MARKETING NEW ISSUE

MAHALAKSHMI.A AYSHWARYA.V SOWMIYA.R JAYASHREE.J.R

METHODS OF NEW ISSUE
• • • • • • • • • Pure prospectus method. Offer for sale method. Private placement method. IPOs method. Rights issue method. Bonus issue method. Book- building method. Stock option method. Bought-out deals method.
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Pure Prospectus Method
• Here the corporate enterprise mops up capital funds by means of an issue of prospectus. • Direct offer is made by the company to the public at an issue price. It may be at par, at a discount or at a premium.

• Prospectus is a document that contains the various aspects of the issuing company which is circulated to the general public.
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Advantages: • To investors.it is popular among the large issuers. • To issuers. • Time consuming. Drawbacks: • High issue costs.it facilitate satisfactory compliance with the legal requirements. It provides for wide diffusion on ownership. And promotes confidence of investors through transparency and non-discriminatory basis of allotment. # .

First the company makes the sale to intermediaries such as issue houses and share brokers at an agreed price. • The sale of securities takes place in two stages. stock brokers and others. # .OFFER FOR SALE METHOD • Here the marketing of securities takes place through intermediaries such as issue houses.

# . • The biggest advantage in this method is the issuing company is free from the hassles of selling it directly to the public.• Under the second stage the securities are sold to the ultimate investors at a market related price. • And the disadvantage of this method is that it is expensive for the investor as they get the securities at a higher prices from the issue houses.

• This method is similar to the Offer for sale method but here the institutions plays a significant role in the realm of private placement.PRIVATE PLACEMENT METHOD • In this method of marketing securities the issuer makes the offer of sale to the individuals and institutions privately without the issue of prospectus. # .

• This method suits the requirements of small companies.• This method can be resorted when the market it dull and when the public response is doubtful. • Major disadvantages are the securities are concentrated in few hands. # . • This may create artificial scarcity by jacking up the prices.

INTIAL PUBLIC OFFER .

• When a company whose stock is not publicly traded wants to offer that stock to the general public. # . through their brokers. • Securities are issued to the applicants on the basis of the order placed by them. it takes the form of Initial Public Offer. • The job of selling the stock is entrusted to the underwriters. They charge a fee for their service. He agrees to pay the issuer a certain price for a minimum no of shares and resells those shares to the buyers.• The public issue made by the corporate entity for the first time is called Initial Public Offer.

• The underwriters releases these stock to the public. • Good relationship between the broker and the investor is a prerequisite for the stock being acquired. # . • The issuer and the underwriter syndicate jointly determine the price of the new issue. • The approximate price listed in the preliminary prospectus may or may not be close to final issue price.• Stocks are issued to the underwriters after issuing the prospectus.

# . • Primary issue account: the issuer opens a separate account for the primary issue market. • Share allocation: the issuer finalizes the share allocation and informs the broker for the same.Steps involved in marketing of securities: • Order: brokers receive and place orders on behalf of the clients with the issuer. Clients then submit the application form of shares and make payment to the issuer through the broker. The clearing house debits primary issue a/c and credits issuer a/c. • The client: the broker advices the client of the share allocation.

• Merits: No need for investors to part with the money even before the shares are allotted in his favour. Or depository a/c may be credited.• Certificates: certificates are then delivered to the investors. # .

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• When shares of the company are issued to its existing shareholders it is called as right issue. • Underwriting is optional and appointment of Registrar is compulsory. • Appointment of category 1 Merchant bankers holding a certificate of registration issued by SEBI is compulsory. shall not be withdrawn. # . • The shares are issued in proportion to the no of shares already held by them. • Right issue once made. RBI GUIDELINES: • Issued only by listed companies.

# . • A minimum of 90% of issue is received • No reservation as regards FCDs and PCDs. • Letter of offer shall contain disclosure as per SEBI requirements. • Issued shall be kept open • For minimum of 30days and maximum period of 60 days.• It is issued only of fully paid shares. • A no complaints certificate is to be filled by the lead merchant banker with the SEBI after 21days from the date of issue of offer document.

