PPT Debt and Equity Instruments -GNE

"Debt and Equity instruments"

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000 Amount Raised Rs. Crores (EQUITY)Amount Raises Rs Crores(PS)Amount Raised Rs Crores(Bonds)

Debt Instruments

• WHAT DO YOU MEAN BY DEBT INSTUMENTS?

MONEY BORROWED WITH THE COMMITMENT TO RETURN IT BACK ALONGWITH INTEREST.

DEBT INSTURMENTS

• CAN YOU LIST OUT THE VARIOUS TYPES OF DEBT INSTRUMENTS AVAILABLE IN THE INDIAN MARKET?

EQUITY Debt

Market Segment Issuer Instruments

1. EQUITY SHARE CAPITAL

2. PREFERENCE SHARE CAPTAL

3. WARRANTS

Government Securities

Central Government

Zero Coupon Bonds, Coupon Bearing Bonds, Treasury Bills, STRIPS

State Governments Coupon Bearing Bonds.

Public Sector Government Agencies / Statutory Bodies/Public Sector Units

Govt. Guaranteed Bond/PSU Bonds, Debentures, Commercial Paper, Debentures

Private Sector Bonds

Corporates Debentures, Bonds, Commercial Paper, Floating Rate Bonds, Zero Coupon Bonds, Inter-Corporate Deposits

Banks Certificates of Deposits, Debentures, Bonds

Financial Institutions

Certificates of Deposits, Bonds

DEBT INSTRUMENTS

• FEATURES OF DEBT INSTRUMENTS?• FIXED OR FLOATING RATE OF INTEREST• FIXED COMMITMENT TO SERVICE THE

PRINCIPAL AND INTEREST• LOW RISK AND LOW RETURN• NORMALLY NO VOTING RIGHT • NORMALLY NO PARTICIPATION IN THE

MANAGEMENT OF THE COMPANY

DEBENTURES- MEANING AND FEATURES

• THEY ARE FIXED INTEREST DEBT INSTRUMENTS WITH VARYING PERIOD OF MATURITY.

• CAN EITHER BE PLACED PRIVATELY OR OFFERED FOR SUBSCRIPTION.

• MAY OR MAY NOT BE LISTED ON THE STOCK EXCHANGE.

• IF LISTED ON THE STOCK EXCHANGES, THEY SHOULD BE RATED PRIOR TO THE LISTING BY ANY OF THE CREDIT RATING AGENCIES DESIGNATED BY SEBI.

DEBENTURES-Continued

• WHEN OFFERED FOR SUBSCRIPTION A DEBENTURE REDEMPTION RESERVE HAS TO BE MAINTAINED.

• THE PERIOD OF MATURITY NORMALLY VARIES FROM 3 TO 10 YEARS AND MAY ALSO BE MORE FOR PROJECTS WITH A HIGH GESTATION PERIOD.

TYPES OF DEBENTURES

• NON CONVERTIBLE DEBENTURES (NCD)• PARTIALLY CONVERTIBLE DEBENTURES (PCD)• FULLY CONVERTIBLE DEBENTURES (FCD)• CALLABLE DEBENTURE • PUTTABLE DEBENTURE

SEBI GUIDELINES REGARDING DEBENTURE ISSUES

• ISSUE OF FCDS HAVING A CONVERSION PERIOD MORE THAN 36 MONTHS WILL NOT BE PERMISSIBLE, UNLESS CONVERSION IS MADE OPTIONAL.

• COMPULSORY CREDIT RATING WILL BE REQUIRED IF CONVERSION IS MADE FOR FCDS AFTER 18 MONTHS.

• PREMIUM AMOUNT ON CONVERSION, THE CONVERSION PERIOD, IN STAGES, IF ANY, SHALL BE PRE-DETERMINED AND STATED IN THE PROSPECTUS.

SEBI GUIDELINES REGARDING DEBENTURE ISSUES-Contd…..

• THE INTEREST RATE FOR THE DEBENTURES IS FREELY DETERMINABLE BY THE ISSUER.

• ISSUE OF DEBENTURE WITH MATURITY OF 18 MONTHS OR LESS ARE EXEMPT FROM THE REQUIREMENT OF APPOINTING DEBENTURE TRUSTEES OR CREATING A DEBENTURE REDEMPTION RESERVE (DRR).

• IN OTHER CASES, THE NAMES OF THE DEBENTURE TRUSTEES MUST BE STATED IN THE PROSPECTUS AND DRR WILL BE CREATED IN ACCORDANCE WITH GUIDELINES LAID DOWN BY SEBI.


