Private Placement

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* A process of inviting subscription to the securities of acorporate issuer by means other than public offering.

* Private placement usually refers to non-public offering ofshares in a public company.

Definition

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 convertiblepromissory 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.5/29/20132MBA 219

* Public offerings have limitations w.r.t marketvariables, cost and time.

* Strategic objectives

Why private placement?

* Strategic objectives* 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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* Fast and cost effective.* Choice of investors.* Flexibility in type and amount of funding.

Advantages

* Flexibility in type and amount of funding.* Easier to negotiate on return.* Less amount of scrutiny.

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

Disadvantages

* Limited investors.* Illiquidity.

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* Private placement of shares or of convertiblesecurities by a listed company to selected groupof investors is called preferential allotment.

Preferential Allotment

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 torequirements in Companies Act, 1956.

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* Pricing – Issue, warrants, convertible debentures)* Currency of financial instruments* Non-transferability of financial instruments.

Guidelines

* Non-transferability of financial instruments.* Currency of shareholders’ resolution* Other requirements* Certified by auditor* Copies to shareholders* Independent valuation

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* QIP is another tool, whereby a listed company canissue equity shares, fully and partly convertibledebentures, or any securities other than warrants

Qualified Institutional Placement

debentures, or any securities other than warrantswhich are convertible to equity shares to a QIB.

* Introduced by SEBI to prevent listed companies inIndia from developing an excessive dependence onforeign capital.

* Compliance with guidelines in Chapter XIIIA of SEBI(DIP).

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* Listing* Investors* Pricing* Adjustments in price* Currency of security

Guidelines

* 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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