Marketing New Issues

8/3/2019 Marketing New Issues

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MARKETING NEW ISSUE

MAHALAKSHMI.A

AYSHWARYA.V

SOWMIYA.R

JAYASHREE.J.R


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METHODS OF NEW ISSUE

Pure prospectus method.

Offer for sale method.

Private placement method.

IPOs method.

Rights issue method.

Bonus issue method.

Book- building method. Stock option method.

Bought-out deals method.


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Pure Prospectus Method

Here the corporate enterprise mops up capitalfunds by means of an issue of prospectus.

Direct offer is made by the company to the publicat an issue price. It may be at par, at a discount orat a premium.

Prospectus is a document that contains thevarious aspects of the issuing company which iscirculated to the general public.


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Advantages:

To investors- it facilitate satisfactory compliance

with the legal requirements. And promotesconfidence of investors through transparencyand non-discriminatory basis of allotment.

To issuers- it is popular among the largeissuers. It provides for wide diffusion onownership.

Drawbacks: High issue costs.

Time consuming.


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OFFER FOR SALE METHOD

Here the marketing of securities takes placethrough intermediaries such as issue houses,stock brokers and others.

The sale of securities takes place in two stages.First the company makes the sale to

intermediaries such as issue houses and sharebrokers at an agreed price.


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Under the second stage the securities are sold

to the ultimate investors at a market relatedprice.

The biggest advantage in this method is the

issuing company is free from the hassles ofselling it directly to the public.

And the disadvantage of this method is that it isexpensive for the investor as they get thesecurities at a higher prices from the issuehouses.


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PRIVATE PLACEMENT

METHOD In this method of marketing securities the

issuer makes the offer of sale to the individuals

and institutions privately without the issue ofprospectus.

This method is similar to the Offer for salemethod but here the institutions plays asignificant role in the realm of privateplacement.


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This method can be resorted when the market it

dull and when the public response is doubtful.

This method suits the requirements of smallcompanies.

Major disadvantages are the securities areconcentrated in few hands.

This may create artificial scarcity by jacking upthe prices.


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INTIAL PUBLIC OFFER


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The public issue made by the corporate entity forthe first time is called Initial Public Offer.

Securities are issued to the applicants on thebasis of the order placed by them, through theirbrokers.

When a company whose stock is not publiclytraded wants to offer that stock to the generalpublic, it takes the form of Initial Public Offer.

The job of selling the stock is entrusted to the

underwriters. He agrees to pay the issuer acertain price for a minimum no of shares andresells those shares to the buyers. They charge afee for their service.


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Stocks are issued to the underwriters after

issuing the prospectus. The underwriters releases these stock to thepublic.

The issuer and the underwriter syndicate

jointly determine the price of the new issue. The approximate price listed in the preliminary

prospectus may or may not be close to finalissue price.

Good relationship between the broker and theinvestor is a prerequisite for the stock beingacquired.


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Steps involved in marketing of securities:

Order: brokers receive and place orders on

behalf of the clients with the issuer. Share allocation: the issuer finalizes the share

allocation and informs the broker for the same.

The client: the broker advices the client of theshare allocation. Clients then submit theapplication form of shares and make payment tothe issuer through the broker.

Primary issue account: the issuer opens aseparate account for the primary issue market.The clearing house debits primary issue a/c andcredits issuer a/c.


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Certificates: certificates are then delivered tothe investors. Or depository a/c may be credited.

Merits:No need for investors to part with the moneyeven before the shares are allotted in his favour.


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When shares of the company are issued to itsexisting shareholders it is called as right issue.

The shares are issued in proportion to the no ofshares already held by them.

RBI GUIDELINES:

Issued only by listed companies. Right issue once made, shall not be withdrawn.

Underwriting is optional and appointment ofRegistrar is compulsory.

Appointment of category 1 Merchant bankersholding a certificate of registration issued bySEBI is compulsory.


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It is issued only of fully paid shares.

Letter of offer shall contain disclosure as per SEBI

requirements.

Issued shall be kept open

For minimum of 30days and maximum period of

60 days. A minimum of 90% of issue is received

No reservation as regards FCDs and PCDs.