• THE TRUST DEED SHALL BE EXECUTED WITHIN SIX MONTHS OF THE CLOSURE OF THE ISSUE.

• ANY CONVERSION IN PART OR WHOLE OF THE DEBENTURE WILL BE OPTIONAL AT THE HANDS OF THE DEBENTURE HOLDER, IF THE CONVERSION TAKES PLACE AT OR AFTER 18 MONTHS FROM THE DATE OF ALLOTMENT, BUT BEFORE 36 MONTHS.

• IN CASE OF NCDS/ PCDS CREDIT RATING IS COMPULSORY WHERE MATURITY EXCEEDS 18 MONTHS.


• PREMIUM AMOUNT AT THE TIME OF CONVERSION FOR THE PCD, REDEMPTION AMOUNT, PERIOD OF MATURITY, YIELD ON REDEMPTION FOR THE PCDS/NCDS SHALL BE INDICATED IN THE PROSPECTUS.

• IN CASE, THE NON-CONVERTIBLE PORTIONS OF PCD/NCD ARE TO BE ROLLED OVER, A COMPULSORY OPTION SHOULD BE GIVEN TO THOSE DEBENTURE HOLDERS WHO WANT TO WITHDRAW AND ENCASH FROM THE DEBENTURE PROGRAMME.


• ROLL OVER SHALL BE DONE ONLY IN CASES WHERE DEBENTURE HOLDERS HAVE SENT THEIR POSITIVE CONSENT AND NOT ON THE BASIS OF THE NON-RECEIPT OF THEIR NEGATIVE REPLY.

• BEFORE ROLL OVER OF ANY NCDS OR NON-CONVERTIBLE PORTION OF THE PCDS, FRESH CREDIT RATING SHALL BE OBTAINED WITHIN A PERIOD OF SIX MONTHS PRIOR TO THE DUE DATE OF REDEMPTION AND COMMUNICATED TO DEBENTURE HOLDERS BEFORE ROLL OVER AND FRESH TRUST DEED SHALL BE MADE.


• THE DISCLOSURES RELATING TO RAISING OF DEBENTURES WILL CONTAIN, AMONGST OTHER THINGS, THE EXISTING AND FUTURE EQUITY AND LONG TERM DEBT RATIO, SERVICING BEHAVIOR ON EXISTING DEBENTURES, PAYMENT OF DUE INTEREST ON DUE DATES ON TERMS LOANS AND DEBENTURES, CERTIFICATE FROM A FINANCIAL INSTITUTION OR BANKERS ABOUT THEIR NO OBJECTION FOR A SECOND OR PARI-PASSU CHARGE BEING CREATED IN FAVOUR OF THE TRUSTEES TO THE PROPOSED DEBENTURE ISSUES.

• AND ANY OTHER ADDITIONAL DISCLOSURE REQUIREMENT SEBI MAY PRESCRIBE FROM TIME TO TIME.


• MOST OF THE LISTING REQUIREMENTS ARE COMMON FOR BOTH EQUITY AND DEBT INSTRUMENTS IN TERMS OF DISCLOSURES WITH SOME ADDITIONAL PROVISIONS SPECIFIED FOR THE DEBT INSTRUMENTS.

• UNTIL RECENTLY ONLY INFRASTRUCTURE AND MUNICIPAL CORPORATIONS COULD LIST DEBT BEFORE EQUITY, SUBJECT TO CERTAIN REQUIREMENTS. SEBI NOW PERMITS LISTING OF DEBT BEFORE EQUITY SUBJECT TO THE CONDITION THAT THE DEBT INSTRUMENT IS RATED NOT BELOW A MINIMUM RATING OF ‘A’ OR EQUIVALENT THEREOF.

BONDS

• THESE ARE FINANCIAL INSTRUMENTS WITH A FIXED COUPON RATE AND A DEFINITE PERIOD AFTER WHICH THESE ARE REDEEMED.

WHAT IS THE DIFFERENCE BETWEEN A BOND AND A DEBENTURE?

• THE FUNDAMENTAL DIFFERENCE BETWEEN DEBENTURES AND BONDS IS THAT THE FORMER IS NORMALLY SECURED WHEREAS THE LATTER IS NOT.

• RATE OF INTEREST ON BONDS IS HIGHER THAN DEBENTURES

• GENERALLY ISSUED BY HIGHLY REPUTED ORGANISATIONS

TYPES OF BONDS

• Fixed rate• Floating rate• Discount bonds• Junk Bonds• Secured Premium Notes

TERM LOANS

• MONEY CAN BE BORROWED FROM THE COMMERCIAL BANKS, DFI ETC FOR LONG PERIOD OF TIME TO MEET THE FINANCIAL REQUIREMENTS OF THE PROJECT.

