Primary Market Issue

8/18/2019 Primary Market Issue

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Private Placement


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What is a 'Private Placement'

• A private placement is the sale of securities to arelatively small number of select investors as away of raising capital. Investors involved inprivate placements are usually largebanks, mutual funds, insurance companiesand pension funds. Private placement is theopposite of a public issue, in which securities aremade available for sale on the open market.


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egulations egarding PrivatePlacement

• !ince a private placement is o"ered to a few,select individuals, the placement does not haveto be registered with the !ecurities and #$change%ommission. In many cases, detailed &nancialinformation is not disclosed and a the need fora prospectus is waived. inally, since theplacements are private rather than public, theaverage investor is only made aware of the

placement after it has occurred.


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Private Placement UnderCompanies Act, 2013

• (o ensure greater control andcompliance over the privatecompanies, the Act, )*+ haswithdrawn most of the e$emptions asavailable under the %ompanies Act,+- /

• %hanges in the 0e&nition.


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Private Placement(UNDER ACT, 2013)

• 1Any o"er of securities or invitation to subscribesecurities to a select group of persons by acompany 2other than by way of public o"er3through issue of a private placement o"er letterand which satis&es the conditions speci&ed in thissection including the condition that he o"er orinvitation is made to not more than * or suchhigher number of persons as may be prescribed

2e$cluding 4I5's and employees o"ered securitiesunder #!6P3 in a &nancial year7.


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PR !"#" N# UNDER DRA$T RU%E#• A private placement o"er letter shall be accompanied

by an application form addressed speci&cally to theperson to whom the o"er is made and shall be sent tohim, either in writing or in electronic mode, withinthirty days of recording the names of such persons inaccordance with section 8)293 of the Act, )*+

• (he proposed o"er of securities or invitation tosubscribe securities must be approved by theshareholders of the company, by way of a specialresolution, for each of the o"ers: invitations

•

(he value of such o"er or invitation shall be with aninvestment si;e of not less than &fty thousand rupeesper person.


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• (he o"er or invitation shall be made to not morethan two hundred persons in the aggregate in a&nancial year, e$cluding the


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5ackground for the ?ew Impositions

• (he conditions imposed in relation to privateplacements by companies seem to have beenissued after the ruling of the =on7ble !upreme%ourt of India in the case of !ahara @roupwherein the companies !ahara India eal #state%orporation imited 2'!I #% '3 and !ahara=ousing Investment %orporation imited 2'!=I% '3issued unsecured optionally fullyBconvertible

debentures 276 %0s73 amounting to about s)8,*** crores to more than ) crore investors


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Ri&'ts"ss e


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What Is ights IssueC• When a listed company proposes to issue its

shares to its e$isting shareholders, it is called arights issue. (he company announces a recorddate and shareholders of the company on thatdate get a right to subscribe to the rights issue.

(hese rights are also called 1rights entitlementD. (he shareholders can also denounce their rights. (he company sends a letter of o"er to its

shareholders, which mentions all details relevantto rights issues. (he shares allotted toshareholders are proportional to their e$istingstake in the company.


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0utch Auction


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What is 0utch AuctionC

• A D tc' a ction is a type of auction in which theauctioneer begins with a high asking price which islowered until some participant is willing to acceptthe auctioneer's price, or a predetermined reserveprice 2the seller's minimum acceptable price3 isreached. (he winning participant pays the lastannounced price. (his is also known as a clockauction or an openBoutcry descendingBprice

auction.• (his type of auction is convenient when it is

important to auction goods


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Auction process• In a 0utch auction, the item being sold is initially

o"ered at a very high price, well in e$cess of theamount the seller e$pects to receive. 5ids are notsealed, as they are in some types of auctions. (heprice is lowered in decrements until a bidder acceptsthe current price. (hat bidder wins the auction andpays that price for the item.

• or e$ample, suppose a business is auctioning o" aused company car. (he bidding may start at E+ ,***.

(he bidders will wait as the price is successively

reduced to E+8,***, E+ ,***, E+),***, E++,*** andE+*,***. When the price reaches E+*,***, 5idder Adecides to accept that price and, because he is the&rst bidder to do so, wins the auction and has to payE+*,*** for the car.

• 0utch auctions are a competitive alternative to a


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rench Auction


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What Is rench AuctionC• A $renc' a ction is a multipleBprice auction used for

pricing initial public o"erings.• In this o"ering, the &rm announces a minimum 2reserve3

price. Investors place sealed bids for


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oo* ildin&


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What is book 5uildingC• oo* ildin& is a systematic process of generating,

capturing, and recording investor demand for sharesduring an initial public o"ering 2IP63, or other securitiesduring their issuance process, in order to support

eFcient price discovery. Gsually, the issuer appoints ama>or investment bank to act as a ma>or securitiesunderwriter or bookrunner.

• 5ook 5uilding is an alternative method of making a public

issue in which applications are accepted from largebuyers such as &nancial institutions, corporations or highnetBworth individual, almost on &rm allotment basis,instead of asking them to apply in public o"er.


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-ore A o t oo*ildin&

• 5ook 5uilding is essentially a process used bycompanies raising capital through Public 6"eringsBboth Initial Public 6"ers 2IP6s3 or ollowBon Public6"ers 2 P6s3 to aid price and demand discovery. It

is a mechanism where, during the period for whichthe book for the o"er is open, the bids arecollected from investors at various prices, whichare within the price band speci&ed by the issuer.

(he process is directed towards both theinstitutional as well as the retail investors. (heissue price is determined after the bid closurebased on the demand generated in the process.


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T'e Process o. oo*ildin&

• (he Issuer who is planning an o"er nominateslead merchant banker2s3 as 'book runners'.

• (he Issuer speci&es the number of securities tobe issued and the price band for the bids.

• (he Issuer also appoints syndicate members withwhom orders are to be placed by the investors.

• (he syndicate members input the orders into an'electronic book'. (his process is called 'bidding'and is similar to open auction.

• (he book normally remains open for a period of days.


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#E/s oo* ildin&# stem

• 5!# o"ers a book building platform through the5ook 5uilding software that runs on the 5!#Private network.

• (his system is one of the largest electronic bookbuilding networks in the world, spanning over *Indian cities through over 9*** (rader Work!tations via leased lines, H!A(s and %ampus

A?!.• (he software is operated by bookBrunners of the

issue and by the syndicate members , forelectronically placing the bids on line realBtime forthe entire bidding period.

•

In order to provide transparency, the system


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• 5ids have to be entered within the speci&ed price band.•

5ids can be revised by the bidders before the bookcloses.

• 6n the close of the book building period, the bookrunners evaluate the bids on the basis of the demandat various price levels.

• (he book runners and the Issuer decide the &nal priceat which the securities shall be issued.

• @enerally, the number of shares are &$ed, the issuesi;e gets fro;en based on the &nal price per share.

•

Allocation of securities is made to the successfulbidders. (he rest get refund orders.

Documents

Primary Market Issue