debt mkt pro4

8/9/2019 Debt Mkt Pro4

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PRESENTATION

ON

NEW ISSUE MARKET


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MEANING OF NEW ISSUE MARKET

It refers to the set-up which helps the industry toraise the funds by issuing different types of securities.

These securities are issued directly to the investors(both individuals as well as institutional) through themechanism called primary market or new issuemarket.

The securities take birth in this market.


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FUNCTIONS OF NEW ISSUE MARKET

The main function of new issue market is to facilitatetransfer resources from savers to the users.

It plays an important role in mobilizing the fundsfrom the savers and transferring them to theborrowers.

The main function of new issue market can bedivided into three service functions:


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1 . ORIGINATION:

It refers to the work of investigation, analysis andprocessing of new project proposals. Originationstarts before an issue is actually floated in themarket. It includes a careful study of the technical,economic and financial viability to ensure thesoundness of the project and provides advisoryservices.


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2 .UNDERWRITING:

It is an agreement whereby the underwriterpromises to subscribe to a specified number of shares or debentures in the event of public notsubscribing to the issue. Thus it is a guarantee for themarketability of shares.

Underwriters may be institutional and non-institutional.


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3 .DISTRIBUTION

It is the function of sale of securities to

ultimate investors. Brokers and agents whomaintain regular and direct contract with theultimate investors, perform this service.


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Features Of Primary Market are:-

1 . This is the market for new long term capital. The primarymarket is the market where the securities are sold for thefirst time. Therefore it is also called New Issue Market (NIM).

2 . In a primary issue, the securities are issued by thecompany directly to investors.

3 . The company receives the money and issue new securitycertificates to the investors.


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4 . Primary issues are used by companies for the

purpose of setting up new business or forexpanding or modernizing the existing business.

5. The primary market performs the crucialfunction of facilitating capital formation in the

economy.6. The new issue market does not include certainother sources of new long term external finance,such as loans from financial institutions.Borrowers in the new issue market may be raisingcapital for converting private capital into publiccapital; this is known as going public .


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Public issues or Initial public offering(IPO)

The issuing company directly offers to thegeneral public/institutions a fixed number of securities at a stated price or price bandthrough a document called prospectus. This isthe most common method followed bycompanies to raise capital through issue of thesecurities.


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Offer of sale

It consists in outright sale of securities through theintermediary of issue houses or share brokers.It consists of two stages: the first stage is a direct sale by theissuing company to the issue house and brokers at an agreed

price.In the second stage, the intermediaries resell the abovesecurities to the ultimate investors. The issue housespurchase the securities at a negotiated price and resell at ahigher price. The difference in the purchase and sale price iscalled turn or spread.


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Private placement

It involves sale of securities to a limited number of sophisticated investors such as financial institutions,mutual funds, venture capital funds, banks, and so

on.It refers to sale of equity or equity relatedinstruments of an unlisted company or sale of debentures of a listed or unlisted company.


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Right Issue

When a listed company proposes to issue securitiesto its existing shareholders, whose names appear inthe register of members on record date, in the

proportion to their existing holding, through an offerdocument, such issues are called Right Issue . Thismode of raising capital is the best suited when thedilution of controlling interest is not intended.


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Participants In The Securities Market

Regulators: The key agencies that have a significantregulatory influence , direct or indirect, over thesecurities market such as SEBI, RBI, CLB, DEA andMCA etc.

S tock Exchanges: A stock exchange is an institutionwhere securities that have already been issued arebought and sold. Presently there are 23 stockexchanges in India, the most important ones beingBSE and NSE.


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Registrars: Also known as a transfer agent, a

registrar is employed by a company or a mutualfund to handle all investor-related services.

U nderwriters: An underwriter agrees to subscribeto a given number of shares (or any other security)in the event the public subscription is inadequate.The underwriter, in essence, stands guarantee forpublic subscription.


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B rokers: Brokers are registered membersof the stock exchanges though whominvestors transact.

Foreign Institutional Investors:Institutional investors from abroad who areregistered with SEBI to operate in theIndian Capital market are called foreigninstitutional investors (FIIs).


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M erchant B ankers: Firms that specialize in managingthe issue of securities are called merchant bankers.They have to be registered with SEBI.

P rimary Dealers: Appointed by the RBI, primarydealers serve as underwriters in the primary marketand as market makers in the secondary market forgovernmental securities.


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C redit Rating Agencies: A credit rating agencyassigns ratings primarily to debt securities. InIndia there are two main credit rating

agencies; Credit Rating Investment Services of India Limited (CRISIL) and InvestmentInformation and Credit Rating Agency (ICRA).

debt mkt pro4

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