MEDIUM TERM FINANCIAL INSTRUMENTS

• PUBLIC DEPOSITS• EQUIPMENT FINANCING• M T LOANS

PUBLIC DEPOSITS

• IT IS AN EASIER METHOD OF MOBILISING FUNDS, ESPECIALLY DURING PERIODS OF CREDIT SQUEEZE.

• THE ADMINISTRATIVE COST OF DEPOSITS FOR THE COMPANY IS LOWER THAN THAT INVOLVED IN THE ISSUE OF SHARES AND DEBENTURES. THE PROCEDURE OF INVITING PUBLIC DEPOSITS IS ALSO SIMPLER AND INVOLVE LESSER FORMALITIES.

• THE RATE OF INTEREST PAYABLE BY THE COMPANY ON PUBLIC DEPOSITS IS LOWER THAN THE INTEREST ON LOANS FROM BANKS AND OTHER FINANCIAL INSTITUTIONS. SUCH AN INTEREST IS A TAX DEDUCTIBLE EXPENSE.

PUBLIC DEPOSITS-Contd……• IT HELPS THE COMPANY TO BORROW FUNDS FROM A LARGER

SEGMENT OF PUBLIC AND THUS REDUCES THE DEPENDENCE OF THE COMPANY UPON FINANCIAL INSTITUTIONS.

• IT ALSO ENABLES THE COMPANY TO CREATE CONTACT WITH A LARGE NUMBER OF INVESTORS.

• IT ENSURES THE AVAILABILITY OF FUNDS FOR A LONGER DURATION AND PROVIDES FLEXIBILITY TO THE FINANCIAL STRUCTURE OF THE COMPANY. THERE IS NO RISK OF OVER-CAPITALISATION AND THE DEPOSITS CAN BE REPAID WHEN THEY ARE NOT REQUIRED.

• THERE IS NO DILUTION OF SHAREHOLDERS' CONTROL AS THE DEPOSITORS HAVE NO VOTING RIGHTS AND CANNOT INTERFERE WITH THE INTERNAL MANAGEMENT OF THE COMPANY.

RAISING OF FUNDS THROUGH PUBLIC DEPOSITS

i) Public Deposits cannot exceed 25% of the share capital and free reserves.

ii) The maximum maturity period is 3 years while the minimum is 6 months.

EQUIPMENT FINANCING

EQUIPMENT FINANCING IS GENERALLY EXTENDED FOR STANDARD EQUIPMENT WHERE THE EQUIPMENT IS COMMONLY UTILIZED AND ITS VALUE IS KNOWN.

EQUIPMENT FINANCING IS MAINLY PREVALENT FOR QUANTUM BETWEEN RS. 5 LAKH TO RS. 10 CRORES AND FOR A TIMEFRAME OF 3-5 YEARS.

BETWEEN 70 – 80% OF THE COST OF THE EQUIPMENT IS GENERALLY PROVIDED IN CASE OF EQUIPMENT FINANCING.

EQUIPMENT FINANCING

• INCLUDES FINANCING OF CONSTRUCTION EQUIPMENT, DG SETS, MEDICAL DIAGNOSTIC EQUIPMENT, INJECTION MOULDING MACHINE, PRINTING PRESS, AIR CONDITIONING EQUIPMENT, MACHINE TOOLS, OFFICE EQUIPMENT & COMPUTERS.

MT LOANS

• FOR PERIOD RANGING FROM 2-5 YEARS

SHORT TERM DEBT INSTRUMENTS

• COMMERCIAL PAPERS• INTER-CORPORATE DEPOSITS• CASH CREDIT LIMITS• WAREHOUSE RECEIPTS• BILL FINANCING• EXPORT FINANCE

COMMERCIAL PAPERS • SHORT TERM UNSECURED PROMISSORY NOTES • ISSUED BY FIRMS WITH A HIGH CREDIT RATING. • THE MATURITY OF THESE VARY FROM 15 DAYS TO A YEAR.• THEY ARE SOLD AT A DISCOUNT TO THE FACE VALUE AND

REDEEMED AT THE FACE VALUE.• CPS CAN BE ISSUED BY COMPANIES, WHICH HAVE A MINIMUM

NETWORTH OF RS.4 CRORES AND • NEEDS A MANDATORY CREDIT RATING OF MINIMUM A2 (ICRA),

P2 (CRISIL), D2 (DUFF & PHELPS) AND PR2 (CREDIT ANALYSIS & RESEARCH).

• THE RATING SHOULD NOT BE MORE THAN 2 MONTHS OLD. • MINIMUM AMOUNT OF ISSUE RS.25 LAKHS AND MORE IN

MULTIPLES OF RS.5 LAKH.

