3. PRIMARY MARKETS
• Primary Market is a market for raising long term capital.
• The securities are being offered to public for the first time, therefore it is also called
New Issue Market (NIM)
• Company directly issues security to investors.
• Money raised from primary issues are generally used for setting up new business or
its expansion.
• Sometimes money is also required for working capital purposes or for retiring the
debt or taking over another company.
4. METHODS OF RAISING FUNDS IN
THE PRIMARY MARKET
Methods of
Raising funds
Public Offer
Initial Public
Offer(IPO)
Rights
Issue(For
existing
companies)
Follow on
Public
Offer(FPO)
Private
Placements
5. • An Initial public offer(IPO) means
offering/selling shares of a company, for the
first time to the investing public.
• Offer for sale does not increase the paid up
capital of the company whereas public issue of
new shares does increase the capital of company
Initial public
offering(IPO)
• Follow on offer is popular method for
companies that are already listed on stock
exchange , to issue additional share to investors.
• FPOs should not be confused with IPOs as
FPOs are supplementary issues made after the
company has been already listed on an exchange.
Follow on
Public
offer(FPO)
6. • Right offering is the issue of additional equity to
existing shareholders of the company, which is
issued on the basis of their existing shareholding.
• In case of right offer, subscriptions to the new
share is not open to everyone, but is confined
only to those who already own the shares of the
company.
Rights
Offerings
• When the shares are offered to selected group
of investors, it is said to have privately placed.
• Investors in privately placed securities include
insurance companies, pension funds, mutual
funds and trust or select individuals.
Private
Placement
8. Process of IPO
Registration of
Draft Prospectus
Fulfilments of
Norms
Appointment of
Merchant Bankers
Marketing of the
issue
9. Drafting of a Prospectus
• Identify Your Investors
• Profit Generation
• Simplicity
• Team
• Risks
• Funding Requirements
• Financials
• Exit
10. FULLFILLMENT OF NORMS FOR THE
ISSUANCE OF A PUBLIC ISSUE
Entry Norm I (Profitability Route)
Entry Norm II (QIB Route)
ENTRY NORM III(“APPRAISAL
ROUTE”)
11. Entry
Norm I
Net tangible assets of at least Rs. 3 crore in each of the preceding three year
Minimum of Rs. 15 crore as average pre-tax operating profit
Net worth of at least Rs. 1 crore in each of the preceding three full years.
Change in the company’s name, at least 50% of the revenue for preceding one year
Issue size should not exceed 5 times the pre-issue net worth
Entry
Norm II
Issue shall be through a book building route, with at least 50 per cent of the issue to be mandatorily
allotted to the qualified institutional buyers (QIBs), failing which the money shall be refunded.
Issue shall be through a book building route, with at least 50 per cent of the issue to be mandatorily
allotted to the qualified institutional buyers (QIBs), failing which the money shall be refunded.
Entry
Norm III
The project is appraised and participated to the extent of 15 per cent by FIs/scheduled commercial
banks of which at least 10 per cent comes from the appraiser(s). In addition, at least 10 per cent of
the issue size shall be allotted to QIBs, failing which the full subscription monies shall be refunded.
The minimum post-issue face value capital shall be Rs. 10 crore or there shall be a compulsory
market making for at least 2 years.
12. APPOINTMENT OF THE ISSUE
SERVICING AGENCIES
Merchant banker and
underwriter to the issue:
A merchant banker should
have valid registration with
SEBI to be eligible for
appointment
Registrar to the issue: the
registrar provided
administrative support to
the issue process of
keeping the records the
share holding
Brokers to the issue: Any
member of a recognized
stock exchange can become
broker to the issue
BANKER TO THE
ISSUE : Any scheduled
bank having valid
registration with SEBI Can
be appointed as the banker
to the issue
13. MARKETING OF THE ISSUE
• Marketing of issue involves an attempt to increase retail distribution of the
shares through network of brokers and roadshows by issuing companies.
• Roadshows involves the investors of press conferences which are attended
by high individuals and brokers and press. These press conferences help the
company seek the publicity of the proposed public issue.
