SESSION - 2

ISSUING OF EQUITY & TYPES

Prof. A.K. Mishra

IIM Lucknow

14 February 2018
3-1 14 February 2018
 Options for Raising Funds

Fund Raising Options

Equity IPO/FPO/Rights/Bonus SESSION 2

In India
Debt From Banks & FIs Bonds /Deb
SESSION 3
Hybrid Various forms of Convertibles

Equity ADR/GDR SESSION 4

Outside Debt ECB

India
Hybrid FCCB & FCEB

14 February 2018
3-2
 KINDS OF ISSUES
GOVERNED BY DISCLOSURE & INVESTOR
PROTECTION SEBI GUIDELINES

Issues

Public Issue Right Issue Bonus Issue Private Placement

Preferential
Issue
IPO FPO Deposit Receipt
QIPs
Fresh Issue Fresh Issue Public Issue

Offer for Sale Offer for Sale Sponsored

Issue
Composite Issue INCLUDING RIGHTS

14 February 2018
3-3
 ISSUE MANAGEMENT
PROSPECTUS ISSUE
INITIAL ISSUE /PUBLIC ISSUE/ IPO
– NEW ISSUE OF UNLISTED COMPANY (SHARES OR DEBENTURES)
– ANY FINANCIAL INSTRUMENT WITH DUE DISCLOSURE
– NO MARKET PLACE FOR ISSUE OF NEW SECTS
– WIDE PUBLICITY THROUGH MEDIA, DIRECT MAILING
– OFFERED THROUGH PROSPECTUS OR OFFER DOCUMENT
WHICH GIVES IMPORTANT DETAILS ABOUT THE ISSUE
• OFFERING PRICE DETERMINED IN CONSULTATION WITH
LEAD MANGER & UNDERWRITER
• ISSUE FORM WHICH IS TO BE FILLED BY SUBSCRIBER
• PERIOD OF SUBSCRIPTION: MIN 3 WORKING DAYS & NOT
MORE THAN 10 WORKING DAYS
14 February 2018
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 Eligibility Criteria for Unlisted
Exemptions
• Bank or banking
Companies - SEBI
company set up Primary Criteria
under the Banking
Regulation Act,
1949 Or Banking Companies with track Companies without track record
Companies Act, record
1970 • Track record of 3 yr • 50% of the net • In case of project funding,
distributable profits offer to public 15% participation by FIs/
being allotted SCBs
• An infrastructure • Pre-issue net worth of to QIBs –10% of this from appraiser
company: not less than Rs. 1 Cr –10% of issue size to be
–Whose project +
• Net tangible assets of allotted to QIBs
has been • Min post-issue
min Rs. 3 Crores face value +
appraised by a • Min post-issue face value
public financial • Prospective allottees capital must be
capital must be 10 Cr
institution (PFI) 10 Cr
in the IPO should not OR
OR
–Not less then 5% be less than 1000 in • Compulsory mkt making for
• Compulsory mkt
of the project cost number making for min 2 min 2 years from the date of
is financed by any years from the listing of shares
of the PFI date of listing of
shares
• Rights issue by a Choice of Route: Fixed Choice of Route: Choice of Route: Fixed Price
Price or Book Building Book Building or Book Building
listed company 14 February 2018
3-5
 Eligibility Criteria For IPO – Stock Exchange (BSE)
BSE Eligibility Criteria

Large Companies Small Companies

• Minimum post-issue paid-up capital • Minimum post-issue paid-up capital

shall be Rs. 3 crore; and
• Minimum issue size shall be Rs. 10
crore; and
• Minimum market capitalization
shall be Rs. 25 crore
3-6
shall be Rs. 3 crore; and
• Minimum issue size shall be Rs. 3
crore; and
• Minimum market capitalization shall
be Rs. 5 crore
• Minimum number of public
shareholders after the issue shall be
1000
• A due diligence study may be
conducted by an independent team
of CAs or Merchant Bankers
appointed by BSE.
14 February 2018
 Why IPO??
For Funding Needs
•Funding Expansion & Diversification
•Funding Acquisitions
•Funding Global Requirements
For Non-funding Needs
•Enhancing Corporate Stature
•Retention and incentive for
Employees through stock options