INTER CORPORATE DEPOSITS

• UNSECURED SHORT TERM FUNDING RAISED BY CORPORATES FROM OTHER CORPORATES.

• THIS IS A FORM OF DISINTERMEDIATED FINANCING, WHERE CORPORATES WITH SURPLUS FUNDING DIRECTLY LEND TO THOSE IN NEED OF FUNDING OF SUCH FUNDS

EQUITY INSTRUMENTS

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1,14

3

1,69

2

1,72

5

884

111

58 93

151

35 26 57 60

139

124

124

47 76

Number of issues in a yearNumber of issues in a year

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10 0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,00024

,372

27,6

33

20,8

04

14,2

84

4,57

0

5,58

7

7,81

7

6,10

8

7,54

3

4,07

0

23,2

72 28,2

56

27,3

82 33,5

08

87,0

29

16,2

20

57,5

55

Total Funds Raised Rs in Crores Through Equity In-struments

MEANING OF CAPITAL

• IN RELATION TO A COMPANY LIMITED BY SHARES, THE WORD ‘CAPITAL’ MEANS THE SHARE CAPITAL

• THE CAPITAL DIVIDED INTO SPECIFIED NUMBER OF SHARES OF A FIXED AMOUNT EACH.

• IT CAN ALSO BE DEFINED AS THE MONEY RAISED BY ISSUE OF SHARES BY A COMPANY LIMITED BY SHARES.

• IT DOES NOT INCLUDE DEBT

TYPES OF CAPITAL

• NOMINAL, AUTHORISED OR REGISTERED CAPITAL

• ISSUED CAPITAL• SUBSCRIBED CAPITAL• CALLED UP CAPITAL• UNCALLED CAPITAL• PAID UP CAPITAL• UNPAID CAPITAL• RESERVE CAPITAL

MEANING AND NATURE OF SHARE

• MEANING………………….?• SEC.2(46) “ A SHARE IN THE SHARE CAPITAL OF A

COMPANY AND INCLUDES STOCK EXCEPT WHERE A DISTINCTION BETWEEN STOCK AND SHARE IS EXPRESSED OR IMPLIED”

• HOW IS A “SHARE” DESCRIBED AS, AS PER COMPANIES ACT, 1956?

• COMMODITY• SERVICE• SPECIAL KIND OF ASSET• ANY THING ELSE

KINDS OF SHARES

• SEC. 86 PERMITS A COMPANY TO ISSUE TWO KINDS OF SHARES

• EQUITY SHARES• PREFERENCE SHARE CAPITAL

EQUITY SHARES

• AN EQUITY INSTRUMENT REFERS TO A DOCUMENT WHICH SERVES AS A LEGALLY APPLICABLE EVIDENCE OF THE OWNERSHIP RIGHT IN A FIRM, LIKE A SHARE CERTIFICATE.

• SEC.85(2) “ANY SHARE WHICH IS NOT PREFERENCE SHARE IS TERMED AS EQUITY SHARE”

PREFERENCE SHARE

• WHAT ARE THE CHARATERISTICS OF PREFERENCE SHARES WHICH MAKES THEM DIFFERENT FROM EQUITY SHARES?

• SEC 85(1) :• RIGHT WITH RESPECT TO DIVIDEND• RIGHT WITH RESPECT TO PAYMENT OF

CAPITAL

TYPES OF PREFERENCE SHARES

• PARTICIPATING OR NON-PARTICIPATING• CUMULATIVE AND NON-CUMULATIVE• REDEEMABLE AND IRREDEEMABLE• CAN COMPANIES IN INDIA ISSUE

IRREDEEMABLE PREFERENCE SHARES?• IS THERE ANY VOTING RIGHT AVAILABLE TO

PREFERENCE SHAREHOLDER?

EQUITY SHARES

• CAN A COMPANY ISSUE EQUITY SHARES WITH DIFFERENTIAL RIGHTS AS TO VOTING, DIVIDEND OR OTHERWISE?

