PRIMARY MARKET/NEW ISSUE MARKET PART 1

 

• PRIMARY MARKET /NEW ISSUE MARKET
• DR SHASHI AGGARWAL
• FINANCIAL SERVICES AND MARKET
• CONTENTS :

1. PRIMARY MARKET : NEW ISSUE MARKET PART 1
2. MEANING
3. NEW ISSUE MARKET AND STOCK MARKET
4. FUNCTIONS
5. TYPES OF ISSUE

•     PRIMARY MARKET

1.       KNOWN AS NEW ISSUE MARKET : WHICH IS A PART OF THE CAPITAL MARKET THAT DEALS WITH THE ISSUE OF NEW SECURITIES TO THE INVESTORS DIRECTLY

2.       HERE THE INVESTORS BUY SECURITIES THAT WERE NEVER TRADED BEFORE.

3.       STOCK MARKET OR SECURITIES MARKET IS A MARKET WHERE SECURITIES ISSUED BY THE COMPANIES IN THE FORM OF SHARES,BONDS AND DEBENTURES CAN BE BOUGHT AND SOLD FREELY

4.       THE COMPONENTS OF STOCK MARKET : PRIMARY,SECONDARY MARKET

•     SECONDARY MARKET

1.       ALSO KNOWN AS THE AFTER MARKET THE FINANCIAL MARKET WHERE PREVIOUSLY ISSUED SECURITIES AND FINANCIAL INSTRUMENTS SUCH AS STOCKS,BONDS,OPTIONS AND FUTURE ARE BOUGHT AND SOLD

2.       IS MARKET FOR OLD SECURITIES

3.       STOCK EXCHANGE PROVIDES NOT ONLY FREE TRANSFER ABILITY OF SHARES BUT ALSO MAKES CONTINUOUS EVALUATION OF SECURITIES TRADED IN THE MARKET

•     STOCK MARKET HAS TWO COMPONENTS :

1.       SPOT MARKET : TRADED FOR IMMEDIATE DELIVERY AND PAYMENT

2.       FUTURE MARKET : WHERE THE SECURITIES ARE TRADED FOR THE FUTURE DELIVERY AND PAYMENTS

•     DIFFERENCE BETWEEN PRIMARY MARKET AND SECONDARY MARKET

•     FUNCTIONAL DIFFERENCE : NEW ISSUE MARKET DEALS WITH NEW SECURITIES AND STOCK EXCHANGE PROVIDE A READY MARKET FOR BUYING AND SELLING OF OLD SECURITIES

•     ORGANIZATIONAL DIFFERENCE : IT RENDERS SERVICES TO THE LENDERS AND BORROWERS, BUT SECONDARY EXCHANGE HAVE PHYSICAL EXISTENCE AND ARE LOCATED AT PARTICULAR PLACE

•     NATURE OF CONTRIBUTION TO INDUSTRIAL FINANCE :

•     THE NEW ISSUE MARKET PROVIDES THE ISSUING COMPANY WITH FUNDS FOR STARTING   A NEW ENTERPRISE

•     STOCK EXCHANGE PROVIDES MARKETABILITY TO THE SHARES

•     RELATIONSHIP BETWEEN NEW ISSUE MARKET AND STOCK EXCHANGE

1. BOTH THE MARKET ARE CONNECTED TO EACH OTHER EVEN AT THE TIME OF ISSUE
2. THE COMPANIES WHICH MAKES NEW ISSUE APPLY FOR LISTING OF SHARES ON A RECOGNIZED STOCK EXCHANGE
3. LISTING OF SHARES ADD PRESTIGE TO THE FIRM AND WIDENS THE MARKET FOR THE INVESTOR
4. THE NEW ISSUE MARKET FIRST PLACE IN THE NEW ISSUE MARKET CAN BE DISPOSED SUBSEQUENTLY TO THE STOCK EXCHANGE
5. THE NEW ISSUE MARKET AND STOCK MARKET ARE ECONOMICALLY AN INTEGRATED PART OF SINGLE MARKET THAT IS INDUSTRIAL SECURITIES MARKET
6. THE TWO MARKETS ACT AND REACT UPON EACH OTHER IN THE SAME DIRECTION
7. WHEN THE STOCK PRICES GO UP IN THE MARKET,THE NEW ISSUES INCREASE AND WHEN THE STOCK MARKET SHOW A DOWNWARD TREND THE NEW ISSUE DECLINES
8. THE NEW ISSUE MARKET ALSO DEPENDS ON THE STOCK EXCHANGE TO FIND OUT THE PRICE MOVEMENT AND GENERAL ECONOMIC OUTLOOK AND TO FORECAST THE CLIMATE FOR THE SUCCESS OF NEW ISSUES

