Provide liquidity and marketability to securities

Provide mechanism for effective control & supervision of trading

Listing Agreement

• Specifies the terms & conditions of listing

1.

• Disclosures shall be made by a company on continuous basis to the

exchange2.

Delisting of Securities

Permanent removal of securities of a listed company

From the stock exchange

Securities of that company no longer be traded that stock exchange

How to apply in IPO’s ?

Online

Offline