•Funding Joint Venture •Providing Investors exit options

•Funding Infrastructure Requirements, •Provide liquidity to the shareholders

•Financing Working Capital

•Funding General Corporate
Purposes
•Investing in businesses through other
companies
•Repaying debt to strengthen the
Balance Sheet
•Meeting Issue Expenses

14 February 2018
3-7
 IPO Process – Fixed Price Issue
Decision to go for Management gets the Funds transferred
IPO approval of BOD to issuer

Appointment of IB
Listing
and legal counsel
Issuer

Due diligence Allotment

SEBI GIVEN UP VETTING

Drafting of Draft OF PROSPECTUS
Issue Closure
Prospectus

SEBI Clearance
Filing with SEBI &
Pre-Marketing & ROC Filing of Roadshows Issue Open
Stock Exchanges
the Prospectus

Preparation / Approvals Filing the Prospectus and Marketing Launch & Completion

14 February 2018
3-8
 IPO Process – Book Built Issue

Decision to go for Management gets the Funds transferred

IPO approval of BOD to issuer

Appointment of
BRLM and legal Listing
counsel
Issuer

RoC filing of final

Due diligence
Prospectus

SEBI GIVEN UP VETTING

OF PROSPECTUS
Drafting of Draft
Pricing & Allocation
Red Herring

Filing with SEBI & SEBI Clearance

Pre-Marketing Roadshows Book building
Stock Exchanges & ROC Filing

Preparation / Approvals Marketing and Estimation of Price Range Launch & Completion

14 February 2018
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 Execution Process Timeline
Activity IPO Process - 23 weeks

Preparation Phase 2 weeks

Due Diligence 4 - 5 weeks COMPLEX PROCEDURE,

EXPERTS ADVISE NEEDED
1
Filing of Draft Document
week
Sebi Observation 4 - 8 weeks

Finalization & filing of offer Document 2 - 3 weeks

Min. 3
Issue Period
Days
Post Issue Activities 2 - 3 weeks
14 February 2018
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 Intermediaries Involved
• Overall Pre & Post issue Management
Lead Managers
• Conduct due diligence and finalize disclosure drafting Offer Document
CATEGORY 1
• Ensure compliance protocol with SEBI / NSE / BSE

Domestic & • Legal Due Diligence, Drafting the offer document

International • Assistance in complying with requirement for selling in international
Legal Counsels geographies

Bankers • Acting as collecting agents, Escrow Account & Refund account

Self Certified • Acting as collecting agents for ASBA (Application Supported by Block
Syndicate Bank
Amount) process
(SCSB)
• Coordination with Issuer & Bankers for collections, reconciliation, refunds
Registrars
• Securing allocation approval from Stock Exchanges
• Post issue co-ordination collation and reconciliation of information

Auditors • Auditing & preparing financials for inclusion in the Offer Document
• Verify/audit various financial and other data used in the Offer document and

Printers • provide Comfort

Bulk printing Letter
of Red Herring Prospectus Bid Forms, final Prospectus etc.
• Ensure timely dispatch and distribution of stationery to all centers

Advertisers Creating advertisement materials and getting published all statutory notices
as per norms
14 February 2018
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 Minimum Public Shareholding
• Min 25% of the post issue paid up capital with the public (ie.
other than promoter and promoter group)

• However, at least 10% can be offered if

–Minimum offer size – Rs. 100 crores
–Issuance through book building with 60% QIB allocation

• Continuous public shareholding needs to be maintained

• Not applicable to government companies, infrastructure

companies and companies referred to the Board for Industrial
and Financial Reconstruction.
14 February 2018
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Minimum Promoters Contribution and Lock-in

• Minimum 20% of the post issue capital of the Company for unlisted companies;
Promoter’s
• for listed companies, either to extent of 20% in issue or to ensure post issue
Contribution
holding of 20%

• For Promoters: Lock-in for a period of 3 years from the date of allotment
Lock-in • Balance pre-issue capital,
period – Must be locked-in for a period of 1 year from the date of allotment
– Shares issued last will be locked-in first

• In case of public issue of securities by a company which has been listed on a

stock exchange for at least 3 years and has a track record of dividend payment
for at least 3 immediately preceding years.
Exemption • In case of companies where no identifiable promoter or promoter group exists.
• In case of rights issues.

