Raising capital from domestic markets

Modes of raising capital

Private Debenture
Public issue Right issue
placement Issues

Follow on Public
Initial Public Offering Private Placement
offering
(for unlisted ( for unlisted
(for listed
companies) companies)
companies)

Preferential Issue ( for Qualified Institutions

listed companies) Placement
(for listed companies)
1
 Public Issue
• Sale of securities to the public at large
• In India – governed by the Companies Act 1956, SEBI
Guidelines.
• Advantages
• The company and the issue get full publicity
• The entire issue process becomes transparent to the
public and the authorities
• The issue is allotted among the applicants on non-
discriminatory basis
• The issue gets widely distributed and thus helps in
reducing concentration of wealth and economic power
 Public issue
• Disadvantages
• Expensive – flotation cost like brokerage, underwriting
expenses etc.,
• Admin cost – cost of printing the prospectus and other
documents, postage and other admin costs, bank
charges etc.,
• Legal cost – stamp duty, registration fees etc.,
• Beneficial only to large issues – due to high cost
 Classification of Public Issue
• IPO ( Initial Public Offer)
• FPO ( Follow on Public offer)

• IPO
• First sale of stock by a private company to the
public
• Used by smaller & younger companies Seeking
capital to expand
• Also by large privately owned companies looking
to become publicly traded
 Advantages and disadvantages of IPO
• Advantages
1. Increase in the capital
2. Liquidity
3. Valuation
4. Increased wealth
• Disadvantages
1. Expensive
2. Rules and regulations – complexities requires
experts in relevant fields
3. Loss of confidentiality, flexibility and control
• Bhopal-based Dilip Buildcon, a private sector road-focused
contractor, will be launching its initial public offering on August 1,
2016. It has fixed price band at Rs 214-219 per share.
• The IPO, which will close on August 3, comprises of fresh issue
equity shares aggregating up to Rs 430 crore and an offer for
sale of up to 11,36,364 shares by Dilip Suryavanshi, up to
11,36,364 shares by Devendra Jain and up to 79,54,545 shares
by the BanyanTree Growth Capital, LLC.
• The company proposes to utilise issue proceeds of the fresh
issue for prepayment or scheduled repayment of a portion of
term loans, working capital requirements and general corporate
purposes. It will not receive any proceeds from the offer for sale.
• Dilip Buildcon is building roads, bridges, dams, canals, water
supply etc. worth Rs 17,530 crore, across 12 states. The
company has grown from Rs 1,192 crore in 2012 to Rs 4349
crore in 2016.
• Rs 1,243-crore initial public offering of L&T Infotech fully
subscribed on day one
• Jul 12, 2016 : MUMBAI: The Rs 1,243-crore initial public
offering of L&T Infotech got fully subscribed on the first day of
the issue on Monday, helped by a strong demand from
qualified institutional buyers.

illionaire Adi Godrej is considering an initial public offering of

his group's animal-feed unit, the largest producer in India, as
business thrives in the biggest milk-drinking country in the
world.

Godrej Agrovet Ltd. may be listed in the future, group

Chairman Godrej said in a recent interview in Mumbai, without
providing details on the timing or valuations. Agrovet, which
made two acquisitions last year, is growing very rapidly and is
open to more purchases domestically, he said.
 Follow on Public offer
• An issue made by company that has already gone
public and listed its shares through an IPO.
• Any public issue or an offer for sale that is made
after the initial public offer is an FPO.
• Such issue is required to satisfy the stock
exchange listing obligations along with SEBI
guidelines.
 Right Issue
• Method of raising additional finance from
existing shareholders by offering securities to
them.
• New stock (share) issue offered to existing
stockholders (shareholders) in proportion to
their current stock/shareholding, for a
specified period and at a specified (usually
discounted) price. Its objective is to afford
them the opportunity to maintain their
percentage of ownership of the firm.
Advantages and Disadvantages of right issue
• Advantages
1. Economical method of raising capital
2. Existing share holder pattern is not disturbed
3. More certain than the public issue
4. Usually company offers a price which is lower than the
market price of shares. Which gives monetary benefit to the
existing share holders
5. Opportunity to the existing shareholders to invest in the
company which they are well conversant.
• Disadvantages
1. can be used only by existing companies whose share are
already in the market
2. The issue remains limited up to existing shareholders only
3. This concentrates wealth and economic power in few hands
•
 Private placement
• Sale of securities to a limited number of sophisticated
investors such as financial institutions, mutual funds, venture
capital funds, banks and so on
• Sale of equity of an unlisted company
• Advantages
1. Cost effective
2. Time effective
3. Structure effectiveness
• Disadvantages
1. The issue may be concentrated only in few hands
2. This method does not generate confidence in the minds
of investing public.
 Debenture issue
• A document or certificate signed by the authorized officers of
a company acknowledging money lent and guaranteeing
repayment with interest and without security.

• A debt instrument and is the commonest method of rising

loan capital at a lower cost, as part of project financing or for
any other purpose.

• Types….
• Redeemable and Irredeemable Debentures
• Convertible and Non-Convertible Debentures
• Fully and Partly Convertible Debentures
• Manappuram Finance to raise Rs 75 cr via NCDs "The
proposal to raise funds through secured redeemable non-
convertible debentures aggregating to Rs 75 crores on
private placement basis will be considered by the Financial
Resources and Management Committee of Board of
Directors at its meeting to be held on August 22, 2016," it
said in a BSE filing.

• India bulls Housing Finance plans to raise Rs 700 crore by

issuing non-convertible debentures (NCDs) on a private
placement basis. "The company proposes to issue up to
Rs 700 crore secured non-convertible redeemable
debentures of face value of Rs 10 lakh each aggregating
to up to Rs 700 crore on a private placement basis,”. The
issue will open on August 23 and close on the same day
and the bonds will carry coupon rate in the range of 8.55
percent to 8.80 percent (payable annually and at maturity