A no complaints certificate is to be filled by thelead merchant banker with the SEBI after21days from the date of issue of offer document.


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Obligation for a company to increase in subscribedcapital is necessary after 2 yrs of its formation or 1yr of its first issue of shares, whichever is earlier.

Merits:

Most economical method of raising fresh capital. nobrokerage and underwriters cost.

Procedure are easier as limited no of applicantshandled are less.

Issue of right issue does not dilute the ownership ofexisting shareholders. It offers freedom tosubscribe or not to subscribe the issue.

The only demerit is that it is restrictive ie itsavailable only to the existing companies and not tothe new ones.


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BONUS ISSUE METHOD

When accumulated reserves and surplus of

profits of the company are converted into paidup share capital it takes up the form of bonusissue.


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SEBI GUIDELINES

Reservation.

Reserves.

Dividend mode. Fully paid.

No default.

Implementation. The articles.

Resolution.


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BOOK BUILDING METHOD.

A method of marketing the shares of a companywhereby the quantum and the price of thesecurities to be issued will be decided on thebasis of bids received from the prospectiveshareholder by the lead merchant banker.


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STEPS INVOLVED

Appointment of Book Runner.

Drafting Prospectus.

Circulating Draft Prospectus. Maintaining Offer Records.

Intimation about aggregate Offer.

Bid Analysis.


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STEPS INVOLVED

Mandatory Underwriting.

Filing with ROC.

Bank Accounts. Collection of Completed Application.

Allotment of Securities.

Payment Schedule and Listing. Under Subscription.


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ADVANTAGES

Reduction in duration between allotment andlisting.

Reliable allotment procedure. Quick listing in stock exchange.

No price manipulation as the price isdetermined on the basis of bids received.


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Stock option or Employees

Stock Option Scheme (ESOP)A method of marketing the securities of a companywhereby its employees are encouraged to take up

shares and subscribe to it is known as stockoption. It is a voluntary scheme on the part of thecompany to encourage employees participation inthe company.


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Benefit:

This scheme also offers an incentive tothe employees to stay in the company

It is useful in the case of companieswhose business activity is dominantly

based on the talent of the employeesi.e., Software Industry.

It retains their most productive

employees in an industry.


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SEBI Guidelines

Issue at Discount Approval

Maximum Limit

Minimum Period Eligibility

Directors Report


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Bought-out Deals

A method of marketing of securities of a

body corporate whereby the promoters ofan unlisted company make an outright saleof a chunk of equity shares to a singlesponsor or the lead sponsor.


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Features

Parties: They are promoters of the company,

sponsors and co-sponsors who are generallymerchant bankers and investors.

Outright Sale: Outright sale of a chunk of equityshares to a single sponsor or the lead sponsor.

Syndicate: Sponsor forms a syndicate with othermerchant bankers for meeting the resourcerequirement and for distributing the risk.

Sale Price: It is finalized through negotiationsbetween the issuing company and the purchases,the sale being influenced by such factors asproject evaluation, promoters image and

reputation.


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Fund-based: Bought-out deals are in the nature offund-based activity where the funds of the merchant

bankers get locked in for at least the prescribedminimum period.

Listing: The investor-sponsors make a profit, whenat a future date, the shares get listed and higherprice prevail. Listing generally takes place at a timewhen the company is performing well in terms ofhigher profit and larger cash generations fromprojects.

OTCEI: Sale of these shares at Over-the-CounterExchange of India (OTCEI) or at a recognized stockexchanges, the time of listing these securities andoff-loading them simultaneously are being generallydecided advance.


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BOUGHT-OUT DEAL VS.

PRIVATE PLACEMENTSS.No Features Private Placement Brought-out Deal

1 Trading

Scrips

Listed securities Unlisted securities

2 Creating

Securities

Results in the

creation of

additional securities

for the buying

institutions

Securities are simply

transferred from

promoters to sponsors

who in turn off-load them

to the public

3 Lock-in

Period

5 years 18 months


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Benefits:

Freedom Speedy sale

Quality Offer

InvestorProtection

Limitations:

Loss of Control Loss of Sales

Wrong Appraisal

Manipulation

No Accountability

Windfall Profits

Loss to Investors


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THANKYOU.

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Marketing New Issues