SECURITY MARKETS

Primary Market

Learning Objectives

Primary Market and Its functions

Types of issues in NIM

Pricing of Securities

Introduction

Business needs capital

Major sources of finance Availing term loans from FI’s and Banks

Issue of new securities to the public

The securities are issued by the company directly to the investors.

The company receives the money and issues new securities to the investors.

The primary markets are used by companies for the purpose of setting up new ventures/ business or for expanding or modernizing the existing business

Primary market performs the crucial function of facilitating capital formation in the economy

Primary Market

Market for fresh capital

Funds are mobilized through primary market

Also known as NIM

How does it works?

Preparation and Filing of Offer Document prepare an offer document giving sufficient

information and disclosures, which enables

(potential) investors to make an informed decision.

The issuer company engages a SEBI registered

merchant banker.

The draft offer document thus prepared is filed with

SEBI

The final offer document with SEBI, Registrar of

Companies (ROC) and stock exchange.

Cont…

Opening of the Issue The issuer company issues advertisements in English,

Hindi and regional language news papers.

The interested investors can apply for subscribing

the share or debentures.

Allotment and Listing

How to invest in public issue?

The prerequisites

PAN

Bank Account

Demat

Getting the offer document

Getting application form

(http://rbidocs.rbi.org.in/rdocs/ECS/PDFs/I87908.pdf)

ASBA

Submitting the application form

Allotment of Shares

Terms used in primary market

IPO

Issue price

Issue size

Intermediaries in NIM

Merchant banker

Registrar to the Issue

Bankers to the Issue

Primary Issues

Public issue

Rights issue

Private placement

Initial Public Offering (IPO)

A fresh issue of securities to the public by

unlisted company.

A first time offer of sale of securities by an

unlisted company.

Eligibility norms

Eligibility Norms

Eligibility norm I

Net tangible assets of Rs.3 crore for three full

year

Distributable profit of at least three out of five

years

The size of the issue should not exceed 5 times

the pre-issue net worth

Cont… Eligibility Norm II

Issue shall be through a book building route with

at least 50 per cent of the allotment to the QIB’s

The minimum post-issue face value capital shall

be Rs.10 Cr

Eligibility Norm III

The project is appraised and participated to the

extend of 15% by Scheduled Commercial

banks/FI’s

The minimum post-issue face value capital shall

be Rs.10 Cr

Recent IPO’s in India

List of Upcoming IPO's, Current IPO's and Recently Closed IPO's in India

Issuer Company Issue Open Issue Close

Offer Price Issue Issue Size

(Rs.) Type (Crore Rs.)

Snowman Logistics Ltd IPO

26-Aug-14 28-Aug-14 44/- to 47/- IPO-BB 184.80 -

197.40

Vishal Fabrics Ltd IPO

31-Jul-14 5-Aug-14 45/- IPO-FP 15.63

Carewell Industries Ltd IPO

25-Jul-14 30-Jul-14 15/- IPO-FP 4.96

Bhanderi Infracon Ltd IPO

22-Jul-14 25-Jul-14 120/- IPO-FP 6.48

Bansal Roofing Products Ltd

IPO

26-Jun-14 30-Jun-14 30/- IPO-FP 2.04

Oasis Tradelink Ltd IPO

23-Jun-14 30-Jun-14 30/- IPO-FP 6

Tarini International Ltd IPO

9-Jun-14 13-Jun-14 41/- IPO-FP 16.31

Dhanuka Commercial Ltd IPO

22-May-14 28-May-14 10/- IPO-FP 4.44

SPS Finquest Ltd IPO

21-May-14 23-May-14 75/- IPO-FP 25.08

GCM Capital Advisors Ltd IPO

5-May-14 7-May-14 20/- IPO-FP 9

Wonderla Holidays Ltd IPO

21-Apr-14 23-Apr-14 115/- to 125/- IPO-BB 181.25

R & B Denims Ltd IPO

28-Mar-14 4-Apr-14 10/- IPO-FP 3.71

Women's Next Loungeries Ltd IPO

28-Mar-14 7-Apr-14 65/- IPO-FP 6.5

Oceanaa Biotek Industries Ltd IPO

18-Mar-14 20-Mar-14 10/- IPO-FP 2.1

Shri Krishna Prasadam Ltd IPO

11-Mar-14 14-Mar-14 10/- IPO-FP 2.16

Loha Ispaat Ltd IPO

11-Mar-14 25-Mar-14 74/- to 77/- IPO-BB

Anisha Impex Ltd IPO

3-Mar-14 5-Mar-14 10/- IPO-FP 6.5

Resource Mobilization Through

Primary market 2012-2014

Resource Mobilization through Public and Rights Issue

Particulars

2012-2013 2013-2014

No.of Issues Amount in Crore No.of Issues Amount in Crore

(i)Public Issues (Eqiuty) 53 23,510 75 51,075

33 6528 40 8,692

IPO 33 6528 38 1,236

FPO 0 0 2 7457

(ii) Public Issues (Bond) 20 16,982 35 42,383

Rights Issue 16 8,945 15 4,576

Total Equity Issue 49 15,473 55 13,269

Total Equity andBond

Issue 69 32,455 90 55,652

Source : www.sebi.gov.in/cms/sebi_data/attachdocs/1408513411215.pdf

Top 10

Mega Issues in 2013-14*

Name of Entity

Type of

Issue

Type of

Istrument

Date of

Opening of

the Issue

Offer size

(in crores)

