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Transcript of Fmi Primary Issues
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4/14/12
PRIMARY MARKET ISSUES
By
Anu BansalSwati Girotra
Jagduman SinghUmakant Mishra
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Financial Market
A place in which financial assets arecreated or transferred.
Types of financial market money market
Capital market
government securities market
Foreign exchange market
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CAPITAL MARKET
Organized mechanism
Market for Long term funds
Raising the capitalFunctions of capital market
mobilize the financial resources
secure foreign capital
ensure effective allocation of
resources
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Classification of capitalmarket
Capital market is classified into twocategories
Primary market
secondary market
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Primary market
Known as new issue marketDeals with new securities
Provides funds directly to thecompanies
Does not have any tangible form
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Functions of primarymarket
Function is to facilitate transfer ofresources
Transfer can be done is two ways new companies- initial issues
old companies- further issues
From operational standpoint origination
Underwriting
Distribution
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Operators in the New IssueMarket
Brokers to the Issue
Managers to the IssueBankers to the Issue
Registrars
Underwriters
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Methods of floatation ofnew issues
Company can raise required capitalin the primary market by followingmethods
public issue
Rights issueBonus shares
Private placements
Offer to the employee
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New Public Issue/ Offer
Most popular method of raisingcapital
Raising from publicPublic issue through prospectus
Steps to be taken
What is prospectus?
Content of prospectus
Minimum subscription
Allotment of shares
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Disadvantages of an IPO
Marketing and legal cost
Require to disclose financialinformation
Attention of senior management
requiredPublicizing information can be useful
to competitors
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Rights Issue
Method of raising funds fromexisting shareholders
Offering new shares toshareholders
Can be at par or premium
Offered at price much lower thanmarket price
Issue letter of offer along with
application form consist of four
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Characteristics of rightissue
Issue price is left to discretion ofcompany
Rights are negotiableShould be exercised during fixed
period
Number of shares to be issueddepends upon issuing company
Inexpensive method
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BONUS ISSUES
Issued to share holders out ofaccumulate profits
Issued in the ratio of existing sharesheld
Also known as stock dividend
Other two sources of raising bonusshares are
Share premium account
Capital redemption reserve account
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Characteristics..
Issued on particular dateCannot be renounced
No question of delays
Issued free of cost
Do not change pattern of ownership
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Advantages of bonusshares
Tax benefit
Increase in future dividends
Indication of bright futurePsychological value
Conserve cash
Encourage investment
Indicator of higher future profits
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Limitations
Do not effect shareholders wealth
Does not give and special or extrabenefits
Costlier to administer
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Private Placement
Direct sale by company to selectiveinvestors
Issuers can be both public andprivate companies
The investors includes
Unit trust of IndiaLife insurance corporation
General insurance corporation of India
Army group insurance
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Contd..
Instruments offered
Equity shares
Preference sharesCumulative convertible shares
Convertible and non-convertibledebentures
Accommodates smaller debtfinancing than public market
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Offer to Employee
Enables employee to becomeshareholders and hereby share theprofits
Lead to better
industrial relations
Wider distribution of sharesLower labor turnover
Higher efficiency
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Abuses in The New IssueMarket
Projected figures of turnover, profits
ec of future yearsExaggerated claims about growth
prospects
Advertisement were used to be madefalsely
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Problems in Issue Market
Not able to mobilize adequate
savings from publicFunctional and institutional gap
Risk aversion in new market
Incur cost
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THANK
YOU