New Issue Market

Primary Market
Dr. Amit K Srivastava
Companies raise fund to finance their project
through various methods. The promoters can bring
their own money or borrow from the financial
institutions or mobilize capital by issuing securities.
The funds may be raise through fresh issue of
shares at par or at premium, preference shares,
debentures or global depository receipts. The main
objective of capital issue are:

1- To promote a new company

2- To expand an existing business
3- To diversify the project
4- To meet the regular working capital requirement
 New issue market
 Stock available for the first time are
offered through new issue market. The
issuer may be new company or existing
company. The issues may be new type or
ithe security used in past.
 Functions
 The main service function of the primary
market are origination, underwriting and
distribution.
 Origination- Deals with the origin of new
issue
 Underwriting- Contract makes the share
predictable and remove the element of
uncertainty in the subscription.
 Distribution- refers to the sale of securities
to the investors
Financial assets/instruments
 Enable channelising funds from surplus units to
deficit units
 There are instruments for savers such as deposits,
equities, mutual fund units, etc.
 There are instruments for borrowers such as loans,
overdrafts, etc.
 Like businesses, governments too raise funds
through issue of bonds, Treasury bills, etc.
 Instruments like PPF, KVP, etc. are available to
savers who wish to lend money to the government
 Parties involved in the new
issue
 1-Managers to the issue- Lead managers are appointed by
the company to manage the public issue programmes.
Their main duties are:
 (a) Drafting the prospectus
 (b) Preparing the budget of expenses related to the issue
 (c) Suggesting the appropriate timing of the public issue
 (d) Assisting in the marketing the public issue successfully
 (e) Advising the company in appointment of registrar to
the issue, underwriters, brokers, bankers to the issue,
advertising agents etc.
 (f) Directing the various agencies involved in public issue
Money Market Instruments
 Call money- money borrowed/lent for a day. No
collateral is required.
 Inter-bank term money- Borrowings among banks
for a period of more than 7 days
 Treasury Bills- short term instruments issued by
the Union Govt. to raise money. Issued at a
discount to the face value
 Certificates of Deposit- Issued by banks to raise
money. Minimum value is Rs. 1 lakh, tradable in
the market
 CDs can be issued by banks/FIs
 2-Registrar to the issue- The registrar to issue
should have the necessary infrastructure like computer,
internet and telephone. The registrar normally receive
the share application from various collection centers.
They recommended the basis of allotment in
consultation with the regional stock exchange for
approval. They arrange for the dispatching of the shares
certificates. They handover the details of the share
allocation and other related registers to the company.
 3- Underwriters- They stand as back-up supporters
and underwriting is done for commission. Underwriting
provides an insurance against the possibility of
inadequate subscription. Underwriters are divided in two
categories (1) Financial institution and bank (2) Brokers
and approved investment companies
Money Market Instruments (2)
 Commercial Paper (CPs) are issued by
corporates to raise short term money
 Issued in multiple of Rs.25 lakhs, can be
issued by companies with a net worth of at
least Rs. 5 crores
 CP is an unsecured promissory note privately
placed with investors at a discount rate to
face value. The maturity of CP is between 3
and 6 months
 3- Bankers to the issue- Responsibility of collecting
the application money along with the application form.
Depending upon the size of issue more than one banker
to the issue is appointed. The no. of collection centers is
specified by central government. The banker to issue
should have the branches in the specified collection
centers.
 4-Advertising agents- Plays a key role in promoting
the public issue. A suitable ad agency should selected in
consultation with lead manager.
 5- The Financial institution- Financial institution
generally underwrite the issue and lend term loans to
the companies. IDBI,IFCI & ICICI, LIC, GIC, and UTI are
the some financial institution
 6- Government and statutory agencies-
1- SEBI
2- Registrar of companies
3- RBI (if the project involve foreign capital)
4- Stock exchange where the issue is going to held
5- Industrial licensing authorities
6- Pollution control authorities
7- Collection centers-
8-Placement of the Issue-
1- offer through prospectus
2-Bought out deals
3-Private placement
4- Right issue
5- Book building
 9-Pricing of new issue-
 At premium
 At par value
10- Allotment of share
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