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What Is Primary Market
What Is Primary Market
MARKET
ORGANISED UN
MARKET
CAPITAL
MONEY MARKET
MARKET
CAL
INDUSTRIA LONG
GOVT. M
L TERM
SECURITIE COMM
SECURITIE LOANS
S MARKET M
S MARKET MARKET
PRIMARY TERM LOAN TREA
MARKET MARKET M
SECONDARY MARKET FOR
SHORT
MARKET MORTGAGES
MARKET FOR M
FINANCIAL
GUARANTES
What is Primary market?
Primary market is a market for new issues or new financial claims. Hence, it is also called New
Issue market.
The primary market deals with those securities which are issued to the public for the first time. In the
primary market, borrowers exchange new financial securities for long term funds. Thus primary market
facilitates capital formation.
They are three ways by which a company may raise capital in a primary market. They are:
i. Public issue
The most common method of raising capital by new companies is through sale of securities to the
public. It is called PUBLIC ISSUE. When an existing company wants to raise additional capital, securities
are first offered to the existing shareholders on a pre-emptive basis. It is called RIGHT ISSUE. Private
placement is a way of selling securities privately to a small group of investors.
Both the markets are connected to each other even at the time of new issue. The
companies which makes new issue apply for listing of shares on a recognized stock
exchange.
Listing of shares adds prestige to the firm and widens the market for the investors. The
companies which want stock exchange listing have to comply with statutory rules and
regulations of the stock exchange to ensure faire dealing in them. The stock exchanges,
thus, exercise considerable control over the organization of new issues.
• The new issue market and stock market are economically an integral part of a single
market, i.e., industrial securities market. Both are susceptible to the common influence
of the environmental conditions such as political stability, economic conditions,
monetary policy of the Central Bank and the fiscal policy of the government.
• The two markets act and react upon each other in the same direction. When the stock
prices go up in the market, the new issues increase and when the stock prices show a
downward trend the new issues decline.
• The new issue market also depends on the stock exchange to find out price movements
and general economic outlook and to forecast the climate for the success of new issues.
Kinds of
issues
Preferential
IPO FPO Right Issues
Issues
What is IPO ?
• An initial public offering (IPO) or stock market launch is a type of public offering where
shares of stock in a company are sold to the general public, on a securities exchange, for
the first time.
• Through this process, a private company transforms into a public company.
• Initial public offerings are used by companies to raise expansion capital, to possibly
monetize the investments of early private investors, and to become publicly traded
enterprises.
• In March 1602 the “Vereenigde Oost-Indische Companies (VOC), or Dutch East India
company was formed. The VOC was the first modern company to issue public shares,
and it is this issuance, at the beginning of the 17th century, that is considered the first
modern IPO.
• In the United States, the first IPO was the public offering of Bank of North America.
Disadvantages of an IPO:-
There are several disadvantages to completing an initial public offering:-
1. Significant legal, accounting and marketing costs, many of which are ongoing
Issuer Company Issue Open Issue Closed Offer Price Issue Type Issue
Name Size(cror)
Bharti Infratel 11-12-2012 14-12-2012 210/- to 240/- IPO 3,966.90 –
Limited IPO 4,533.60
Bronze infra-tech 19-10-2012 23-10-2012 15/- IPO 8.56
Ltd IPO
Thejo Engineering 04-09-2012 06-09-2012 402/- to 430/- IPO 19
Ltd IPO
SRG Housing 22-08-2012 28-08-2012 20/- IPO 7.01
Finance Ltd IPO
Jointeca Education 16-08-2012 21-08-2012 15/- IPO 5.35
Solutions Ltd IPO
Jupiter Info media 30-07-2012 01-08-2012 20/- IPO 4.08
Ltd IPO
Tribhovandas 24-04-2012 26-04-2012 120/- to 126/- IPO 200
Bhimji Zaveri Ltd
IPO
What is FPO?
FPO is a process in which an already listed company raises additional capital from the
public.
In short both IPO and FPO are process of raising funds from the public.
A follow-on offering (often but incorrectly called secondary offering) is an issuance of
stock subsequent to the company's initial public offering. A follow-on offering can be
either of two types (or a mixture of both): dilutive and non-dilutive. A secondary offering
is an offering of securities by a shareholder of the company (as opposed to the company
itself, which is a primary offering). A follow on offering is preceded by release of
prospectus similar to IPO: a Follow-on Public Offer (FPO).
For example, Google's initial public offering (IPO) included both a primary offering
(issuance of Google stock by Google) and a secondary offering (sale of Google stock
held by shareholders, including the founders).
One example of a type of follow-on offering is an at-the-market offering (ATM offering), which
is sometimes called a controlled equity distribution. In an ATM offering, exchange-listed
companies incrementally sell newly issued shares into the secondary trading market through a
designated broker-dealer at prevailing market prices. The issuing company is able to raise capital
on an as-needed basis with the option to refrain from offering shares if unsatisfied with the
available price on a particular day.
As with an IPO, the investment banks who are serving as underwriters of the follow-on offering
will often be offered the use of a green shoe or over-allotment option by the selling company.
IPO is made when company seeks to raise capital via public investment while FPO is
subsequent public contribution.
First issue of shares by the company is made through IPO when company first becoming a
publicly traded company on a national exchange while Follow on Public Offering is the public
issue of shares for an already listed company.
The details of un utilized monies shall also be disclosed under a separate head in the B/S
indicating the form in which such unutilized monies have been invested.
Underwriting Distribution
Origination
Preliminary Methods :-
investigation Standing behind the issue.
Outright Purchase.
Methods :-
Public issues.
Consortium . Offer for sale.
Advisory services
.
Placement
Right issues.
Types of Origination :-
1. A careful study of the technical, economic and financial viability to ensure soundness of the
project. This is a Preliminary Investigation Undertaken by the sponsors of the issue.
2. Advisory services which improve the quality of capital issues and ensure its success.
a) Type of Issue
b) Magnitude of Issue
d) Pricing of an Issue
e) Methods of Issues
Methods of Underwriting :-
1. Standing Behind the issue :-
Under this method , the underwriter guarantees the sale of a specified number of shares within a
specified period. If the public do not subscribe to the specified amount of issue, the underwriter buys
the balance in the issue.
2. Outright Purchase :-
The underwriter, in this method, makes outright purchase of shares and resells them to the
investors.
3. Consortium Method :-
Underwriting is jointly done by a group of underwriters in this method. The underwriters from a
syndicate for this purpose. This method is adopted for large issues.
Methods of Distribution :-
1. Public Issues :-
Under this method, the issuing company directly offers to the general public/institutions a fixed
number of shares at a started price through a document called prospectus. This is the most common
method followed by joint stock companies to raise capital through the issue of securities.
2. Offer of Sale :-
The method of offer of sale consists outright sale of securities through the intermediary of Issue
Houses or share brokers. In other wards, the shares are not offered to the public directly.
3. Placement :-
Under this method, the issue Houses or brokers buy the securities outright with the intention of
placing them with their clients afterwards. Here the brokers act as almost wholesalers selling them in
retail to the public. The brokers would make profit in the process of reselling to the public. The Issue
Houses or brokers maintain their own list of clients and through customer contact sell the securities.
There is no need for a formal prospectus as well as underwriting agreement.
4. Rights Issue :-
A right means an option to buy certain securities at a certain privileged price within a certain
specified period. Shares, so offered to the existing shareholders are called right shares.