• YES. • COMPANIES (ISSUE OF SHARE CAPITAL WITH

DIFFERENTIAL VOTING RIGHTS)RULES 2001. SEC 88 DELETED

CONDITIONS TO BE MET FOR ISSUING SHARES WITH DIFFERENTIAL RIGHTS

• HAS DISTRIBUTABLE PROFITS IN THE THREE FINANCIAL YEARS PRECEDING THE YEAR IN WHICH IT IS DECIDED TO ISSUE SUCH SHARES

• NOT DEFAULTED IN FILING ANNUAL RETURNS IN THOSE THREE PRECEEDING YEARS

• NOT FAILED TO REPAY DEPOSITS, INTEREST, REDEEM DEBENTURES, DIVIDEND OR MEET INVESTOR GRIEVIENCES

CONDITIONS FOR ISSUING SHARES WITH DIFFERENTIAL RIGHTS

• AOA AUTHORISES • SHAREHOLDERS IN AGM HAS APPROVED IT• COMPANY NOT CONVICTED OF ANY OFFENCE

UNDER SEBI, FEMA.• SHARE WITH DIFFERENTIAL VOTING RIGHT

CANNOT EXCEED 25% OF THE ISSUED CAPITAL

ISSUE OF SWEAT EQUITY SHARES

• WHAT IS SWEAT EQUITY SHARE?• SEC. 79A : SHARE ISSUED BY THE COMPANY

TO ITS EMPLOYEES OR DIRECTORS AT A DISCOUNT OR FOR CONSIDERATION OTHER THAN CASH FOR PROVIDING KNOW-HOW OR MAKING INTELLECTUAL PROPERTY RIGHTS AVAILABLE OR VALUE ADDITIONS.

GUIDELINES REGARDING ISSUANCE OF SWEAT EQUITY SHARES

• SHARES HAVE TO BE OF THE SAME CLASS ALREADY ISSUED.

• APPROVED THROUGH SPECIAL RESOLUTION PASSED IN GENERAL MEETING

• ALLOWED ONLY AFTRE ONE YEAR FROM THE DATE THE COMPANY WAS ALLOWED TO START BUSINESS.

PROS AND CONS OF EQUITY SHARES

Advantages To the Issuer• Long-tern and Permanent Capital• No Fixed Burden• Credit worthiness• Risk Capital• Dividend Policy:.

Advantages to Investors:• More Income• Right to Participate in the Control and Management• Capital profits• An Attraction of Persons having Limited Income:• Disadvantages of equity shares

Disadvantages to company

• Dilution in control• No flexibility in capital structure• High cost• Speculation• Disadvantages to investors• Uncertain and Irregular Income• Capital loss During Depression Period• Loss on Liquidation

TYPES OF ISSUES

• Public issue• (i) Initial Public offer (IPO)• (ii) Further public offer (FPO)• Rights issue• Bonus issue• Private placement• (i) Preferential issue• (ii) Qualified institutional placement

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

0

10,000

20,000

30,000

40,000

50,000

60,000 Amount Raised Rs Crores(IPO)Amount Raised Rs Crore(Right Issue)

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

0

200

400

600

800

1000

1200

1400

1600Number of public issues Number of Right Issues

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

0

200

400

600

800

1000

1200

1400

1600 Number of FPOs Number of IPOs

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000 AMT RS CRORES RAISED FPOs Amt Rs. Crores Raised IPOs

Issue Requirements

• ARE THERE ANY ENTRY REQUIREMENTS FOR AN ISSUER TO MAKE AN ISSUE / OFFER TO PUBLIC?

• YES

• WHAT ARE THESE REQUIREMENTS?

• SEBI has laid down entry norms for entities making a public issue/ offer.

AN UNLISTED ISSUER MAKING A PUBLIC ISSUE I.E. (MAKING AN IPO) IS REQUIRED TO SATISFY THE FOLLOWING PROVISIONS:

• Entry Norm I (commonly known as “Profitability Route”)

• NET TANGIBLE ASSETS OF AT LEAST RS. 3 CRORES IN EACH OF THE PRECEDING THREE FULL YEARS.

• DISTRIBUTABLE PROFITS IN ATLEAST THREE OF THE IMMEDIATELY PRECEDING FIVE YEARS.

• NET WORTH OF AT LEAST RS. 1 CRORE IN EACH OF THE PRECEDING THREE FULL YEARS.

• IF THE COMPANY HAS CHANGED ITS NAME WITHIN THE LAST ONE YEAR, ATLEAST 50%

REVENUE FOR THE PRECEDING 1 YEAR SHOULD BE FROM THE ACTIVITY SUGGESTED BY THE NEW

NAME.

• THE ISSUE SIZE DOES NOT EXCEED 5 TIMES THE PRE ISSUE NET WORTH AS PER THE AUDITED‐

BALANCE SHEET OF THE LAST FINANCIAL YEAR

• TO PROVIDE SUFFICIENT FLEXIBILITY AND ALSO TO ENSURE THAT GENUINE COMPANIES DO NOT

SUFFER ON ACCOUNT OF RIGIDITY OF THE PARAMETERS, SEBI HAS PROVIDED TWO OTHER

ALTERNATIVE ROUTES TO THE COMPANIES NOT SATISFYING ANY OF THE ABOVE CONDITIONS, FOR

ACCESSING THE PRIMARY MARKET, AS UNDER:

Entry Norm II (Commonly known as “QIB Route”)

• ISSUE SHALL BE THROUGH BOOK BUILDING ROUTE, WITH AT LEAST 50% TO BE MANDATORY ALLOTTED TO THE QUALIFIED INSTITUTIONAL BUYERS (QIBS).