14. POST ISSUE ACTIVITIES
• After the closure of the subscription list, the merchant bankers should
inform the issuer company whether 90% of the amount has been subscribed
or not.
• If not, this is known as under subscription and the under writers should
bring the short fall amount.
• In case of over subscription the shares shall be allotted on pro-rata basis and
the excess amount shall be refunded to shareholders with interest.
15. IPO GRADING
• IPO grading is the method of grading IPO of convertible securities by a
credit rating agency registered with SEBI.
• The grade represents how strong it is fundamentally as compared to other
securities.
• Disclosure of IPO grades so obtained was voluntary for companies coming
up with an IPO till December 2013, however it was mandatory.
16. FINAL PROSPECTUS
• The final version of a prospectus for a public offering of securities is known
as the Final prospectus.
• Before the final prospectus is issued, the issuer company makes changes in
the draft prospectus and adds such important information as the offering
price and the underwriting commission.
17. Description of the
offering
History of the
business
Description of
management
Price Date
Selling discounts to
retail investors
Use of proceeds
Description of the
underwriting
Financial
information
Risk to buyers
Legal opinion
regarding the
formation of the
company
Fig. The contents of Final Prospectus
18. LISTING OF THE SECURITIES
• Listing means that the securities have been included in the list of securities
that may be traded at a stock exchange.
• The securities may be of any public limited company, central and state
government and other financial institutions, etc.
19. REASONS FOR LISTING
• The main reason for listing is to provide the exit route to the investors buying the
shares in the primary market.
• It also helps in spreading the risk of ownership among large group of
investors/shareholders.
• When the company trades on the stock exchange, it provides liquidity to the existing
shareholders.
• Listing could be lucrative offer for the existing shareholders too as it might increase
the value of their shareholdings in form of capital gains if the price of the share
goes above the issue price.
20. The minimum market capitalization of the Company shall be Rs. 25 crore
The minimum issue size shall be 10 crore.
The minimum post issue paid up capital of the applicant company shall be Rs 10 crore for IPO’S and
Rs 3 crore for FPO’S.
The Applicant, promoters and/or group companies shall not be in default in compliance of the listing
agreement.
The above eligibility criteria would be in addition to the conditions prescribed under SEBI
Regulations,2009.
The issuer shall comply to the guidance/ regulations applicable to listing as
o Securities Contract Act 1956.
o Securities Contract Rules 1957.
o Securities and Exchange Board of India Act 1992.
o And any other circular, clarifications, guidelines issued by the appropriate authority.
o Companies Act 1956.
MINIMUM LISTING REQUIREMENT
FOR COMPANIES
21. GUIDELINES FOR COMPANY LISTING
1. Minimum listing requirements for new companies
• There are prescribed eligibility criteria for listing of companies on BSE through IPO and FPO.
2. Permission
• Before filing the prospectus with ROC, company is required to obtain prior permission from exchange
at which it is interested to list the securities.
3. Allotment of securities
• A company is required to complete allotment procedure within 30 days of the date of closure of the
subscription list and approach the regional stock exchange.
4. Permission to trade
• As per SEBI guidelines, companies have to complete all the formalities within 7 working days of
finalization of basis of allotment.
22. GUIDELINES (cont..)
5. Requirement of security amount
• Companies seeking listing is required to deposit 1% of issue amount as security to
stock exchange before the issue is listing for trading.
• All companies listed on exchange have to pay annual listing fees for their continued
listing for trading on the stock exchange.
6. Compliance with agreement
• The listing department monitors timely payment of fee, observing company whether it
is adhering to rules and regulations regarding minimum number of shareholders etc.
and taking panel actions against defaulting companies.
23. TYPES OF PRICING METHODS IN IPO
1. Fixed Price
• Price of the share is fixed and securities are offered at this price
• Price is made known to investors in advance.
2. Book Building
• Book building is used in IPO which helps in price and demand discovery.
• It is more suitable for big issues, though minimum size is not fixed by SEBI.
Nowadays, the public is made under asbas where inonly the funds from the amount deposited by the applicant against allotment shall be utilised. Therefore, the problem of funds stuck for long time with the bank does not arise.