Merits: • Most economical method of raising fresh capital.• Obligation for a company to increase in subscribed capital is necessary after 2 yrs of its formation or 1 yr of its first issue of shares. # . It offers freedom to subscribe or not to subscribe the issue. no brokerage and underwriters cost. The only demerit is that it is restrictive ie its available only to the existing companies and not to the new ones. whichever is earlier. • Procedure are easier as limited no of applicants handled are less. • Issue of right issue does not dilute the ownership of existing shareholders.

BONUS ISSUE METHOD When accumulated reserves and surplus of profits of the company are converted into paid up share capital it takes up the form of bonus issue. # .

# . No default. Resolution. Implementation. Reserves. The articles.SEBI GUIDELINES • • • • • • • • Reservation. Fully paid. Dividend mode.

A method of marketing the shares of a company whereby the quantum and the price of the securities to be issued will be decided on the basis of ‘bids’ received from the prospective shareholder by the lead merchant banker. # .BOOK BUILDING METHOD.

Maintaining Offer Records. Circulating Draft Prospectus. # .STEPS INVOLVED • • • • • • Appointment of Book Runner. Bid Analysis. Drafting Prospectus. Intimation about aggregate Offer.

STEPS INVOLVED • • • • • • • Mandatory Underwriting. # . Filing with ROC. Collection of Completed Application. Allotment of Securities. Bank Accounts. Payment Schedule and Listing. Under Subscription.

• Reliable allotment procedure. • Quick listing in stock exchange. # .ADVANTAGES • Reduction in duration between allotment and listing. • No price manipulation as the price is determined on the basis of bids received.

Stock option or Employees Stock Option Scheme (ESOP) A method of marketing the securities of a company whereby its employees are encouraged to take up shares and subscribe to it is known as ‘stock option’. # . It is a voluntary scheme on the part of the company to encourage employees’ participation in the company.

e. # .Benefit: • This scheme also offers an incentive to the employees to stay in the company • It is useful in the case of companies whose business activity is dominantly based on the talent of the employees i. • It retains their most productive employees in an industry. Software Industry..

SEBI Guidelines • Issue at Discount • Approval • Maximum Limit • Minimum Period • Eligibility • Director’s Report # .

# .Bought-out Deals A method of marketing of securities of a body corporate whereby the promoters of an unlisted company make an outright sale of a chunk of equity shares to a single sponsor or the lead sponsor.

• Sale Price: It is finalized through negotiations between the issuing company and the purchases. • Outright Sale: Outright sale of a chunk of equity shares to a single sponsor or the lead sponsor. • Syndicate: Sponsor forms a syndicate with other merchant bankers for meeting the resource requirement and for distributing the risk. the sale being influenced by such factors as project evaluation.Features • Parties: They are promoters of the company. . sponsors and co-sponsors who are generally merchant bankers and investors. promoters image and # reputation.

the shares get listed and higher price prevail. • OTCEI: Sale of these shares at Over-the-Counter Exchange of India (OTCEI) or at a recognized stock exchanges. • Listing: The investor-sponsors make a profit. when at a future date. Listing generally takes place at a time when the company is performing well in terms of higher profit and larger cash generations from projects.• Fund-based: Bought-out deals are in the nature of fund-based activity where the funds of the merchant bankers get locked in for at least the prescribed minimum period. # . the time of listing these securities and off-loading them simultaneously are being generally decided advance.

BOUGHT-OUT DEAL VS. PRIVATE PLACEMENTS S.No 1 2 Features Trading Scrips Creating Securities Private Placement Listed securities Results in the creation of additional securities for the buying institutions 5 years Brought-out Deal Unlisted securities Securities are simply transferred from promoters to sponsors who in turn off-load them to the public 18 months 3 Lock-in Period # .

Benefits: • Freedom • Speedy sale • Quality Offer • Investor Protection Limitations: • Loss of Control • Loss of Sales • Wrong Appraisal • Manipulation • No Accountability • Windfall Profits • Loss to Investors # .

THANK YOU………. # .