• THE MINIMUM POST ISSUE FACE VALUE ‐CAPITAL SHALL BE RS. 10 CRORES OR THERE SHALL BE A COMPULSORY MARKET MAKING ‐FOR AT LEAST 2 YEARS

ENTRY NORM III (COMMONLY KNOWN AS “APPRAISAL ROUTE”)

• THE “PROJECT” IS APPRAISED AND PARTICIPATED TO THE EXTENT OF 15% BY FINANCIAL INSTITUTIONS / SCHEDULED COMMERCIAL BANKS OF WHICH AT LEAST 10% COMES FROM THE APPRAISER(S).

• THE MINIMUM POST ISSUE FACE VALUE CAPITAL SHALL ‐BE RS. 10 CRORES OR THERE SHALL BE A COMPULSORY MARKET MAKING FOR AT LEAST 2 YEARS.‐

• IN ADDITION TO SATISFYING THE AFORESAID ENTRY NORMS, THE ISSUER COMPANY SHALL ALSO SATISFY THE CRITERIA OF HAVING AT LEAST 1000 PROSPECTIVE ALLOTEES IN ITS ISSUE.

A LISTED ISSUER MAKING A PUBLIC ISSUE (FPO) IS REQUIRED TO SATISFY THE FOLLOWING REQUIREMENTS :

• IF THE COMPANY HAS CHANGED ITS NAME WITHIN THE LAST ONE YEAR, ATLEAST 50% REVENUE FOR THE PRECEDING 1 YEAR SHOULD BE FROM THE ACTIVITY SUGGESTED BY THE NEW NAME.

• THE ISSUE SIZE DOES NOT EXCEED 5 TIMES THE PRE ISSUE NET WORTH AS PER THE AUDITED BALANCE ‐SHEET OF THE LAST FINANCIAL YEAR

• ANY LISTED COMPANY NOT FULFILLING THESE CONDITIONS SHALL BE ELIGIBLE TO MAKE A PUBLIC ISSUE BY COMPLYING WITH QIB ROUTE OR APPRAISAL ROUTE AS SPECIFIED FOR IPOs

OTHER GUIDELINES FOR ISSUERS

• PROMOTERS CONTRIBUTION• Promoters should bring in their contribution

including premium fully before the issue• Minimum Promoters contribution is 20% of

the public issue.• Minimum Lock in period for promoters

contribution is three years.

COLLECTION CENTERS FOR RECEIVING APPLICATIONS

• THERE SHOULD BE AT LEAST 30 MANDATORY COLLECTION CENTERS, WHICH SHOULD INCLUDE INVARIABLY THE PLACES WHERE STOCK EXCHANGES HAVE BEEN ESTABLISHED.

• FOR ISSUES NOT EXCEEDING RS.10 CRORES (INCLUDING PREMIUM, IF ANY), THE COLLECTION CENTRES SHALL BE SITUATED AT:-

• THE FOUR METROPOLITAN CENTRES VIZ. BOMBAY, DELHI, CALCUTTA, MADRAS; AND

• AT ALL SUCH CENTRES WHERE STOCK EXCHANGES ARE LOCATED IN THE REGION IN WHICH THE REGISTERED OFFICE OF THE COMPANY IS SITUATED.

Allotment of shares

• Net Offer to the General Public has to be at least 25% of the Total Issue Size for listing on a Stock exchange.

• It is mandatory for a company to get its shares listed at the regional stock exchange where the registered office of the issuer is located.

• In an Issue of more than Rs. 25 crores the issuer is allowed to place the whole issue by book-building

• Minimum of 50% of the Net offer to the Public has to be reserved for Investors applying for less than 1000 shares.

Allotment of Shares

• THERE SHOULD BE ATLEAST 5 INVESTORS FOR EVERY 1 LAKH OF EQUITY OFFERED (NOT APPLICABLE TO INFRASTRUCTURE COMPANIES).

• QUOTING OF PERMANENT ACCOUNT NUMBER OR GIR NO. IN APPLICATION FOR ALLOTMENT OF SECURITIES IS COMPULSORY WHERE MONETARY VALUE OF INVESTMENT IS RS.50,000/- OR ABOVE.

