IPO Factors to Be Considered

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Lectures on New Issue Market



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.



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.



PRIMARY MARKET - AN OVERVIEW....!!!

To promote a new company

To Expand an Existing company

To diversify the Production

To Capitalise the reserves



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 .



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



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



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 .



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.



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





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 .



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



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.



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.



Underwriters

Bankers to the Issue

Advertising Agency



IMPORTANT TERMINOLOGY

Book Running Lead Managers (BR LM)

Red Herring Prospectus (RHP)

Delivery Instruction Slip (DIS)

Lot Size

Qualified Institutional Bidder

Retail Bidder

ESCROW



PLACEMENT OF THE ISSUE

Initial Issues are floated through

Prospectus Private placement

Bought out Deals / Offer for sale

Right Issues



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



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.



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



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.

Documents

IPO Factors to Be Considered