new issue market

new issue market

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  DEVELOPMENT IN THE NEWISSUE MARKET 8/3/2015 1
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    INTRODUCTION  NEWISSUE MARKET  INTERMEDIARIES  CATEGORIES OF COMPANIES  APPLICATION OF SHARES  FREE PRICING OF ISSUE  ISSUE ADVERTISEMENT  CONCLUSION  REFERENCES CONTENT 8/3/2015 2
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   The NIMhas emerged as an important source of corporate financing in India after 1985  The NIM was being regulated by in 1992  It was abolished and the was established for providing protection to investors and controlling the operations of NIM  The SEBI was to cover all the activities of the NIM beginning with the planning of the capital issues and completing the formalities until the post issue activities. INTRODUCTION 8/3/2015 3
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  NEW ISSUE MARKET It refers to the set-up which helps the industry to raise the funds by issuing different types of securities.  These securities are issued directly to the investors through the mechanism called primary market or new issue market.  The securities take birth in this market.  EXAMPLE: MUTHOOT FINANACE LTD 8/3/2015 4
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  MERCHANT BANKER They draftprospectus  Appoint registrars for share application and transfers Provide arrangements for underwriting  select brokers Bankers to the issue Handle past issue problems
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  Cont.. • Merchant bankersmust be regulated with SEBI. • Merchant bankers has to pay a registration fee annually. • A lead manager has to prepare prospectus and submit to the SEBI at least two weeks before the issue. No of lead manager Issue 2 50 crores 3 50-100 crores 4 100-200crores
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  INTERMEDIARIES 8/3/2015 7
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   Underwriters  Underwriting isno longer mandatory.  They should have a certificate of registration with SEBI. Bankers to the issue  He should registered with SEBI.  He has to pay a fees of Rs 2.5 lakhs for the first two years and Rs 1 lakh for the third year Brokers to the issue  Not compulsory Registrars  They keep a record of the investor and assist companies for allotment of securities Transfer Agent  They maintain records of holder of security and deal with transfers and redemption of securities 8/3/2015 8
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   Debenture trustee:  Onlyschedule commercial banks, public financial institutions, insurance companies are entitled to act as Debenture trustee. He has to pay a fees of Rs 2 lakhs for the first two years and Rs 1 lakh for the third year Category 1 Both Registrars And Transfer Agent Capital Adequacy Requirement = 6 Lakhs Category 2 Registrars Or Transfer Agent Capital Adequacy Requirement = 3 Lakhs 8/3/2015 9
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  EXAMPLE ‘S 8/3/2015 10
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  CATEGORIES OF COMPANIES CategoryA:  New companies with less than 12 months in operation.  At least 25% and 20% of total issued capital of rs.100 crores should be through promoters . Category B:  Companies which have a good past record of making profits for the last five years and are making their first public issue.  They are free to price their issue at par or premium. 8/3/2015 11
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  CONT.. Category C:  Private,closely held and unlisted companies which are making their first public issue.  Companies should have a good past record of making profits for the at least three out of five years.  It can issue shares at premium. Category D:  Private, closely held and unlisted companies without a consistent record of past profitability. 8/3/2015 12
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  CONT.. Category E:  Consistof the same group of companies without consistent past record of profitability but support by existing companies with a consistent record of profitability in the last five years Category F:  Is of existing listed companies that are making public issue 8/3/2015 13
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  CONT.. Category G:  Existingcompanies of past profitability offering to public without issuing fresh capital and seeking disinvestment.  The promoters share should be at least 25% and they can offer their shares at premium. Category H:  Existing companies of without profitability offering to public without issuing fresh capital and seeking disinvestment.  They can offer their shares at par. 8/3/2015 14
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  APPLICATION OF SHARES The application of shares is also made in accordance with SEBI guidelines.  The minimum application money paid is 25% of the issue price.  EG: If the face value is Rs.10, a minimum of should be paid at the time of application of shares  If application money receives 90% of the amount issued within 120 days of opening of the issue-Valid issue  Within 45 days of the closing of the issue a repot signed by the CA must be sent to the SEBI  If there is oversubscription, proportionate allotment is made it to all investors.  If there is under subscription, subscription money is returned to the investors. 8/3/2015 15
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  Cont.. Bought Out Deals: An institution or whole sale investor buys share of an unlisted company with the intention of making an offer for sale to the retail public later at much higher prices.  Suitability: Bought out deals are ideally suited in the circumstances when the money needs to be arranged fast and projects may suffer unnecessarily of the money is not available in time.  Main difference : BOUGHT OUT DEALS: UNLISTED COMPANIES PRIVATE PLACEMENT: LISTED COMPANIES 8/3/2015 16
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  Free pricing ofissue  SEBI with objective of broadening the investors base, dispensed with the requirement of standard denomination of Rs.10 and Rs.100, gave freedom to companies with dematerialized shares to issue shares at any denomination. It should be indicated to investors, in order to enable the investors to take investment decisions. They can issue shares at par or premium.  Eg: The existing companies, with shares at Rs.10 and Rs.100, also can avail of this facility by consolidating or splitting their existing shares. 8/3/2015 17
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  ISSUE ADVERTISEMENT  SEBIhas issued guidelines regarding code of ‘Advertisement ‘ for the issue of shares.  It should be clear and fair and not misleading and false.  A new issue is required to be advertised in the newspapers and through brochures, pamphlets and circulars.  It should not be promise or guarantee of any fact which is not present in the offer document, It should be released with risk factors.  Models and celebrities are not allowed. 8/3/2015 18
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  BOOK BUILDING • Bookbuilding is a process of generating, capturing, and recording investor demand for shares during an initial public offering (IPO), or other securities during their issuance process, in order to support efficient price discovery. • The process by which an underwriter attempts to determine at what price to offer an IPO based on demand from institutional investors. • In U.S it is called ‘ soft underwriting ‘ 8/3/2015 19
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  Malegam Committee 1995 The Malegam Committee on Disclosure Requirements in Offer Document, under the chairmanship of Shri Y.H. Malegam, has submitted a report to SEBI. This report has been prepared based on the deliberations of the Committee, which took place over 25 meetings. The report contains various recommendations pertaining to extant disclosure requirements in Offer Document. The recommendations have been made on various areas of disclosures including standardization of disclosure requirements in offer document, format of abridged prospectus, format of issue advertisements etc 8/3/2015 20
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   The changesis new issue market especially those relating to market intermediaries, issue procedures and disclosures have helped in removing deficiencies and inadequacies and in bringing about new mechanism of trading securities. 8/3/2015 21
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  TIME TO ANSWER:  Which is called ‘ soft underwriting ‘  Bought out deals usually in  When such shares are issued for the 1st time in the share market, it is called as and the further issue is called 8/3/2015 22
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   INVESTMENT MANAGEMENT- PREETI SINGH  FINANCIAL MARKET AND SERVICES-  E.GORDEN AND NATRAJAN REFERENCES www.slideshare.net/ragarwal76/ new-issue-market www.sebi.gov.in/commreport/mela gamreport.pdf www.yourarticlelibrary.com/inves tment/recent- trends...market.../1273/ 8/3/2015 23
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