Primary Market

Primary market is a market Ior new issues. It is callled the new issues market. It is a
market Ior Iresh capital. Funds are mobilised in the primary market through
a) Public issues,
b) Rights issues, and
c) Private placement.
a)Public Issues involves sale oI securities to members oI public. Issues are oIIered
to the public through prospectus and the public subscribe directly. Section 67 oI the
Companies(Amendment) Act, 2000 provides that where the oIIer or invitation to
Subscribe Ior shares or debentures is made to 50 or more persons, then such an
oIIer or invitation shall be deemed to be a public oIIering and shall have to comply
With all the provisions oI the Act as well as the SEBI guidelines applicable to such
Public oIIerings.
Public issues are open to the general public. Wide publicity about the oIIer is given
through the media.
Merchant Banker organise public issues.
b) Right Issue
#ight issue is the issue oI new shares in which existing shareholders are given
preemptive rights to subscribe to the new issue in proportion to their current holding
. The right is given in the Iorm oI an oIIer to existing shareholders to subscribe to a
proportionate number oI Iresh, extra shares at a price.
Companies issue right shares by sending a letter oI oIIer to the shareholders whose
names are recorded in the books on a particular date.
A shareholder has Iour options in case oI rights. The Iirst is to exercise his rights,
that is, buy new shares at the oIIered price, renounce his rights and sell them in
the open market , renounce part oI his rights and exercise the remainder and lastly,
choose to do nothing.
c) Private Placement
The direct sale oI securities by a company to some select people or to institutional
investors is called private placement. No prospectus is issued in private placement.
Private placement covers equity shares, preIerence shares and debentures. It oIIers
access to capital more quickly than the public issue and is quite inexpensive
on account oI the absence oI various issue expenses.
Principal steps of a Public Issue:
A draIt prospectus is prepared giving out details oI the Company, promoters background,
Management, terms oI the issue, project details, modes oI Iinancing, past Iinancial
perIormance, projected proIitability and others.
Some of the steps involved in a public issue are:
a) Appointment of underwriters: The underwriters are appointed who commit to
shoulder the liability and subscribe to the shortIall in case the issue is under-subscribed.
b) Appointment of Bankers: Bankers along with their branch network act as the
collecting agencies and process the Iunds procured during the public issue. The banks
Provide temporary loans Ior the period between the issue date and the date the issue
Proceeds becomes available aIter allotment, which is reIerred to as a 'bridge loan.
c) Appointment of Registrars: #egistrars process the application Iorms, tabulate the
amounts collected during the issue and initiate the allotment procedure.
d) Appointment of the brokers to the issue: #ecognized members oI the Stock
exchanges are appointed as brokers to the issue Ior marketing the issue.
e) Filing of prospectus with Registrar of Companies: The draIt prospectus along
with the copies oI the agreements entered into with Lead Manager, Underwriters,
Bankers, #egistrars and Brokers to the issue is Iiled with the #egistrar oI Companies oI
the state where the registered oIIice oI the company is located.
f) Printing and dispatch of Application form: The prospectus and application Iorms
are printed and dispatched to all merchant bankers, underwriters, brokers to the issue.
g) Filing of the initial listing application: A letter is sent to the Stock exchanges where
the issue is proposed to be listed giving the details and stating the intent oI getting
the shares listed on the exchange.
h) Statutory announcement : An abridged version oI the prospectus and the issue start
and close dates are published in major dailies and newspapers.
i) Processing of applications: AIter the close oI the Public Issue all the applications
Iorms are scrutinized, tabulated and then shares are allotted against these applications.
[) Lstab||sh|ng the ||ab|||ty of the underwr|ter ln case Lhe lssue ls noL fully subscrlbed Lo
Lhen Lhe llablllLy for Lhe subscrlpLlon falls on Lhe underwrlLers who have Lo subscrlbe Lo
Lhe shorLfall ln case Lhey have noL procured Lhe amounL commlLLed by Lhem as per
Lhe underwrlLlng agreemenL
k) A||otment of Shares AfLer Lhe lssue ls subscrlbed Lo Lhe mlnlmum level Lhe alloLmenL
procedure as prescrlbed by SL8l ls lnlLaLed
|) L|st|ng of the Issue 1he shares afLer havlng been alloLLed have Lo be llsLed
Compulsorlly ln Lhe reglonal sLock exchange and opLlonally aL Lhe oLher sLock exchanges
SL8I Gu|de||nes for IC's
vlslL wwwseblgovln where you can download Lhe compleLe guldellne on ulsclosure and
lnvesLor roLecLlon
Book Building -- A new issue mechanism in India
Book building is a mechanism through which an oIIer price Ior IPOs based on the
investors` demand is determined. In the Iixed price method, the investors` demand
is not taken into account; the book building method explicity uses investors`
demand Ior shares at various prices as an important input to arrive at an oIIer price.
Globally, book building is a recognised mechanism Ior capital raising.
Book Building Process
Book building is basically an auction oI shares.
(i) The company Iirst oI all appoints a book runner, that is a merchant banker.
(ii) The book runner prepares and submits the draIt documents to SEBI and obtains
an acknowledgement card.
(iii)The issuer and the book runner decide to oIIer shares at a price within a speciIied
Price band(range)
iv) Offers regarding the demand for securities at different price levels are invited
from syndicate members consisting of eligible brokers, merchant bankers,
Underwriters, financial institutions, mutual funds and others. The advertisement
should mention the opening and closing dates for the bids.
v) Based on the bids received, the issuer arrives at a final cut-off rate and the final
allocation in consultation with the book runner and lead manager.
vi) The issuer and the book runner may impose restrictions on the number of shares
that can be allotted to each client so as to avoid any future takeovers threats.
vii) The final prospectus is filed with the Registrar of Companies (ROC)
viii)The placement portion opens for subscription only after the prospectus is filed
with the ROC.
(ix)The placement portion closes a day before the opening of the public issue
Portion.
x) The public portion opens and the allotment and listing of this portion is done.
The price is determined in the book building process is applicable to the public
portion as well.
f the public portion stands oversubscribed, then the allotment is made on a
Proportionate basis. n case, the public portion remains undersubscribed, the
Shortfall is distributed amongst those who have opted for placement. f the
Placement portion is undersubscribed, the size of the public issue is enhanced.
Benefits of Book BuiIding:
1 Book building enables issuers to reap benefits arising from price and demand
discovery. The aim of the process is to have the issue presold and reduce chances
of under subscription /devolvement and so on.
2 The public issue benefits investors as they can trust the price at which the
Syndicate members have purchased the shares.