PRESENTED BY:-Suravi Sanchita

The primary market deals with those securities which are issued to the public for the first time.

It is a market for new issue, so it is also called as New Issue Market(NIM).

In this market borrowers exchange new financial securities for long term funds.

The companies that issue their shares are called issuers and the process of issuing shares to public is known as public issue.

This entire process involves various intermediaries like Merchant Banker, Bankers to the Issue, Underwriters, and Registrars to the Issue etc.

Public Issue: When a company raises funds by selling (issuing) its shares (or debenture / bonds) to the public through issue of offer document (prospectus), it is called a public issue. Initial Public Offering: When a (unlisted) company makes a

public issue for the first time and gets its shares listed on stock exchange, the public issue is called as initial public offering (IPO).

Further Public Offering: When a listed company makes another public issue to raise capital through an offer document, it is called further public / follow-on offering (FPO).

Right Issue: When an existing company wants to raise additional capital, securities are first offered to the existing shareholders on a pre-emptive basis.

Preferential Issue: This is an issue of shares by listed companies to a selected group of persons (U/S 81 of Companies Act 1956).

Issues

Public Issue(PI)

Rights Issue(RI)

Preferential Issue

Initial Public Offer(IPO)

Further Public Offer(FPO)

Fresh issue Offer for Sale

Fresh Issue Offer for Sale

Offer Document: It means Prospectus in case of a PI or OfS and Letter of Offer in case of a RI, which is filled with the RoC and S.E.

Draft Offer Document: It is the offer document in the draft stage. The draft offer documents are filled with SEBI, at least 21 days prior to the filling of the offer document.

Red Herring Prospectus: It is a prospectus, which does not have details of either price, or number of shares being offered, or the amount of issue.

Abridged Prospectus: It contains all the salient features of a prospectus. It accompanies the application form of PI.

Cover Page Risk Factors Introduction About Us Financial Statements Legal & Other Information Mandatory Disclosures Offer Information Other Information

Issue price: SEBI does not play any role in price fixation. The company and the MB are required to give full disclosure of the parameters, which they have considered while deciding the issue price.

There are two types of issues; one where company and Lead Manager(LM)

fix a price called the fixed price and the other, where the company and the LM

stipulate a floor price or a price band and leave it to market forces to determine the final price.

Fixed Price Offer: An issuer company is allowed to freely price the issue. The basis of issue is disclosed in the offer document where the issuer discloses in detail about the qualitative and quantitative factors justifying the issue price.

Price Discovery: It happens through the BOOK BUILDING PROCESS. ‘Book Building’ means a process undertaken, by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for the securities is assessed on the basis of the bids obtained for the quantum of securities offered for subscription by the issuer.

BOOK BUILDING PROCESS In this the issuer company mentions the Price Band, which contains Minimum (FLOOR) and Maximum (CAP) prices at which it will sell (issue) its shares.The spread between the floor & cap of the price band shall not be more than 20%.Thus the offer document (or Red Herring Prospectus) contains only the price band instead of the price at which its shares are offered to the public.Within this price band the investor can choose the price at which the investor are willing to buy the shares and also the quantity.As this process is similar to bidding in an auction, the application form for book built issue is also known as the bid form.

At times the issuer may revise the price band (revision of price band) which has to be accompanied with news paper advertisement.

Bids by various investors are entered into the stock exchange system through the broker’s (also called syndicate member) terminal. The list of the bid received from investors at various price bands is known as the ‘book’ (Open Book/Closed Book) and can be seen in the website(s) of the stock exchange for each investor category.

Based on the total demand in the ‘book’, the cut off price is then decided by the issuer and merchant banker.

LEAD MANAGERS: A Merchant Banker possessing a valid SEBI registration in accordance with the SEBI(Merchant Bankers) Regulations, 1992 is eligible to act as a Book Running Lead Manager to an issue.

SAFETY NET: It refers to a scheme of buy-back arrangements of the shares proposed in any public issue with the objective of protecting the investors in the event of share prices go down after the issue is made.

e-IPO: A company proposing to issue capital to public through the online system of the S.E. for offer of securities, known as e-IPO.

LOCK-IN: The term indicate a freeze on shares. SEBI guidelines have stipulated lock-in requirements on shares of promoters mainly to ensure that the promoters or main persons who are controlling the company, shall continue to hold some minimum percentage in the company after the public issue.

PROMOTERS: This has been defined as a person who are in overall control of the company. ‘Promoter Group’ includes the promoter, an immediate relative of the promoter( i.e. spouse, parent, brother, sister, child).

DIFFERENTIAL PRICING: Pricing of an issue where one category is offered, shares at a different price from the other category.

Institutional investors like venture funds, private equity funds etc., invest in unlisted company when it is very small or at an early stage. Subsequently, when the company becomes large, these investors sell their shares to the public, through issue of offer document and the company’s shares are listed in stock exchange. This is called as Offer For Sale.

IPO grading: It is the professional assessment of a Credit Rating Agency (CRAs) on the fundamentals of a company in relation to the other listed equity shares in India.

An IPO grade is NOT a suggestion or recommendation as to whether an investor should subscribe to the IPO or not. IPO grade needs to be read together with the disclosures made in the offer document including the risk factors as well as the price at which the shares are being offered.

Examples:- IPO grade 1: Poor fundamentals IPO grade 2: Below average fundamentals IPO grade 3: Average fundamentals IPO grade 4: Above average fundamentals IPO grade 5: Strong fundamentals

Credit rating: It is an opinion of a Credit Rating Agency (CRA) on the likelihood of timely payment of interest and principal (credit risk) on the rated debt instrument.

It is an unbiased, objective, and independent assessment of the issuer's capacity to meet its financial obligations and is conveyed with alphanumeric symbols.

SEBI has issued ICDR (Issue of Capital and Disclosure Requirements) Regulations with a view to protect the interest of investors. These regulations provides for disclosure of material information including risk factors to enable the investors to take an informed investment decision.

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