Private Placement

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Definition
* A process of inviting subscription to the securities of a corporate issuer by means other than public offering. * Private placement usually refers to non-public offering of shares in a public company. * Instruments issued in private placements are common stock, preferred stock or other forms of membership interests, warrants or promissory notes (including convertible promissory notes), bonds and debentures. * Unlike public offerings, the number of investors can be at most 49. * The company has to be listed on a stock exchange.
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Why private placement?

* Public offerings have variables, cost and time. * Strategic objectives limitations w.r.t market

* Consolidation of stakes of promoters * Induct a strategic investor or joint venture partner * Provide management stakes to working directors and senior management * Implement a employee stock option plan

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Advantages
* * * * * Fast and cost effective. Choice of investors. Flexibility in type and amount of funding. Easier to negotiate on return. Less amount of scrutiny.

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Disadvantages
* * * * Difficult to find investors. Danger of insufficient funds. Limited investors. Illiquidity.

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Preferential Allotment
* Private placement of shares or of convertible securities by a listed company to selected group of investors is called preferential allotment. * Investors may have a lock-in period. * The listed companies has to abide by the guidelines as per Chapter XIII of SEBI (DIP), in addition to requirements in Companies Act, 1956.

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Guidelines
* * * * * Pricing Issue, warrants, convertible debentures) Currency of financial instruments Non-transferability of financial instruments. Currency of shareholders resolution Other requirements
* Certified by auditor * Copies to shareholders * Independent valuation
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Qualified Institutional Placement

* QIP is another tool, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants which are convertible to equity shares to a QIB. * Introduced by SEBI to prevent listed companies in India from developing an excessive dependence on foreign capital. * Compliance with guidelines in Chapter XIIIA of SEBI (DIP).
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Guidelines
* * * * * * * * * * *
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Listing Investors Pricing Adjustments in price Currency of security Shareholders resolution Placement document Number of allotees Restrictions on amount raised Transferability of securities Role of Merchant Bankers
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Thank you

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