14 February 2018
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 Issue Pricing
• SEBI allows free pricing of IPO (Equity & Rights)
– Approval of RBI might be required for public issues by banks

• Differential pricing is permissible in a public issue to retail individual

investors and retail individual shareholders
– Retail investors can be offered shares at a discount to the price offered
to other investor categories (Max discount can be 10%)

• Price Band: The cap price can be 20% more than the floor price. Price
band can be revised by 20% from the floor price.

• No Par Value Restriction: If the issue price is above Rs.500 then the
issuer can fix the FV of shares below Rs.10 but a minimum of Rs.1.

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 Disclosures in the Offer Document
• Shareholding Pattern (pre-issue and post-issue)
Capital • Securities Premium Account (pre-issue and post-issue)
Structure • Holding of the promoter and promoter group
• Disclosure about ESOPs if any
• Total requirements of funds
• Means of Financing
Objects of – Undertaking by the issuer company confirming firm arrangements of
the Issue finance through verifiable means towards 75% of the stated means of
finance (excluding proposed IPO)
• Details about the appraisal of the project
• Interim use of funds
• Description about the Industry in which the Company operates
Business
• Detailed description about the business of the Company

• Risks related to the Company

Risk Factors
• External Risk Factors

Company • Details about the Board of Directors and various committees

Management • Details about key management persons
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 Disclosures in the Offer Document (Cont’d)
• Auditors Report to have five year restated financials for Issuer Company,
and All Subsidiaries
• Audited financials presented should not be more than six months old at
Financial the time of filing DRHP with SEBI and must be updated to be not more
Disclosures than six months old on the date of filing the prospectus with the ROC
• All financials should be presented based on Indian GAAP

• Detailed discussion on performance for the past 3 years

MD&A • Capital Expenditure
• Cash Flow and Liquidity

• All pending litigations in which the Company/Promoters / Promoter

Group / Directors / Group companies are involved.
– Both, litigations filed by or against the Company/Promoters / Promoter
Litigations Group / Directors / Group companies
and • Outstanding litigations, defaults, etc., pertaining to matters likely to affect
operations and finances of the company.
Defaults
• The pending proceedings initiated for economic offences against the
directors, the promoters, companies and firms promoted by the
promoters indicating their present status.

14 February 2018
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 Issue Listing
• NSE, BSE, OTCEI and 20 other regional SEs

• Listing and trading of shares governed by Securities

Contracts Regulation Act (SCRA) and listing guidelines of
SEs.

• IPOs have to be listed in order to be traded.

– Minimum paid up capital of Rs 10 crore for listing on
BSE
– Min paid up capital Rs 100 cr + networth of Rs 25
crores on NSE
– Min paid up capital of Rs 5 crores on regional Stock
Exchanges

• ALL NEW IPOs COMPULSORILY TRADED IN

DEMAT FORM 14 February 2018
3-17
 ISSUE MANAGEMENT
PROSPECTUS ISSUE

FURTHER ISSUE/COMPOSITE ISSUE

– Issue of securities by a listed company on a public cum
rights basis offered through a single offer document
wherein the allotment for both public and rights
components of the issue is proposed to be made
simultaneously;

14 February 2018
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 ISSUE MANAGEMENT
PROSPECTUS ISSUE
RIGHT ISSUE/OFFER

– ISSUE OF NEW SHARES TO EXISTING SHARE HOLDERS

• TO BE OFFERED IN FIRST INSTANCE ON PRO RATA BASIS
(SEC 81, COMPYS ACT, 1956)
– GIVEN PRE EMPTIVE RIGHTS TO SUBSCRIBE TO NEW ISSUES
– ISSUED AT PAR OR REMIUM TO EXISTING SHARE PRICES
– OPEN FOR MIN 30 DAYS & NOT MORE THAN 60 DAYS
– Standby underwriting – Underwriter agrees to buy any shares that are not
purchased through the rights offering
– IF ISSUE NOT UNDERWRITTTEN & UNDERSUSCRIBED, MONEY TO
BE REFUNED WITHIN 42 DAYS FORM DATE OF CLOSURE

