Professional Documents
Culture Documents
Primary Market
Primary Market
By Shruti Girotra
Table of Contents
Capital market
Primary market Eligibility Pricing Promoters contribution
Lock in requirements
Preference allotment of shares
Capital Market
It is the market for securities, where companies and government can raise long-term funds
It includes:
Stock market
Bond market
Primary Market
Generally, the personal savings of the entrepreneur along with contributions from friends and relatives are pooled in to start a new business or expand an old one It is not feasible in case of large or intensive projects
So the entrepreneur(promoter) instead of depending upon small savings , he has the option of raising money from the public across the country/world by issuing shares of the company
This part of the capital market that deals with the issuance of the new securities is called primary market
Primary Market
Companies, governments and public sector can obtain funding through the sale of the new stock If the investor is comfortable with this proposed venture, he may invest and thus become a shareholder of the company Underwriting( process) - process of selling new issues to the investors IPO (instrument) a new stock issued is called an Initial Public Offer The issue of capital to the public by Indian companies is governed
Eligibility
The unlisted company can make a public issue of equity shares or any other security convertible in equity shares The requirements are: It has net tangible assets of at least Rs. 3 crore in each of the preceding 3 years It has a pre-issue net worth of not less than Rs. 1 crore in each of the preceding 5 years If there is change in name, at least 50% of the revenue for preceding one year should be from the new activity The issue size should not exceed the five times its pre issue
net worth
Eligibility
These provisions do not apply to a banking company, an infrastructure company and rights issued by a listed company
Infrastructure companies are exempt from eligibility norms if:
If the project cost is financed by a public financial institution Not less than 5% of the project cost is financed by any of the institutions, jointly or severally, by way of loan and/or subscription to equity
Eligibility
Securities Contracts (Regulations) Act 1956 requires:
The company has to offer at least 10% of securities to public which is subject to min. 20 Lakh securities
Pricing
An eligible company is free to make public/rights issue of securities of any denomination and at any price
Pricing
Book Building Issue
Two options to issue capital through book building: 75% book building route
Not more than 50% of net offer to public can be allocated to QIBs 25% to retail individual investors who have either not participated in book building or have not received any allocation
Promoters Contribution
In case of IPO and OFS the promoters contribution should be at least a 50%
When the IPO is launched by a unlisted company, the promoters contribution should not be less than 20% of the post issue capital The promoter shall bring in the full amount of the promoters share including premium at least one day prior to the issue opening date These conditions do not apply to companies listed in stock exchanges for 3 years or has a track record for paying dividend for three years
Lock-In Requirements
The minimum promoters contribution is locked in for a minimum for a 3 year period
The shares held by promoter which are locked under the provisions of DIP guidelines may be transferred to and amongst promoter/promoters or to new promoter This can be done for the remaining period and compliance with Securities and Exchange Board of India (Substantial Acquisitions of Shares and Takeovers)
THANK YOU