1. EQUITY SHARES AND ITS
WAY TO ISSUE.
Submitted to: Submitted by:
Dr. Shailendra Kumar Preet Inder Singh Nagi (50801057)
Navneet Bajwa (50801102)
Nitesh Bansal (50701513)
Sharanjeet Singh (50701517)
LMT SCHOOL OF MANAGEMENT
THAPAR UNIVERSITY , PATIALA

2. Topics to be discussed -
 Capital Market
 Primary Market
 Features of Primary Market
 Secondary Market
 Equity Shares
 Features of Equity shares
 Issues
 Placement of issue
 Intermediaries of issues

3. Capital Market
The capital market is the market for securities, where
companies and governments can raise long term funds. It is a
market in which money is lent for periods longer than a year.
It consist of:
 Primary Market
 Secondary Market

4. Primary Market
The primary market is that part of the capital market that deals with the
issuance of new securities.
 Companies, governments or public sector institutions can obtain
funding through the sale of a new stock or bond issue.
 Include all types of securities being sold for the first time.
 After being offered in primary market it becomes the part of secondary
market.
Primary offer consists of :
IPO(initial public offering) :-where unlisted company is selling the securities
to the public for the first time.
FPO(follow on public offering) :-new offering of the listed company that
have sold securities before.

5. Features of primary markets
are:
 This is the market for new long term capital. Therefore it is also called
the new issue market (NIM).
 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 primary market performs the crucial function of facilitating capital
formation in the economy.
 The new issue market does not include certain other sources of new
long term external finance, such as loans , debts etc.

6.  The secondary markets are where existing securities are sold and
bought from one investor or speculator to another, usually on an
exchange
Also
 Secondary market is the market where stocks are traded after they are
initially offered to the investor in primary market (IPO's etc.) and get
listed to stock exchange. Secondary market comprises of equity
markets and the debt markets.
 Secondary market is a platform to trade listed equities, while Primary
market is the way for companies to enter in to secondary market
Secondary market

7. Equity Shares
 In business and finance, a share (also referred to as equity share) of stock
means a share of ownership in a corporation (company).
Features of equity:
 Maturity
 Right to income
 Claim on asset
 Right to control
 Pre-emptive rights
 Limited liability

9. Placement of Issue
 Offer through prospectus
 Offer for sale
 Private placement
 Book building
 Right issue
 Red herring prospectus

10. Offer through prospectus
Invites offer for subscription or purchase of any share…
 The salient feature of prospectus are:
1.
 General information of company
 Capital structure of company
 Terms of the present issue
 Particulars of the issue
 Company management and project
 Details of the outstanding litigations
 Management perception of risk factors
 Justification of the issue premium
 Cost of project, projected earning

11. Offer for sale
 Promoter places his share with an investment banker who offer it to the public at later date.
 Hold on period is 70 to year
 Bought out dealer decide the price after analyzing the viability and future projections
 Bought out dealer sheds the share at the premium to the public
`

12. Advantages of the issuing company:
 Helps the promoters to realize the fund without any loss of time.
 The cost of raising fund is reduced.
 Helps the new entrepreneurs, not familiar with capital market, to raise adequate fund.
 Company with no track record of the project , public issue at premium may pose problems.
 Possess low risk to the investors since the sponsor have already held the share for certain
period.
Disadvantage:
 Sell at a hefty premium.
 Manipulation of the results.
 Insider trading and
 price rigging .

13. Private placement
 Small number of financial intermediaries like unit trust of India, mutual funds,
insurance companies purchase the shares and sell them to the investor at
later at suitable prices.
Advantages:
 Cost effective
 Time effective
 Access effective
 Structure effectiveness

14. Right issue
 Offers shares at the first to existing share holder.
 In proportion to the share held by them at time of offer.
 Offered at advantageous rate compared to the market.
Certain conditions:
1. A notice should be issued to specify the number of shares issued
2. The time given to accept should not be less than 15 days
3. Right of share holder to renounce the offer in favor of other

15. Book building
 Process of price discovery.
 Not a fixed priced for its shares.
 Indicate a price band which give highest
(the cap price) and lowest (the floor) prices.
 The spread between floor and cap of the price
band should not be more than 20%.
The cap should not be more than 120% of the
floor.
 The price is finalized by the book runner
and issuer .

16. Red herring
 Prospectus without either details of price and number of shares being offered or
the amount of issue.
 A preliminary registration statement that must be filed with SEBI describing a
new issue of stock and prospectus of the issuing company.
 It is known as red herring because it contains a passage in red that states the
company is not attempting to sell their shares before the registration is not
approved by the SEBI

17. PRICING OF ISSUE
 Prior to 1992, governed by the controller of capital Issues Act of 1947, fixation
of a fair price on the basis of the net asset value per share.
 Era of free pricing 1992, SEBI does not play any role in price fixation.
 Issuer in consultation with merchant banker shall decide the price.
 Price discovery through book building.
1. At premium companies are permitted to price their issue at premium if
subscription is very high
2. At par value some times company have to give at par value.

18. Intermediatries to issue
 Lead Managers.
 Registrar to the issue.
 Underwriter to the issue.
 Financial Institutions
 Advertising agencies
 Government agencies

19. Lead Manager
 Appointed by the company to manage public issue program
 He should posses valid SEBI registration
Main duties:
 Drafting of Prospectus.
 Preparing Budget of expenses related to issue.
 Suggesting appropriate timings of the issue.
 Assisting in marketing of the public issue.
 Advising the company in appointing registrars ,underwriter , brokers, advertising
agency , bankers etc.

20.  The banking division of financial institutions, subsidiary of commercial
banks, foreign banks, private sector bank and private agencies are
available to act as lead manager.
 Some of them are SBI capital market Limited, Bank of Baroda,canera
bank,ICICI securities etc.

21. Role of Lead Manager in the
Pre & post Issue
Pre issue Post issue
Due diligence Management of escrow a/c
Design of prospectus , memo etc. Co-ordinate non-institutional
allocation
Ensure the formality. Intimation of allocation
Appointment with intermediatries Dispatch of refund to bidders
Marketing strategy Look at the functioning of agencies

22. Registrar
 Finalizes the list of eligible allotees after deleting the invalid application.
 Action for crediting the shares to demat account of applicants.
 Dispatch of refund order to those applicable.
 Receive the share application from various collection centre.
 Arrange for dispatching of shares certificate.

23. Bankers to the issue
 Ensure that funds are collected and transferred to escrow accounts.
 Estimate of collection and advising the issuer about the closer of the
issue.

24. Underwriters
 Underwriting means they will subscribe to the balance share if all share are not
picked up at IPO.
 Can be a banker ,broker or financial institutions.
 Done for a commission.
Aspect considered before appointing:
 Reputation.
 Network of investor Clientele
 Past performance
 Experience.