14 February 2018
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 ISSUE MANAGEMENT
RIGHT SHARES
• NON SHAREHOLDER CAN ALSO SUBSCRIBE IF EXISTING
HOLDER RENOUNCES RIGHTS IN HIS FAVOR
– HOLDERS WITH SPECIAL RESOLUTION MAY FOREFEIT THIS
RIGHT PARTIALLY OR FULLY

– PROCEDURES :
• OFFER LETTER WITH FOUR APPLICATION FORMS SENT
• FORM A - ACCEPTANCE OF RIGHTS & APP FOR ADDTL SHRS
• FORM B - TO RENOUNCE RIGHTS IN FAVOUR OF OTHERS
• FORM C - FOR APPLICANT IN WHOSE FAVOUR
RENOUNCEMENT HAS BEEN DONE
• FORM D - TO MAKE A REQUEST FOR SPLIT FORMS
• ALL THE FORMS TO BE MAILED WITHIN 30 DAYS

14 February 2018
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 ISSUE MANAGEMENT
CONSEQUENCE OF RIGHT ISSUE - ABC CO.
PAID UP EQUITY CAPITAL
(10,00,000 SHARES OF RS 10 EACH) 100,00,000
RETAINED EARNINGS 200,00,000
EBIT 120,00,000
INTEREST 20,00,000
PBT 100,00,000
TAX (50%) 50,00,000
PAT 50,00,000
EPS RS 5
M.P PER SHARE (ASUME P/E AS 8) RS 40
PROPOSED RIGHT SHARES 2,00,000
PROPOSED SUBSCRIPTION PRICE RS 20
NO. OF EXISTING SHARES REQD FOR A RIGHT SHARE
(10,00,000 / 2,00,000) 5 share
PERSON HOLDING 100 SHARE GETS 20 RIGHT SHARES
14 February 2018
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 ISSUE MANAGEMENT
VALUE OF A SHARE AFTER RIGHT ISSUE, EXPECTED TO

VR = NP0 + S = 5 X 40 + 20 = RS 36.67
N+1 5+1

WERE N = NO. OF EXISTING SHARES REQD FOR RIGHT ISSUE

P0 = CUM RIGHT MARKET PRICE PER SHARE
S = SUBS PRICE AT WHICH RIGHT SHARES ARE ISSUED

RATIONAL
• FOR EVERY N SHARES BEFORE RIGHT ISSUE, THERE WOULD BE
N+1 SHARES AFTER THE RIGHT ISSUE
• MKT VALUE OF THESE N + 1 SHRS EXPECTED TO BE MKT VALUE
OF N CUM RIGHT SHARES PLUS S THE SUBSCRIPTION PRICE

• RIGHTS & SHAREHOLDER’S WEALTH

• NOT AFFECTED IF RIGHTS EXERCISED IN FULL BY SH HOLDERS
14 February 2018
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 ISSUE MANAGEMENT
RIGHTS & SHAREHOLDER’S WEALTH
A HAS 100 EQ SH IN ABC CO.WITH MKT VALUE OF RS 40 EACH
WILL BE GIVEN RIGHTS OF 20 SHARES @ RS 20 EACH

HE EXERCISES HIS RIGHTS

•MV OF ORIGINAL SHARES (100 X 40) 4,000

•ADDTL SUBS PRICE PAID (20 SH X RS 20) 400

•TOTAL INVESTMET 4,400

•MV OF 120 SH @ 36.67 PER SHARE (PREV.SLIDE)

AFTER RIGHTS SUBSCRIPTION (120x36.67) 4,400

CHANGE IN WEALTH (4400 - 4400) 0

14 February 2018
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 ISSUE MANAGEMENT
RIGHTS & SHAREHOLDER’S WEALTH
HE SELLS HIS RIGHTS

•MV OF ORIGINAL SHARES (100 X 40) 4,000

•ADDTL SUBS PRICE PAID (20 SH X RS 20) 400

•VALUE REALISED BY SELLING 20 RIGHTS

@ RS 36.67 PER SHARE 733
•NET VALUE REALISED 333 333

•MV OF 100 SH HELD AFTER RIGHT ISSUE

@ 36.67 PER SHARE 3,667

CHANGE IN WEALTH (3667 + 333 - 4000) 0

14 February 2018
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 ISSUE MANAGEMENT
RIGHTS & SHAREHOLDER’S WEALTH
HE ALLOWS RIGHTS TO EXPIRE