•     FUNCTION OF NEW ISSUE MARKET

1.       IS TO FACILITATE TRANSFER OF RESOURCES FROM SAVERS TO THE USERS

2.       SAVERS ARE INDIVIDUALS,COMMERCIALS,BANKS,INSURANCE COMPANIES ETC

3.       THE USERS ARE PUBLIC LIMITED  COMPANIES AND GOVERNMENT

•     THE NEW ISSUE MARKET CAN BE CLASSIFIED :

1.       MARKET WHERE FIRMS GO TO THE PUBLIC FOR THE FIRST TIME THOUGH INITIAL PUBLIC OFFER ( IPO)

2.       MARKET WHERE FIRMS WHICH ARE ALREADY TRADING RAISE ADDITIONAL CAPITAL THROUGH SEASONED EQUITY OFFERING

•     MAIN FUNCTION OF NEW ISSUE MARKET

•     ORIGINATION : REFERS TO THE WORK OF INVESTIGATION,ANALYSIS AND PROCESSING OF NEW PROJECT PROPOSAL.

•               ORIGINATION STARTS BEFORE AN ISSUE IS FLOATED IN THE MARKET

1.       CAREFUL STUDY OF THE TECHNICAL,ECONOMIC AND FINANCIAL VISIBILITY TO ENSURE SOUNDNESS OF THE PROJECT

2.       ADVISORY SERVICE : TYPE OF SECURITIES

a)       MAGNITUDE OF THE ISSUE

b)       TIME OF FLOATING OF THE ISSUE

c)        PRICING OF THE ISSUE

d)       ,METHOD O ISSUE AND TECHNIQUE OF SELLING THE SECURITIES

•     MAIN FUNCTION OF NEW ISSUE MARKET

•     THE FUNCTION OF ORIGINATION IS DONE BY :

1.        MERCHANT BANKERS

2.       COMMERICAL BANKS

3.       ALL INDIA FINANCIAL INSTITUTES

 

•     UNDERWRITING

UNDERWRITING : UNDERWRITING IS AN AGREEMENT WHERE BY THE UNDERWRITERS TO SPECIFIED NUMBER OF SHAREHOLDERS OR DEBENTURES  OR SPECIFIED AMOUNT OF STOCK IN THE EVENT OF PUBLIC NOT SUBSCRIBING TO THE ISSUE

IF THE ISSUE IS FULLY SUBSCRIBED –NO LIABILITY FOR THE UNDERWRITER

IF PART OF ISSUE REMAINS UNSOLD---THE UNDERWRITERS WILL BUY THE SHARES

UNDERWRITING IS A GUARANTEE FOR THE MARKETABILITY OF SHARES

•     METHODS OF UNDERWRITING

STANDING BEHIND THE ISSUE : UNDERWRITER GUARANTEE THE SALE OF SPECIFIED NUMBER OF SHARES WITH IN SPECIFIED PERIOD AND IF THE PUBLIC DO NOT SUBSCRIBE THE SPECIFIED AMOUNT OF ISSUE,THE UNDERWRITERS BUYS THE BALANCE IN THE ISSUE

OUTRIGHT PURCHASE : MAKES PURCHASE OF THE SHARES AND RESELLS THEM TO THE INVESTOR

CONSORTIUM METHOD : UNDERWRITING IS JOINTLY DONE BY GROUP OF UNERWRITERS IN THE METHOD. ADOPTED FOR LARGE ISSUES

•     METHODS OF UNDERWRITING

UNDERWRITERS IN INDIA MAY BE CLASSIFIED TWO CATEGORIES :

1.       INSTITUTIONAL UNDERWRITERS : LIC,UTI,IDBI,ICICI,COMMERCIAL BANKS

2.       NON INSTITUTIONAL UNDERWRITERS : BROKERS

 

•     DISTRIBUTION

1.       FUNCTION OF SALE OF SECURITIES TO THE ULTIMATE INVESTOR

•     PRIMARY MARKET

1.       THE SECURITIES ARE ISSUED FOR THE FIRST TIME BY THE COMPANIES IN ORDER TO RAISE CAPITAL ALSO KNOWN AS INITIAL PUBLIC OFFER

2.       COMPANIES,GOVERNMENT OR PUBLIC SECTOR CAN OBTAIN FUNDS THROUGH THE SALE OF NEW STOCK OR BOND ISSUES THROUGH THE PRIMARY MARKET.

