2. Offer for Sale Method 3. Private Placement Method 4. Initial public Offers (IPOs) Method 5. Rights Issue Method 6. Bonus Issue Method 7. Book-building Method 8. Stock Option Method and 9. Bought-out Deals Method
1. Pure prospectus Method Features Exclusive subscription Issue Price Underwriting Prospectus Advantages Benefits to investors benefits to issuers Drawbacks High issue costs Time consuming 2. Offer for sale method Where the marketing of securities takes place through intermediaries, such as issue houses, stock brokers and others
The difference between the purchase price and the issue price constitutes profit for the intermediaries 3. Private placement method A method of marketing of securities whereby the issuer makes the offer of sale to individual and institutions privately without the issue of prospectus is known as Private placement method Initial Public Offer (IPO) Method
The public issue made by a corporate entity for the first time in its life is called Initial public Offer (IPO) The job of selling the stock is entrusted to a popular intermediary, the underwriter.
steps involved in this method of marketing of securities are as follows:
Order: Broker receives order from the client and places orders on behalf of the client with the issuer. Share Allocation: The issuer finalizes share allocation and informs the broker regarding the same. The Client: The broker advises the successful clients of the share allocation. Clients then submit the application forms for shares and make payment to the issuer through the broker. Primary issue account: The issuer opens a separate escrow account (primary issue account) for the primary market issue. The clearing house of the exchange debits the primary issue account of the broker and credits the issuers account. Certificates: Certificates are then delivered to investors. Otherwise depository account may be credited. Rights issue Method Where the shares of an existing company are offered to its existing shareholders. Underwriting as to rights issue is optional and appointment of Registrar is compulsory.
Rights issue offers the following advantages
Economy: Rights issue constitutes the most economical method of raising fresh capital, as it involves no underwriting and brokerage costs. Easy: The issue management procedures connected with the rights issue are easier as only a limited number of applications are to be handled. Advantage to shareholders: Issue of rights shares does not involve any dilution of ownership of existing shareholders.
Bonus Issues Method
Where the accumulated reserves and surplus of profits of a company are converted into paid up capital, it takes the form of issue of bonus shares. It merely implied capitalization of existing reserves and surplus of a company.
Book-building Method
A method of marketing the shares of a company whereby the quantum and the price of the securities to be issued will be decided on the basis of the bids received from the prospective shareholders by the lead merchant bankers is known as book-building method The book-building process involves the following steps Appointment of book-runners A syndicate member should be a member of National Stock Exchange (NSE) or Over-the-Counter Exchange of India (OTCEI). Offers of bids are to be made by investors to the syndicate members, who register the demands of investors. Drafting prospectus Circulating draft prospectus Maintain offer records contd Intimation about aggregate orders Bid analysis An appropriate final price is arrived at after a careful evaluation of demands at various prices and the quantity Mandatory underwriting Filling with ROC (Registrar of Companies ) Bank accounts one for the private placement portion and the other for the public subscription. Collection of completed applications Allotment of securities Payment schedule and listing Under-subscription-(preference is given to the individual investors.)
Stock Option or employees Stock Option Scheme (ESOP) A method of marketing the securities of a company whereby its employees are encouraged to take up shares and subscribe to it is known as stock option SEBI Guidelines
Issue at discount Approval Maximum limit Minimum period Superindence direction of a Compensation Committee of the Board of Directors in which there would be a majority of independent directors. Eligibility Directors report Bought-out Deals
A method for marketing of securities of a body corporate whereby the promoters of an unlisted company make an outright sale of a chunk of equity shares to a single sponsor or the lead sponsor is known as bought-out deals.