•MV OF ORIGINAL SHARES (100 X 40) 4,000

•MV OF 100 SH HELD AFTER RIGHT ISSUE

@ 36.67 PER SHARE 3,667

CHANGE IN WEALTH (3667 - 4000) (333)

14 February 2018
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 ISSUE MANAGEMENT
VALUE OF RIGHTS WITHIN SPECIFIED DATE

• VALUE OF RIGHT WHEN STOCK IS TRADING RIGHTS ON

– R = VALUE OF RIGHTS
R = Pr - S – PR = MARKET VELUE OF SHARE TRADING RIGHTS ON
N+1
– S = STRIKE PRICE
– N = NUMBER OF RIGHTS TO PURCHASE ONE SHARE
• CO X MAKES RIGHT OFFER WITH STRIKE PRICE OF RS 15 WITH 5
RIGHTS FOR 1 NEW SHARE. CURRENTLY SHARES HAVE MKT
PRICE OF CUM RIGHTS OF RS 16.50.
• INITIAL VALUE OF EACH RIGHT WILL BE = 16.50 - 15/ 5 + 1 = 0.25
• AFTER SPECIFIED DATE SHARE IS EX-RIGHTS
• SHARE PRICE DECREASES BY INITIAL VALUE OF RIGHTS
• THUS SHARE PRICE EX RIGHTS (Pe = Pr - R) = 16.50 - 0.25 = 16.25

14 February 2018
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 Rights Offering versus Public
Offering
Advantages of Rights Offering
With a low enough subscription price, the cost of
IPO, underwriting can be eliminated.
Firm can tap a market that already exists.
Current shareholders can retain their present
ownership proportion, no wealth transfer
Disadvantages of Rights Offering
More costly to complete than a public offering
Does not broaden the shareholder base

14 February 2018
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 ISSUE MANAGEMENT
PROSPECTUS ISSUE

BONUS SHARES
• TO EXISTING SHARE HOLDERS AS A RESULT OF
CAPITALISATION OF RESERVES
• DOES NOT RESULT INTO RAISING NEW FUNDS
• PROFITS & RESERVES CONVERTED INTO ADDITIONAL SH CAP
• NO ADDITION IN LIABILITY IN B/S TAKES PLACE
• DISTRIBUTION DETERMIND IN PROPORTION TO EXISTING
HOLDERS
– Holder holding 100 shares when 10% (1:10) bonus issue made

– Receives 10 additional shares

14 February 2018
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 BONUS SHARES

A. Equity Portion Before Bonus Issue

Paid up share capital
10,00,000 shares of Rs 10 each fully paid up 10,000,000
Reserves & surplus 30,000,000
B. Equity Portion After Bonus Issue in Ratio of 1:1
Paid up share capital
20,00,000 shares of Rs 10 each fully paid up 20,000,000
Reserves & surplus 20,000,000
In the wake of a bonus issue
The shareholders proportional ownership remains unchanged
The book value, market price, E.P.S decreases.
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 BONUS SHARES - REASONS

•Tends to bring market price within more popular range

•O/S shares increases helping in more active trading helping company

to achieve reputation in eyes of investors

•Nominal rate of dividend tends to decline. This may dispel the

impression of profiteering.

•Shareholders regard a bonus issue as a firm indication that the

prospects for the company are good & dividends may increase

•Improves prospects of raising additional funds

14 February 2018
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 BONUS SHARES - REGULATIONS
• ISSUED IN ADDITION TO & NOT IN LIEU OF CASH DIVIDEND