Just Dial Ltd IPO Equity 20-May-13 919

Kesoram Industries Ltd Rights Equity 3-Jun-13 416

Reliance Mediaworks Ltd Rights Equity 6-Aug-13 600

Godrej Properties Ltd Rights Equity 28-Aug-13 700

Power Grid Corporation of

India Ltd FPO Equity 3-Dec-13 959

Engineers India Ltd FPO Equity 6-Feb-14 498

The Tata Power Company

Limited Rights Equity 31-4-14 1,993

Shriram Transport Finance

Company Public Bond 16-Jul-13 736

Rural Electrification

Corporation Public Bond 30-Aug-13 3,441

India Infoline Finance Limited Public Bond 17-Sep-13 1,050

Follow on Public Issue

Offer for sale of securities by a listed company.

Engineers India LTD

Price Band Rs.145-Rs.150

2.8 times subscribed

Issue size is Rs.500 Cr.

Power Grid Corp (Rs.85-Rs.90) raised

Rs.7000 crore

6.7 times Oversubscribed

Rights Issue

The issue of new shares in which existing

share holders are given preemptive rights to

subscribe to new issue on a pro-rata basis.

The company issue rights share by sending a

letter of offer to the share holders

The issue shall be kept open for 30 days and

not more than 60

Promoters offer rights at attractive price

Rights Issue

Declaration Date This is the date on which the board of directors

announces to shareholders

Record Date The date set by the company to determine, from the

records, who are the holders of shares/bonds of the

company

Ex Date

Date of payment

Recent Rights Issue

Company Name Premium Ratio Book Closures Date EX Right Date

CHANNEL NINE 0 1:2 14-Aug-14 13-Aug-14

ECO FRIENDLY 0 3:2 17-Apr-14 16-Apr-14

DENIS CHEM LAB 3 2:1 29-Mar-14 27-Mar-14

TATA POWER CO. 59 7:50 20-Mar-14

19-Mar-14

GOLDEN GOENKA 4 9:5 19-Mar-14 18-Mar-14

EASUN REYROLLE 57 12:25 17-Mar-14 13-Mar-14

IL&FS TRANSPORT 90 27:100 14-Mar-14 13-Mar-14

WHEELS INDIA 390 51:21 14-Feb-1413-Feb-14

COROMANDEL ENG 10 91:10 15-Jan-14

13-Jan-14

COROMANDEL ENGG. 10 91:10 15-Jan-14 13-Jan-14

Cont..

Company Name

Premium

(Rs) Ratio Record Date

Ex Rights

Date

Neuland Laboratories Ltd 194 4:25 14-Aug-14 13-Aug-14

Lakshmi Vilas Bank Ltd 40 5:6 28-Jul-14 25-Jul-14

Indian Hotels Co Ltd 0 9:40 21-Jul-14 18-Jul-14

Ramco Systems Ltd 145 1:2 23-Apr-14 22-Apr-14

Eco Friendly Food Processing Park Ltd 0 3:2 17-Apr-14 16-Apr-14

Denis Chem Lab Ltd 3 2:1 29-Mar-14 27-Mar-14

Tata Power Company Ltd 59 7:50 20-Mar-14 19-Mar-14

Golden Goenka Fincorp Ltd 4 9:5 19-Mar-14 18-Mar-14

Easun Reyrolle Ltd 57 12:25 17-Mar-14 13-Mar-14

IL&FS Transportation Networks Ltd 90 27:100 14-Mar-14 13-Mar-14

Wheels India Ltd 390 51:20 14-Feb-14 13-Feb-14

Mukand Ltd 11 1:1 11-Feb-14 10-Feb-14

Coromandel Engineering Company Ltd 10 91:10 15-Jan-14 13-Jan-14

How does it works?

Example of ABC Company

ABC Company has 1,00,000 share at a share

price of Rs.70

Mr.A Holds 1,000 share of ABC

ABC needs Rs.3,00,00 capital (Rs.60 new price)

Mechanics of Rights Offering

The company announces the rights offering to

share holder listed on the book as of record

date.

Mechanics of Rights Offering

Meeting day ‘Rights on” period

August 1

Record Day August 15

Rights Expires “Rights Off”

Period August 30th