BUSINESSFINANCE

Jitendra Kumar Yadav

MCA , 2012-2015 Ranchi University

By :-

(Methods of Floating New Issues)

CL

OU

D P

UB

LIS

HIN

G

ABCContents :~

1. Definition (New issues market)

2. Needs of New Issues

3. Objectives of the New issues

4. Methods of Floating New Issues

New Issues MarketA place where

the shares of any company are issued for the very first time.

It is also Known as “Primary Market.”

Why New Issues ?

(Needs)Money or Fund : As the Food is for Human ,Money is the same for a Company; without fund it can’t be imagined.

Objectives of New Issues For Promotion :~

For Expansion /Product Diversification :~

For Working Capital :~

The Methods of

Through Prospectus :~Bought out Deals :~Private Placements :~Rights Issue :~Book Building :~

Floating new Issues

1.Through Prospectus :~“According to

the ‘Companies (Amendment)Act,1985’,-Application forms for shares of a company should be accompanied by a memorandom.” (i.e Prospectus)

The draft prospectus contains all the details regarding the company.

It invites offers for subscription or purchase of any shares from the public.

Which is next sent to the regional stock exchanges ,where shares are listed.

The SE scrutinises the draft prospectus,after scrutiny if any clarification is needed then the SE writes to the company and suggests for the modifications too.

The draft prospectus contains all the details regarding the issue, programmes,openings,closing ,Brokers, underwriters,etc.

Merits:- How a company presents itself to the public that works,Infact it is about ‘How brilliantly one sells onself.’

2.Bought Out Deals :~The promoter

places his shares with an investment Banker/Bought out Dealer/Sponsor.

Now he offers shares to the public .

The sponsor can hold on the shares for 70 days to 1 year.

Pricing is an essential element to be decided.

The Sponsor decides the price after analysing the viability,promoters background and future projects.

Merits :- => No wastage of Time and money(good for small companies).

=> For new companies it is not an easy task to off-load the shares as per the SEBI guidelines,thus the Sponsors help them.

Demerits :- => Sponsor is the all and whole ,the image processor of a Company.

=> Pricing and insider trading are carried out ,which can neither be detected nor penalised.

3.Private Placement :~The issue is placed into small numbers of Financial Institutions,Corporate bodies,etc.

The financial intermediaries purchae the shares and sell them to investors at later date.

No need of Underwriting as the terms of issues are already negotiated between company and purchasing intermediaries.

Merits :- => Time Effective.

=> Cost Effective.

=> Structure Effectiveness.

=> Accesss Effective

4.Rights Issue :~According to the Section-81 of Companies Act,1956, “If a company wants to increase its subscribed capital by allotment of further shares after two years from the date of its formation/first allotment,then it can .”

It should offer shares at first to its existing shareholders in proportion to shares held by them at the time of offer.

The shareholders are not legally bounded to accept the offer,they have the right to reanounce the offer in favour of any person.

Conditions to issue rights share :-

(As dictated by the SEBI)

=> Rights shares must be offered to the equity share holders first in proportion to capital paid on those shares.

=> A notice should be issued to specify the number of shares issued.

=> The time given to accept the right issue should not be less than 15 days.

=> The notice should also state the rights of the shareholders to renounce the offer in favour of others.

=> After expiration date given in the notice ,the board of directors has to dispose the unsubscribed shares in such a manner as they think most beneficial to the company.

5.Book Building :~A method that resembles like survey/keeping records.

The Promoter’s representatives/ employees used to visit public.

They made their plans , pricing,...etc, keeping the public interest and their opinion in mind.

Thank you!