• AOA TO ALLOW FOR CAPITALIZATION OF RESERVES

• CO NOT A DEFAULTER IN PAYMENT OF STATUTORY DUES

• MADE OUT OF CAPITALISATION OF FREE RESERVE BUILT BY GENUINE

PROFIT OR SH PREM COLLECTED IN CASH

– Includes investment allowance reserve, Excludes capital reserve on account of

asset revaluation
• PARTLY MADE SHARES CONVERTED INTO FULLY PAID UP SHARES
• MADE WITH 6 MONTHS FROM DATE OF APPROVAL
• BONUS SAHRES ALSO TO BE GIVEN TO DEBENTURE HOLDERS IF THERE
IS AN IMPENDING CONVERSION
• AFTER ISSUE IF SUBSCRBD & PAID UP CAPTL EXCEEDS AUTHORISED
CAPITAL, RESOLUTION TO BE PASSED TO INCREASE AUTHORISED
CAPITAL
14 February 2018
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 DETERMINING MAX BONUS RATIO
• Residual Reserve Test
– Residual reserves (excluding revaluation reserves that cannot be
capitalized) after proposed capitalization should be at least 40%
of the post bonus share capital.
• Yield Test
– 30% of the average amount of pre-tax profits of the company in
the previous three years should yield a return of at least 10% on
the increased capital.
• RPT = (R-SB) > = 0.4 (1 + B) S
• YIELD TEST = 0.3 (PBT) > = 0.1 S (1 + B)
• were R = Reserves before bonus issue
• S = Paid up Share capital before bonus issue
• B = Bonus Ratio
• PBT = Average PBT for last 3 years 14 February 2018
3-32
 DETERMINING MAX BONUS RATIO
An Illustration: Consider a company for which the following data is available:

Paid up share capital (S) Rs. 100m

Reserves (R) Rs. 150m
Average PBT in the previous three years Rs. 80m

Using the equations:

(R-SB) > = 0.4 (1 + B) S
150 – 100b>= 0.4 * 100 (1+b)
0.3 (PBT) > = 0.1 S (1 + B)
0.3 * 80 >= 0.1 * 100 (1+b)
The above is reduced to
11/14 >= b and 14/10 >= b

Since 11/14 >= b is more restrictive than 14/10 >= b we find that the maximum
bonus share ratio is 11/14
14 February 2018
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 ISSUE MANAGEMENT
BONUS ISSUE - COMPUTING MAX BONUS RATIO

•12,00,000 EQ SHARES HAVE ALREADY BEEN ALLOTTED

THUS ENDING THE FINAL PAYMENT OF PLANT

•INCLUDED IN 90,00,000 SHARES

•PLANT WORTH 4 CR SHOWN ON ASSETS SIDE OF B/S

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 ISSUE MANAGEMENT
BONUS ISSUE - COMPUTING MAX BONUS RATIO
•OPPOSITE EFFECT ON LIABILITIES SIDE

•12,00,000 SHARES ISSUED = 12,00,000 X 10 = 120,00,000

SHOWN IN PAID UP CAPITAL

•PREMIUM WHICH IS NOT COLLECTED IN CASH IS

• = COST OF PLANT – FACE VALUE OF SHARES ISSUED TO VENDOR
• = 4 CR - 120,00,000 = 2,80,00,000

•ACCRUES TO SH PREM A/C ON ACCOUNT OF THE NOTIONAL

PREMIUM CHARGED TO SELLER OF BUILDING

•TOTAL ON LIABILITIES SIDE =4,00,00,000

14 February 2018
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 ISSUE MANAGEMENT
BONUS ISSUE - COMPUTING MAX BONUS RATIO
•COST OF PLANT LESS FACE VALUE OF SHARES ISSUED TO
VENOR
= 4 CR - (12,00,000 X 10) = RS 2,80,00,000

THE ABOVE IS SHARE PREMIUM NOT COLLECTED IN CASH BUT

SHOWN IN SH PREM A/C & THEREFORE EXCLUDED FROM BONUS
ISSUE WHILE COMPUTING ELIGIBLE RESERVE

WE USE RESERVES COLLECTED IN CASH ONLY

•THUS SH PREM RESERVE AFTER ADJUSTMENT =

7,00,00,000 - 2,80,00,00 = 4,20,00,000

•4,20,00,000 IS ONLY ELIGIBLE SH PREMIUM RESEVE TO BE

INCLUDED IN CAPITALISATION 14 February 2018
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 ISSUE MANAGEMENT
BONUS ISSUE - COMPUTING MAX BONUS RATIO
•PART B OF FCDs TO BE CONVERTED INTO EQUITY
WITHIN 1 YEAR OF BONUS ISSUE