• INDIAN DEVELOPMENT FINANCIAL INSTITUTIONS AND MUTUAL FUND CAN BE ALLOTTED SECURITIES UPTO 75% OF THE ISSUE AMOUNT.

• ALLOTMENT TO CATEGORIES OF FIIS AND NRIS IS UPTO A MAXIMUM OF 24%, WHICH CAN BE FURTHER EXTENDED TO 30% BY AN APPLICATION TO THE RBI - SUPPORTED BY A RESOLUTION PASSED IN THE GENERAL MEETING.

TIMEFRAMES FOR THE ISSUE AND POST- ISSUE FORMALITIES

• THE MINIMUM PERIOD FOR WHICH A PUBLIC ISSUE HAS TO BE KEPT OPEN IS 3 WORKING DAYS AND THE MAXIMUM FOR WHICH IT CAN BE KEPT OPEN IS 10 WORKING DAYS. THE MINIMUM PERIOD FOR A RIGHTS ISSUE IS 15 WORKING DAYS AND THE MAXIMUM IS 60 WORKING DAYS.

• A PUBLIC ISSUE IS EFFECTED IF THE ISSUE IS ABLE TO PROCURE 90% OF THE TOTAL ISSUE SIZE WITHIN 60 DAYS FROM THE DATE OF EARLIEST CLOSURE OF THE PUBLIC ISSUE. IN CASE OF OVER-SUBSCRIPTION THE COMPANY MAY HAVE THE RIGHT TO RETAIN THE EXCESS APPLICATION MONEY AND ALLOT SHARES MORE THAN THE PROPOSED ISSUE, WHICH IS REFERRED TO AS THE ‘GREEN-SHOE’ OPTION.

TIME FRAME

• A RIGHTS ISSUE HAS TO PROCURE 90% SUBSCRIPTION IN 60 DAYS OF THE OPENING OF THE ISSUE.

• ALLOTMENT HAS TO BE MADE WITHIN 30 DAYS OF THE CLOSURE OF THE PUBLIC ISSUE AND 42 DAYS IN CASE OF A RIGHTS ISSUE.

• ALL THE LISTING FORMALITIES FOR A PUBLIC ISSUE HAS TO BE COMPLETED WITHIN 70 DAYS FROM THE DATE OF CLOSURE OF THE SUBSCRIPTION LIST.

PRICING OF AN ISSUE

• WHO FIXES THE PRICE OF SECURITIES IN AN ISSUE?

• INDIAN PRIMARY MARKET USHERED IN AN ERA OF FREE PRICING IN 1992.

• THE OFFER DOCUMENT CONTAINS FULL DISCLOSURES OF THE PARAMETERS WHICH ARE TAKEN IN TO ACCOUNT BY MERCHANT BANKER AND THE ISSUER FOR DECIDING THE PRICE. THE PARAMETERS INCLUDE EPS, PE MULTIPLE, RETURN ON NET WORTH AND COMPARISON OF THESE PARAMETERS WITH PEER GROUP COMPANIES.

FOR HOW MANY DAYS AN ISSUE IS REQUIRED TO BE KEPT OPEN?

• Fixed price public issues: 3 10 working days‐• For Book built public issues: 3 7 working days ‐

extendable by 3 days in case of a revision in the price band

• For Rights issues : 15 30 days.‐

MODES OF PUBLIC ISSUES

ISSUE TYPE OFFER PRICE DEMAND PAYMENT RESERVATIONS

Fixed Price Issues Price at which the securities are

offered and would be allotted is made known in advance

to the investors

Demand for the securities offered

is known only after the closure of

the issue

100 % advance payment is

required to be made by the

investors at the time of

application.

50 % of the shares offered are

reserved for applications below Rs. 1 lakh and the balance for higher

amount applications.

Book BuildingIssues

A 20 % price band is offered by the

issuer within which investors

are allowed to bid and the final price is determined by the issuer only

after closure of the bidding.

Demand for the securities offered ,

and at various prices, is available

on a real time basis on the BSE

website during the bidding period..

10 % advance payment is

required to be made by the QIBs

along with the application, while

other categories of investors have to

pay 100 % advance along

with the application.

50 % of shares offered are

reserved for QIBS, 35 % for small

investors and the balance for all

other investors.

