L-5.IBFS

L-5.IBFS - CA (IBFS-5) L-5: Procedural Aspects of Primary...

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CA (IBFS-5) L-5: Procedural Aspects of Primary Issues This lesson deals with: - 1. Pre-issues Decision Making 2. Types of Public Issues 3. Pricing of Public Issues 4. Pre-Issue Management 5. Advertising and Marketing 6. Post Issue Management 7. Rights Issue 1. Pre-issues Decision Making : The Initial Public Offer (IPO) is the first public offer of equity shares by a company since its inception. IT is a financing strategy to raise funds or as an exit strategy to offload holdings to the general public. An IPO is unique in many ways since it changes permanently the profile of a company and the way the promoters and the management need to think thereafter. Here, the responsibility of living up to the expectation of the market and the shareholders is a major task. The Merchant Banker (MBR) managing an issue has onerous responsibility towards promoters, issuing company and investors. Sections 1-10 of SEBI guidelines cover respectively (i) Eligibility norms, (ii) Pricing of issue, (iii) Promoters’ Contribution and Lock-in Requirements, (iv) Contents of Offer Document, (v) Issue Advertisement, (vi) Issue of Debt Instruments, (vii) Book-Building, (viii) Issue by 1
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Designated FIs, (ix) Preferential Issues, and (x) OTCE issues. Reasons for going public : Raising funds to finance capital expenditure (for new, expansion, diversification, modernization, etc.) and working capital requirements. Raising funds for acquisitions like new units, brands, tender offers for shares of another firms, etc. Debt refinancing Exit route (for the existing shareholders) Advantages of going public : Enables valuation of a company Provides liquidity to shareholders Commands better pricing Facilitates future funding thru rights issue Enables share exchange for purchase of another company Disadvantages of going Public : Dilution of ownership leading to vulnerability Need for continuous disclosures Listing and documentation expenses Needs lot of management time and efforts Cost of maintaining huge investor relations Increased regulatory monitoring 2
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2. Types of Public Issues : Eligibility Norms of an IPO : Filing of draft prospectus with SEBI thru IBR, at least 21 days prior to filing the same with ROC. No listed company can make a Rights Issue in case the aggregate value of securities, including premium, exceeds Rs.50 crore, provided the Letter of Offer is filed with SEBI attest 21 days prior to filing the same with ROC. 3
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Any company prohibited by SEBI cannot make a public issue. The co. should make an application with stock exchange(s) for listing of its securities. 3. Pricing of Public Issues : A. Pricing of Issues: A listed company can freely price public/rights issue. An unlisted company eligible to make public
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L-5.IBFS - CA (IBFS-5) L-5: Procedural Aspects of Primary...

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