IPO Factors to Be Considered
Transcript of IPO Factors to Be Considered
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Lectures on New Issue Market
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DEFINES PRIMARY MARKET
It is a market where the securities are sold in order
to raise the funds or the capital required by thecompany. The securities can be in many forms
such as equity shares, preference shares, debt
instruments, bonds etc.
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MEANING OF NEW ISSUE MARKET
It refers to the set-up which helps the
industry to raise the funds by issuingdifferent types of securities
These securities are issued directly to the
investors (both individuals as well as
institutional) through the mechanism called
primary market or new issue market.
The securities take birth in this market.
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PRIMARY MARKET - AN OVERVIEW....!!!
To promote a new company
To Expand an Existing company
To diversify the Production
To Capitalise the reserves
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WHY COMPANIES NEED ?????
Companies Raise funds to finance their projects
through various methods.
The promoters can bring their own money or borrow
from the financial institutions or mobilise capital by
issuing securities .
The funds may be raised through fresh issues of
shares .
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FUNCTIONS OF NEW ISSUE MARKET
The main function of new issue market is to facilitate transfer
resources from savers to the users.
It plays an important role in mobilizing the funds from the
savers and transferring them to the borrowers.
The main function of new issue market can be divided into
three service functions:
Origination
Underwriting
Distribution
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ORIGINATION
It refers to the work of investigation, analysis and
processing of new project proposals. Origination
starts before an issue is actually floated in the
market. It includes a careful study of the technical,
economic and financial viability to ensure the
soundness of the project and provides advisory services
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UNDERWRITINGIt is an agreement whereby the underwriter promises to
subscribe to a specified number of shares or debentures
in the event of public not subscribing to the issue. Thusit is a guarantee for the marketability of shares.
Underwriters may be institutional and non-
institutional .
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DISTRIBUTION
It is the function of sale of securities to ultimate
investors. Brokers and agents who maintain regularand direct contract with the ultimate investors,
perform this service.
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METHODS OF FLOATING NEW ISSUES
± The various methods which are used in the floating of
securities in the new issue market are:
± Public issues
± Offer for sale (Bought Out Sale)
±Private Placement
± Right Issues
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PUBLIC ISSUES OR INITIAL PUBLIC OFFERING(IPO)
The issuing company directly offers to the general
public/institutions a fixed number of securities at a
stated price or price band through a document
called prospectus. This is the most common
method followed by companies to raise capital
through issue of the securities .
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THE MAJOR AGENCIES WHICH INVOLVE IN THE PUBLIC ISSUE TO COORDINATE THE
ACTIVITIES EFFECTIVELY IN THE PUBLIC
ISSUE ARE :
The Managers to the Issue
Registrar to the Issue
Underwriters
Bankers to the Issue
Advertising Agents
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MANAGERS TO THE ISSUE
Lead Managers are appointed by the company to
manage the public issue programmes .
Drafting of prospectus
Preparation the budget of Expenses related to the
issue .
Suggested appropriate timing of the public issue.
Advising the company in the appointment of
registrars to the issue , underwriters , brokers,
bankers to the issue , advertising agency.
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REGISTRAR TO THE ISSUE
Normally receives the share application from various
collection centres .
They recommend the basis of allotment in consult with the regional stock exchange .
They arrange for the despatching for the share
certificates . They handed over the details of the share allocation.
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Underwriters
Bankers to the Issue
Advertising Agency
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IMPORTANT TERMINOLOGY
Book Running Lead Managers (BR LM)
Red Herring Prospectus (RHP)
Delivery Instruction Slip (DIS)
Lot Size
Qualified Institutional Bidder
Retail Bidder
ESCROW
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PLACEMENT OF THE ISSUE
Initial Issues are floated through
Prospectus Private placement
Bought out Deals / Offer for sale
Right Issues
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PRIVATE PLACEMENT
In this type the share brokers or issue houses
purchase all the shares out-rightly from thecompany and issue them to their own clients at
the same price or at the premium price
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IN THE NEWS RECENTLY
FINANCIAL EXPRESS SUN, 5 SEP 2010
Cairn India raises $625 m via private placement
Mumbai, Mar 17: Cairn India has arranged a private
placement of approximately Rs 2,534.6 crore ($ 625 million)after entering into an agreement with Petronas and OrientGlobal Tamarind Fund Pte Ltd. These new investors haveagreed to purchase a total of 113 million shares of Cairn
India at Rs 224.30 per share.The net proceeds of the private placement will be used tofund capital expenditure and for general corporatepurposes.
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BOUGHT OUT DEALS (OFFER FOR
SALE)
In this type the company sells off all its securities to
one issue houses or the share brokers. The share
brokers sell these securities at higher price than the
price at which they have purchased them from the
company. The difference in the purchasing and
selling price is called as ´turn or spread or Bought
Out Deals (BOD)µ. The advantage of this kind of sale is that the company need not print and
advertise the prospectus
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RIGHTS ISSUE
This is an FPO. In this type the company
distributes the new shares or securities amongst
the existing share holders. The distributiondepends on the capital that has to be raised by
the company and the number of the shares that
the existing investors possess.