Primary Markets

Primary Markets

• Topics– Concept– Methods of Raising Funds

• Public Issue• Rights Issue• Private Placements

Primary Markets Concept

Primary Market- Concept

• Definition – A Primary Market is a market for new issues. Hence also called the new issues market and a market for fresh capital.

• Fund Mobilization – It is achieved in the following manner:– Prospectus or Public Issues– Rights Issues– Private Placements

• By – – Government Companies, non government public limited

companies(private sector), public sector undertakings, banks and financial institutions.

Primary Market- Concept

• 3 Categories of Participants– Issuers of securities– Investors in securities– Intermediaries – Renders services to both issuers and investors.

• Enables the sale and purchase of securities

– Intermediaries to an issue• Merchant Bankers or Book Running Lead Managers – Handles the pre issue

and post issue activities.• Registrar to the issue – finalise the list of eligible allottees, crediting of shares to

demat accounts and dispatch of refunds• Bankers to the Issue – activities relating to collecion of management accounts,

dispatching refund amounts.

Methods of Raising Funds

Primary Market – Methods of Raising Funds

• Primary Issues are classified into– Public Issue

• IPO – A first time offer of sale of securities by an unlisted company

• FPO – An offer of sale of securities by a listed company

– Rights Issue• An offer of Sale of Securities to existing

shareholders.

Primary Market – Methods of Raising Funds

– Private Placement• Private Placement (Unlisted Companies) – Direct sale of

securities to some selected people or to financial institutions• Preferential Isssue – Allotment of shares to some select

group of persons in terms of provision of Chapter XIV of SEBI(DIP Guideline)

• Qualified Institutions Placement(For listed Companies).

– Bonus Issue – Another way to raise capital. • This does not bring in any fresh capital.• Bonus is the capitalisation of free reserves.• Enables the company to restructure its capital.

Primary Market – Methods of Raising Funds

• Increases the Company’s equity capital

• Primary issuance by companies are governed by the SEBI in terms of SEBI(Issue of Capital and Disclosure Requirements) Regulations, 2009.

Primary Markets – Public Issue• Public Issue

– Initial Public Offering(IPO) – It is an offering of either a fresh issue of securities or an offer for sale of existing securities or both by an unlisted company for the first time to public.

– Follow on Public Offering(FPO) – It is an offering of either a fresh issue of securities or an offer for sale to the public by an already listed company through an offer document.

– Prospectus is an offer document in case of a public issue.

Primary Markets – Rights Issue• Rights Issue –

– It is the issue of new shares in which the existing shareholders are given pre-emptive rights to subscribe to the new issue on a pro rata basis.

– The Rights are given in the form of Offer to existing shareholders to subscribe to a proportionate number of fresh shares at a pre-determined price.

– To expand, diversify, restructure

Primary Markets – Private Placement

• Private Placement refers to the direct sale of newly issued securities by the issuer to a small number of investors through merchant bankers. The number of investor can go only up to 49. These investors are select Financial Institution, corporates, banks and high net worth individuals.

Rohit Kochhar