ISSUE OF SHARES AT PREMIUM

• SEC 78 ALLOWS COMPANY TO ISSUE SHARES AT A PRICE HIGHER THAN THE NOMINAL VALUE

ISSUE OF SHARES AT A DISCOUNT

• SEC. 79 DEALS WITH ISSUE OF SHARES AT DISCOUNT

• THE SHARES MUST BE OF THE SAME CLASS ALREADY ISSUED

• ATLEAST ONE YEAR MUST HAVE ELAPSED SINCE THE COMPANY BECAME ENTITLED TO COMMENCE BUSINESS

• ISSUE PASSED THROUGH SPECIAL RESOLUTION AND APPROVED BY THE COMPANY LAW BOARD

• MAXIMUM DISCOUNT PERMITTED 10%.

OTHER MODES OF RAISING MONEY THROUGH ISSUANCE OF SHARES

• RIGHT ISSUE SEC(81)• BONUS ISSUE• ISSUE OF SHARES TO PROMOTERS

EMPLOYEE STOCK OPTION SCHEME

• SEC 2(15A) : OPTION GIVEN TO THE EMPLOYEES, DIRECTORS, OR OFFICERS OF A COMPANY TO SUBSCRIBE AT A FUTURE DATE SECURITIES OFFERED TO THEM BY THE COMPANY.

NEW TERMS

• GREEN SHOE OPTION‐• SAFETY NET• OPEN BOOK/CLOSED BOOK• HARD UNDERWRITING• SOFT UNDERWRITING• DIFFERENTIAL PRICING

BUY BACK OF SHARES

• COMPANIES AMENDMENT ACT 1999 INSERTED SECTIONS 77A, 77AA AND 77B TO EMPOWER COMPANIES TO BUY BACK THEIR SHARES;

• CO CAN PURCHASE ITS OWN SHARE OUT OF:– FREE RESERVES– SECURITY PREMIUM– THE PROCEEDS OF ANY NEW ISSUE OF SHARES

MODES OF BUY BACK

• FROM EXISTING HOLDERS ON A PROPORTIONATE BASIS(TENDER OFFER)

• PURCHASING FROM OPEN MARKET(THROUGH EXCHANGE)

• PURCHASING FROM ODD LOT HOLDERS• PURCHASING OF SHARES FROM EMPLOYEES

CONDITIONS FOR BUY BACK

• AOA AUTHORISES• APPROVED THROUGH SPECIAL RESOLUTION• SPECIAL RESOLUTION NOT REQUIRED IF BUY BACK IS

– LESS THAN 10% OF TOTAL PAID UP CAPITAL AND FREE RESERVES

– RESOLUTION PASSED BY THE BOARD• GAP OF 365 DAYS BETWEEN TWO BUY BACK PROPOSALS• BUY BACK IS LESS THAN 25% OF PAID UP CAPITAL AND

FREE RESERVES• DEBT AFTER BUY BACK IS NOT MORE THAN TWICE THE

CAPITAL AND FREE RESERVES

CONDITIONS FOR BUY BACK

• ALL THE SHARES FOR BUY BACK ARE FULLY PAID UP• SHARES ARE LISTED ON A RECOGNISED STOCK

EXCHANGE• BUY BACK TO BE COMPLETED WITHIN 12 MONTHS

AFTER PASSING OF RESOLUTION• SECURITIES BOUGHT BACK TO BE DESTROYED

PHYSICALLY WITHIN 7 DAYS• NO NEW ISSUE WITHIN NEXT 6 MONTHS ALLOWED

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

0

5

10

15

20

25

30 Number of equity issues Number of Issues(PS)Number of Issues(Bonds)

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Banking(Rs. Crore) Cement & Co.Chemical ElectronicsEntertainment FinanceTotal

• MARKET CAPITALISATION • BSE RS. 61,65,619 CRORE• NSE RS. 60,09,173 CRORE

RESEARCH ISSUES IN DEBT AND EQUITY INTRUMENTS

• MECHANISM OF SHARE PRICE FIXATION IN IPOs• THE RELATIONSHIP BETWEEN ECONOMIC

DEVELOPMENT OF A COUNTRY AND THE CAPITAL STRUCTURE OF THE FIRMS.

• THE EFFECT OF MACROECONOMIC FACTORS ON FINANCIAL STRUCTURE OF THE FIRM.

• THE DIFFERENT TAX TREATMENTS GIVEN TO EQUITY AND DEBT INSTRUMENTS.

• EFFECT OF DEVELOPMENT IN FINANCIAL SYSTEM ON CAPITAL STRUCTURE.

RESEARCH ISSUES IN DEBT AND EQUITY INTRUMENTS

• IMPACT ON THE RETURNS OF THE COMPANY POST IPO OR FPO

• IMPACT OF MARKET RETURNS ON EQUITY ISSUES

• FACTORS EFFECTING SHARE PRICES

• THANKS

Documents

PPT Debt and Equity Instruments -GNE