3.       ISSUE CAN BE IN THE FORM OF  AND THE SECURITIES CAN BE ISSUED AT FACE VALUE,PAR VALUE AND PREMIUM VALUE

1.       PUBLIC ISSUE

2.       PRIVATE PLACEMENT

3.       PREFERENTIAL ISSUE

4.       RIGHT

5.       BONUS ISSUE

•     FEATURES

1.       IT IS MARKET FOR LONG TERM CAPITAL WHERE THE SECURITIES ARE SOLD FOR THE FIRST TIME

2.       ALSO CALLED NEW ISSUE MARKET (NIM)

3.       FUNDS ARE COLLECTED AND SECURITIES ARE ISSUED DIRECTLY BY THE COMPANIES TO THE INVESTORS

4.       PRIMARY ISSUES ARE CARRIED OUT BY THE COMPANIES FOR THE PURPOSE OF INCEPTION AND FUNCTIONING OF THE BUSINESS.

•     BENEFITS

1.       COMPANY NEED NOT REPAY THE MONEY RAISED FROM THE MARKET

2.       MONEY HAS TO BE PAID ONLY IN CASE OF WINDING UP OR BUY BACK OF SHARES

3.       NO FINANCIAL BURDEN

4.       BETTER PERFORMANCE OF THE COMPANY ENHANCES THE VALUE OF THE SHAREHOLDER

5.       GREATER TRANSPARENCY

 

•     DISADVANTAGES

1.       TIME CONSUMING PROCESS

2.       EXPENSIVE AND MANY INTERMEDIARIES ARE INVOLVED

3.       CONSTANT ADHERENCE TO LISTING OF AGREEMENTS

4.       SPECULATIVE TRADING

5.       HOSTILE TAKEOVER

•     TYPES OF ISSUES

1.       PUBLIC ISSUES

2.       PREFERENTIAL ISSUE

3.       PRIVATE PLACEMENT

4.       RIGHT ISSUE

5.       BONUS ISSUE

•     PUBLIC ISSUE

1.       PUBLIC ISSUE OR PUBLIC OFFERING REFERS TO THE ISSUE OF SHARES OR CONVERTIBLE SECURITIES IN THE PRIMARY MARKET

2.       IN PUBLIC ISSUES SHARES ARE OFFERED FOR SALE IN ORDER TO RAISE  CAPITAL FROM THE GENERAL PUBLIC FOR WHICH THE COMPANY ISSUES PROSPECTUS

3.       THE INVESTORS WHO WANT TO SUBSCRIBE FOR THE SHARES MAKE AN APPLICATION TO THE COMPANY WHICH THEN ALLOTS SHARES TO THEM

4.       THE ENTITY WHICH MAKES AN ISSUE IS CALLED AN ISSUER

5.       WHEN A COMPANY WANTS TO RAISE CAPITAL BY ISSUING SHARES TO THE GENERAL INVESTORS

6.       PROCESS IS CALLED PUBLIC ISSUE OF SHARES OR A PRIMARY MARKET ISSUE

7.       COMMON METHOD TO RAISE FUNDS THROUGH PUBLIC ISSUE OF PROSPECTUS

8.       ABRIDGED PROSPECTUS IS BEING ANNEXED TO EVERY SHARE APPLICATION

·         PUBLIC ISSUE

•     INITIAL PUBLIC OFFER ( IPO)

1.       SALE OF COMPANY’S SHARES TO THE PUBLIC AT LARGE FOR THE VERY FIRST TIME

2.       IT IS AN OFFER IN WHICH UNLISTED OR PRIVATELY HELD COMPANY MAKES FRESH ISSUE OF SHARES OR CONVERTIBLE SECURITES

3.       OR ALREADY LISTED COMPANY MAKES AN ISSUE OF EXISTING SHARES/CONVERTIBLE SECURITIES FOR THE FIRST TIME TO THE PUBLIC AT LARGE

4.       IF THE COMPANY MAKES THE PUBLIC ISSUE FOR THE FIRST TIME ,IT IS AN IPO

5.       THESE ISSUES ARE LISTED AND TRADED ON STOCK EXCHANGE

•     FOLLOW ON PUBLIC OFFERING

1.       IF AN ALREADY LISTED COMPANY WHICH HAS GONE THROUGH AN IPO OFFERS ADDITIONAL SHARES TO THE PUBLIC FOR SALE

2.       KNOWN AS FOLLOW ON PUBLIC OFFER OR FURTHER PUBLIC OFFER ( FPO)

 

•     RIGHT ISSUE

1.       WHEN A LISTED COMPANY WHICH PROPOSES TO ISSUE FRESH SECURITIES TO ITS EXISTING SHAREHOLDER EXISTING ON A PARTICULAR DATE FIXED BY THE ISSUER ( RECORD DATE)

2.       IS CALLED RIGHT ISSUE. THE RIGHT ARE OFFERED IN PARTICULAR RATIO TO THE NUMBER OF SECURITIES HELD ON THE RECORD DATE

3.       THE ROUTE IS BEST SUITED FOR COMPANIES WHO WOULD LIKE TO RAISE CAPITAL WITHOUT DILUTING THE STAKE OF ITS EXISTING SHAREHOLDER.

