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Module 3:-

Capital Markets: Primary and Secondary Market, Structure, Nature, Significance


and Players, Characteristics and Types of Shares, Debenture & Warrants

What is capital Market?


Long term fund Market….

Primary Market?
Market for Long term Source of Finance in the form of Equity and Debt in the Form on
• New Floatation
• Either Public or Private
• In the Form of Right Issue to the Existing Shareholder.

New issue market where New securities are sold by Public limited Companies through
Public issue of Debt or Equity and Financing through Venture Capital.

Securities Represents claim on a Stream of Income and / or Particular assets.

Ownership
Category Debt Securities Security Hybrid
Preference
Product Debenture Equity Share
GOI, SG and
Parties PSI Public/Pvt. Co. Public/Pvt. Co.

Debenture:-
• Issues through Prospectus
• Form of Certificate
• Company Seal
• Specific Date of Repayment
• Can be of Different form
Features:-
• Negotiability
o Registered and Payable to Bearer
o Transferable by delivery
• Security
• Duration
• Convertibility
• Ranking for Discharge

Types of Debentures:
• Either Bearer/ Negotiable/ Transferable by paying registration fee to the registrar
• Secured, Unsecured
• Non convertible or convertible
Innovative Debt Instrument
• Participating Debenture
• Convertible Debenture with Options
• Third Party Convertible debenture
• Convertible Debenture Redeemable at Premium
• Debt Equity Swaps
• Zero Coupon Convertible notes
• Secured Premium Notes with Detachable Warrant
• Non Convertible Debenture with Detachable Equity Warrants
• Zero Interest Fully convertible debentures
• Secured Zero Interest Partly Convertible Debenture with Detachable and A
separate Trade Warrant
• Fully Convertible Debenture with interest Option

Warrant:- is a security which entitles the holders to purchase a specified no of shares at a


stated price before a stated period or date, they are issues along with either debenture or
Equity Share.

Preference Share:-
• Redeemable Preference Share
o Paid back out of Profit or out of the Proceeds of New Issue of Share.
o 20Year Time Duration at Max
o As there are repayable so that are as good as Debenture
o Only Fully Paid Shares are Redeemed
o Capital Redemption Reserve Account is being Created to which a sum
equal to the Nominal amt of the shares redeemed is transferred
o It is Treated as Paid Up capital of the Company
• Fully Convertible Cumulative Preference Share (Equipref)
o (A)Converted on Maturity without notice
o (B)Converted on maturity with Consent
o At 30% lover than the MP
o Dividend only on part B
• Preference Share with Warrant Attached
o Warrant is attached
o Apply for Equity for cash, at Premium, at anytime in one or more stages
between the 3rd and 5th Year from allotment date
o Can not be sold or transferred for first 3yr due to lock in period

Equity Share

Capital:-
• Nominal or Authorized capital
• Issued and Subscribed Capital
• Paid Up Capital

What is a Debenture?

• A Debenture is a debt security issued by a company (called the


Issuer), which offers to pay interest in lieu of the money
borrowed for a certain period. In essence it represents a loan
taken by the issuer who pays an agreed rate of interest during
the lifetime of the instrument and repays the principal normally,
unless otherwise agreed, on maturity.

These are long-term debt instruments issued by private sector


companies. These are issued in denominations as low as Rs 1000
and have maturities ranging between one and ten years. Long
maturity debentures are rarely issued, as investors are not
comfortable with such maturities
Debentures enable investors to reap the dual benefits of
adequate security and good returns. Unlike other fixed income
instruments such as Fixed Deposits, Bank Deposits they can be
transferred from one party to another by using transfer from.
Debentures are normally issued in physical form. However,
corporates/PSUs have started issuing debentures in Demat form.
Generally, debentures are less liquid as compared to PSU bonds
and their liquidity is inversely proportional to the residual
maturity. Debentures can be secured or unsecured.

• What are the different types of debentures?


Debentures are divided into different categories on the basis of:
(1)convertibility of the instrument (2) Security
Debentures can be classified on the basis of convertibility into:
• · Non Convertible Debentures (NCD): These instruments retain
the debt character and can not be converted in to equity shares
• · Partly Convertible Debentures (PCD): A part of these
instruments are converted into Equity shares in the future at
notice of the issuer. The issuer decides the ratio for conversion.
This is normally decided at the time of subscription.
• · Fully convertible Debentures (FCD): These are fully convertible
into Equity shares at the issuer's notice. The ratio of conversion
is decided by the issuer. Upon conversion the investors enjoy the
same status as ordinary shareholders of the company.
• · Optionally Convertible Debentures (OCD): The investor has the
option to either convert these debentures into shares at price
decided by the issuer/agreed upon at the time of issue.
• On basis of Security, debentures are classified into:
• · Secured Debentures: These instruments are secured by a
charge on the fixed assets of the issuer company. So if the
issuer fails on payment of either the principal or interest amount,
his assets can be sold to repay the liability to the investors
• · Unsecured Debentures: These instrument are unsecured in
the sense that if the issuer defaults on payment of the interest
or principal amount, the investor has to be along with other
unsecured creditors of the company