pricing & designing of instruments & preparation

for public issues

content • definition of public issue • role of merchant banker for public issue • marketing of public issue • market design of public issue • responsibilities of lead Manger(s) in marketing of public issue • SEBI guidelines on issue advertisement • recent market strategies for public issues • public response to public issue • SEBI guidelines for public issue

Introduction

• The primary market is a market for new issues.it is also called the new issues market.It is a market for fresh capital . funds are mobilized in the primary Market through prospectus,right issues and private placement.

Public issue

• Issue of stock on a public market rather than being privately funded by the companies own promoter(s), which may not be enoughcapital for the business to start up, produce, or continue running. By issuing stock publically, this allows the public to own a part of the company, though not be a controlling factor.

Intermediaries to an issue • Merchant banker

• Registrar to the issue

• Bankers to the issue

Methods for determining the offer price

• Fixed price

• Book building

Determination of price • Consultation • Specified securities • Cut off price • Individual investor • Rejection

ASBA process • electronically

• Authorization

• BSE of NSE

• Transferring

Role of merchant banker in a public issue

• The details submitted by merchant banker about the public issue should contain the following.

a. Furnishing Informationb.Books to be Maintainedc. Agreement with issuing companyd.Action by RBIe.Code of Conduct

MARKETING OF PUBLIC ISSUES• Issue management by merchant bankers mainly focuses on

three basic functions viz, origination, underwriting and distribution of securities.

• Advancement of technology in communication and data processing has posed a new challenge for the merchant bankers in the area of marketing of public issues. Today, merchant bankers need top care about being in the centre of ‘information flow’ rather than in the centre of ‘capital flow’.

Allotment in book build issue• Not less than 35 %

• Not less than 15 %

• Not more than 50 %

Market Design of Public Issues• The market design of public issues is provided in

the provisions of the Companies Act, 1956. It deals with the issue, listing and allotment of securities.

• In amended from time to time prescribe a series of disclosures about the issuing company, management, promoters, project, risk factors and eligibility norms for accessing the market.

Responsibilities of Lead Manager(s) in Marketing of Public issue

• The responsibilities of lead merchant banker(s) for marketing of public issues may be summarized as under:

1.Deciding the time of floating the issue2.Appointment of Printers for issue stationery3.Dispatch and Distribution of Issue Material4.Appointment of Advertising Agency5.Publicity Campaign

Contd.• Along with print media, audio-visual media,

hoardings, banners, posters, publicity campaign may also be carried through the followings:

a.Road Showsb.Research Coveragec.Press Conferences and Investors’ Conferencesd.Network of Merchant Bankers

Statutory Advertisements• The following advertisements have to be statutorily released1.Issue announcement advertisement at least 10 days before

opening of the issue. This advertisement contains an abridged version of the prospectus.

2.Issue opening advertisement on the day of opening of the issue.

3.Issue closing advertisement on the day of closing of the issue.

4.The basis of allotment advertisement after finalization of allotment.

Recent Marketing Strategies for Public Issues

• Some of the recent marketing strategies adopted in new issue market in India are as follows:

1.Marketing IPOs through Secondary Market ( e-IPO)2.Green Shoe Option (Over Allotment of Securities)3.Safety Net (Buy Back of Shares)4.Target Marketing/ Branding the financial

Instrument

Contd.• During the period under review, bond issues of two

financial Institutions namely ICICI Ltd and IDBI Ltd dominated the debt issues in India.To target the different classes of investors, the bonds were classified as:

a.Tax Saving Bonds b.Regular Income Bondsc.Money Multiplier Bonds d.Child Growth Bonds

Contd.• The bonds issued by the IDBI Ltd were branded as

‘IDBI FLEXIBLE BONDS’. Different types of bonds targeted different types of investors like:

a.IDBI Regular Income Bondsb.IDBI Growing Interest Bondsc.IDBI Multiplier Bonds d.IDBI Infrastructure (Tax Saving) Bonds

The eligibility norms for an unlisted company for making a public issue

• An unlisted company has to satisfy the following criteria to be eligible to make a public issue

1. Pre-issue networth of the co. should not be less than Rs.1 crore in last 3 out of last 5 years with minimum networth to be met during immediately preceding 2 years and

2. track record of distributable profits for at least three out of immediately preceding five years and

3. the issue size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document)

shall not exceed five times its pre-issue networth.

The eligibility norms for a listed company for making a public issue

• A listed company is eligible to make a public issue if the issue size (i.e. offer through offer document + firm allotment + promoters’ contribution through the offer document) is less than five times its pre-issue networth

Is it mandatory to have a Demat Account for applying in public issue?

• An investor has the option to apply for and receive the shares in physical form. However, it is advisable to get the allotment in Demat form as the shares in IPO shall be compulsorily tradable in Demat segment in Stock Exchanges. Dealing of physical shares (allocated in IPO) will not be accepted.

• In case of an IPO of any security of issue size of Rs. 10 crore or more, security shall be issued only in dematerialised form. In book built issues, for QIBs and large investors (applying for more than 1000 shares) allotment shall be only in Demat form and hence they should have a Demat account.

Within how many days should the company get its securities listed after the issue?

• The post issue lead manager ensures that all steps for completion of the necessary formalities for listing and commencement of trading at all stock exchanges where the securities are to be listed are taken within 7 working days of finalisation of basis of allotment.