 

 

 

 

 

 

•     FAST TRACK ISSUE

1.       INTRODUCED BY SEBI IN NOVEMBER 2007

2.       WELL ESTABLISHED AND COMPLIANT LISTED COMPANIES NEED TO MAKE ONLY RATIONALIZED DISCLOSURE RATHER THAN COMPREHENSIVES

3.       THIS FACILITY IS AVAILABLE TO THE COMPANIES LISTED ON BSE/NSE

4.       ELIGIBLE COMPANIES : MUST HAVE AN AVERAGE MARKET CAPITALIZATION OF RS 10,000 CRORES OF PUBLIC SHAREHOLDING FOR A PERIOD OF ONE YEAR

5.       THE TRADING ON THE SECURITIES MARKET SHOULD CONSTITUTE AT LEAST 2 PERCENT OF THE TOTAL LISTED SHARES OF THE LAST ONE YEAR

•     BONUS ISSUE

1.       WHEN AN ISSUER MAKES AN  ISSUE OF SHARES TO ITS EXISTING SHAREHOLDERS AS ON RECORD DATE WITHOUT ANY CONSIDERATION FROM THEM

2.       CALLED BONUS SHARES

3.       SHARES ARE ISSUED TO THE EXISTING SHAREHOLDERS OUT OF THE COMPANY’S FREE RESERVE OR SHARE PREMIUM ACCOUNT IN A PARTICULAR RATIO TO THE NUMBER OF SECURITIES HELD ON A RECORD DATE

•     PREFERENTIAL ISSUES

1.       IS THE FASTEST WAY FOR A COMPANY TO RAISE CAPITAL

2.       PREFERENTIAL ISSUE OF SHARE OR CONVERTIBLE SECURITIES BY LISTED OR UNLISTED COMPANIES TO A SELECT GROUP OF INVESTORS BUT IT IS NEITHER RIGHT ISSUES NOR A PUBLIC ISSUE

3.       SECTION 62 ALONG WITH RULE 13 OF THE COMPANIES ( SHARE CAPITAL AND DEBENTURES) RULES ,2014 AND SECTION 42 ALONG WITH 14 OF THE COMPANIES ( PROSPECTUS AND ALLOTMENT OF SECURITIES. RULES 2014 PRESCRIBES THE PROCEDURES AND PROVISIONS FOR PREFERENTIAL ALLOTMENT OF SHARES. SPECIFIC PROVISIONS OF SEBI ( ICDR ) REGULATIONS 2018

4.       THE PREFERENCE SHARES ARE THOSE SHARES OF THE COMPANY WHICH ARE OWNED BY THE PERSONS WHO HAVE THE EXCLUSIVE RIGHT TO RECEIVE THE PROFITS OF THE COMPANY BEFORE THE OTHER ORDINARY SHAREHOLDERS OF THE COMPANY

5.       THE ARTICLES OF ASSOCIATION SHOULD AUTHORIZE THE ISSUE OF SHARES

6.       LETTER OF OFFER SHOULD BE SENT TO PERSON EITHER IN WRITING OR IN ELECTRONIC FORM

7.       THE COMPANY CAN COME FOR THE NEW OFFER OF ISSUE OF PREFERENCE SHARES ON ONCE THE EARLIER OFFER IS COMPLETED AS PER SECTION 42 OF THE COMPANIES ACT

8.       THE ISSUE OF ONLY FULLY PAID UP SECURITIES AND SHARES CAN BE MADE

9.       THE APPROVAL OF THE SHAREHOLDERS SHOULD BE TAKEN FOR THE ISSUE OF SHARES ON PREFERENTIAL ISSUE

10.    SEPARATE BANK ACCOUNT SHOULD BE OPENED FOR ISSUE OF PREFERENCE SHARES

•     PLACEMENT

1.       ISSUE HOUSE OR BROKERS BUY THE SECURITIES OUTRIGHT WITH THE INTENTION OF PLACING THEM WITH THEIR CLIENTS AFTER WARDS

2.       BROKERS ACTS AS ALMOST WHOLE SELLERS SELLING THEM IN RETAIL TO THE PUBLIC

3.       BROKERS WOULD MAKE PROFITS IN THE PROCESS OF  RESELLING TO THE PUBLIC

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