Fmi Primary Issues

8/4/2019 Fmi Primary Issues

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PRIMARY MARKET ISSUES

By

Anu BansalSwati Girotra

Jagduman SinghUmakant Mishra


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Financial Market

A place in which financial assets arecreated or transferred.

Types of financial market money market

Capital market

government securities market

Foreign exchange market


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CAPITAL MARKET

Organized mechanism

Market for Long term funds

Raising the capitalFunctions of capital market

mobilize the financial resources

secure foreign capital

ensure effective allocation of

resources


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Classification of capitalmarket

Capital market is classified into twocategories

Primary market

secondary market


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Primary market

Known as new issue marketDeals with new securities

Provides funds directly to thecompanies

Does not have any tangible form


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Functions of primarymarket

Function is to facilitate transfer ofresources

Transfer can be done is two ways new companies- initial issues

old companies- further issues

From operational standpoint origination

Underwriting

Distribution


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Operators in the New IssueMarket

Brokers to the Issue

Managers to the IssueBankers to the Issue

Registrars

Underwriters


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Methods of floatation ofnew issues

Company can raise required capitalin the primary market by followingmethods

public issue

Rights issueBonus shares

Private placements

Offer to the employee


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New Public Issue/ Offer

Most popular method of raisingcapital

Raising from publicPublic issue through prospectus

Steps to be taken

What is prospectus?

Content of prospectus

Minimum subscription

Allotment of shares


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Disadvantages of an IPO

Marketing and legal cost

Require to disclose financialinformation

Attention of senior management

requiredPublicizing information can be useful

to competitors


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Rights Issue

Method of raising funds fromexisting shareholders

Offering new shares toshareholders

Can be at par or premium

Offered at price much lower thanmarket price

Issue letter of offer along with

application form consist of four


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Characteristics of rightissue

Issue price is left to discretion ofcompany

Rights are negotiableShould be exercised during fixed

period

Number of shares to be issueddepends upon issuing company

Inexpensive method


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BONUS ISSUES

Issued to share holders out ofaccumulate profits

Issued in the ratio of existing sharesheld

Also known as stock dividend

Other two sources of raising bonusshares are

Share premium account

Capital redemption reserve account


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Characteristics..

Issued on particular dateCannot be renounced

No question of delays

Issued free of cost

Do not change pattern of ownership


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Advantages of bonusshares

Tax benefit

Increase in future dividends

Indication of bright futurePsychological value

Conserve cash

Encourage investment

Indicator of higher future profits


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Limitations

Do not effect shareholders wealth

Does not give and special or extrabenefits

Costlier to administer


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Private Placement

Direct sale by company to selectiveinvestors

Issuers can be both public andprivate companies

The investors includes

Unit trust of IndiaLife insurance corporation

General insurance corporation of India

Army group insurance


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Contd..

Instruments offered

Equity shares

Preference sharesCumulative convertible shares

Convertible and non-convertibledebentures

Accommodates smaller debtfinancing than public market


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Offer to Employee

Enables employee to becomeshareholders and hereby share theprofits

Lead to better

industrial relations

Wider distribution of sharesLower labor turnover

Higher efficiency


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Abuses in The New IssueMarket

Projected figures of turnover, profits

ec of future yearsExaggerated claims about growth

prospects

Advertisement were used to be madefalsely


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Problems in Issue Market

Not able to mobilize adequate

savings from publicFunctional and institutional gap

Risk aversion in new market

Incur cost


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THANK

YOU

Documents

Fmi Primary Issues