•HENCE ANY DECISION WILL AFFECT FCD HOLDERS

•CONVERSION OF PART B WILL RESULT IN ADDITIONAL

SHARES OF 45,00,000 (I.E. 15 LAKH FCDs EACH CONVERTED
INTO 3 EQUITY SHARES) WHICH ARE TO BE CONSIDERED

14 February 2018
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 ISSUE MANAGEMENT
BONUS ISSUE - COMPUTING MAX BONUS RATIO
RESERVES ELIGIBLE FOR CAPITALIZATION (RS CR)
•GENERAL RESERVES 17,00,00,000
•SHARE PREMIUM 4,20,00,000
•TOTAL RESERVES 21,20,00,000
SHARES ELIGIBLE FOR BONUS
EQUITY SHARES 90,00,000
SHARES ARISING FROM CONVERSION 45,00,000
TOTAL 1,35,00,000

HENCE MAX PERMISSIBLE BONUS RATIO IS 21.20/13.5=

1.570
Assuming 100% Reserves Utilised

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 ISSUE MANAGEMENT
BONUS ISSUE - COMPUTING MAX BONUS RATIO

TOTAL PAID UP CAPITAL

EARLIER PAID UP CAPITAL 9 CR
GENERAL RESERVE CONVERTED 17 CR
SHARE PREMIUM CONVERTED 4.2 CR
PCD CONVERTED 4.5 CR
TOTAL 34.7 CR

•AFTER BONUS & CONVERSION THE INCREASED CAPITAL IS 34.70 CR

WHICH IS MORE THAN AUTHORISED CAPITAL OF 20 CR.
•RESOLUTION TO BE PASSED TO INCREASE THE AUTHORISED
CAPITAL

14 February 2018
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 ISSUE MANAGEMENT
THROUGH OFFER FOR SALE
– A STATEMENT IN LIEU OF PROSPECTUS
– SHOULD BE FILED IN 3 DAYS BEFORE ALLOTMT
– Co SELLS ENTIRE ISSUE TO ISSUE HOUSE AT AN
AGREED PRICE (GENERALLY BELOW PAR VALUE)
– SHARES RESOLD BY ISSUE HOUSE TO PUBLIC
– BODs AN EMERGING MECHANISM
• CONVERT A FEE BASE ACTIVITY INTO FUND BASED
• ISSUE BOUGHT IN FULL OR IN LOTS
• MUTUAL AGREEMENT BETWEEN MERCHANT BANKER & CO.
• SHARES HELD UNTIL READY FOR PUBLIC PARTICIPATION
• OFF LOADED LATER IN MARKET BY RESELLING TO PUBLIC
• ELIMINATEST RETAILING, SAVES TIME & COST
• CHEAPEST & QUICKEST SOURCE OF FINANCE14FOR Cos2018
February
3-40
 Private Placements
• Direct sale of securities to a limited number of institutional
investors (Banks, FIs, Mutual Funds, High Networth Ind)
• Exempt from SEBI registration,
• Dominated by institutions
• Very active market for debt securities than equity

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 Private Placements
Private Placement Public Issues
1. Issues are offered to mature and 1. Issues are primarily offered to retail
sophisticated institutional investors. investors.
2. No discloser requirements.
3. Issues are not screened and this 2. Discloser requirement is there.
increases the risk. 3. All issues are screened.

• Avoids lengthy and costly registration • Private investors typically

process require tighter and more
restrictive loan covenants.
• Speed of placement
• Investors typically demand
• Minimizes disclosure of strategically higher yields.
sensitive information

• Can be tailored to meet the needs of

borrowers and lenders

• Easier to negotiate terms relative to a

public offering
14 February 2018
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 The Securities Industry
Issuing Securities
Investment = Primary Market
Banking
Institutional Investment/
Investor Private Wealth
The merchant banking activity in India is Management
governed by SEBI (Merchant Bankers)
Regulations, 1992.
All merchants bankers have to be registered
with SEBI.
It provides all kinds of required services to
THE SECONDARY MARKET
the issuers for new issues.

Rating
Agencies

Equity /
Sales & Fixed Income
Trading Research

14 February 2018
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 ISSUE MANAGEMENT
• MIN APPLICATION (Rs 5000-7000)
• MIN SUBSCRIPTION (90%)
• OPTIONAL UNDERWRITING
• COMPLIANCE REPORT (WITHIN 45 Days of closure)
• PROPORTIONATE ALLOTMENT (WITHIN 10 weeks of closure)

14 February 2018
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