Page 305 - DMGT207_MANAGEMENT_OF_FINANCES

Management of Finances

Notes others, from whom application forms along with copies of prospectus can be obtained (viii)
Minimum subscription (ix) Names of underwriters, if any, along with a statement that in the
opinion of the directors, the resources of the underwriters are sufficient to meet the underwriting
obligations and (x) A Statement that the company will make an application to stock exchange(s)
for the permission to deal in or for a quotation of its shares and so on.
Book Building

Book Building is the process used by companies raising capital through Public Offerings-both
Initial Public Offers (IPOs) or Follow-on Public Offers ( FPOs) to aid price and demand discovery.
It is a mechanism where, during the period for which the book for the offer is open, the bids are
collected from investors at various prices. The bid price should be within the band specified by
the issuer. The process is directed towards both the institutional as well as the retail investors.

Notes The issue price is determined after the bid closure based on the demand generated
in the process.

Offer for Sale

Another method by which securities can be issued is by means of an offer for sale. Under this
method, instead of the issuing company itself offering its shares directly to the public, it offers
through the intermediary of issue houses/merchant banks/investment banks or firms of
stockbrokers. The sale of securities with an offer for sale method is done in two stages. In the
first stage, the issuing company sells the securities to the issuing houses or stock brokers at an
agreed fixed price and in the second stage the issue house or stock brokers sell the securities to
the unlimited investors. The securities are offered to the public at a price higher than the price at
which they were acquired from the company.

Private Placement

Under this method, securities are acquired by the issue houses, as in offer for sale method, but
instead of being subsequently offered to the public, the securities are issued to institutional
investors. Each issue house has a list of large private and institutional investors who are always
prepared to buy their securities.

Rights Issue

The methods discussed above can be used both by new companies as well as by established
companies. In the case of companies whose shares are already listed and widely-held, shares can
be offered to the existing shareholders. This is called rights issue. Under this method, the existing
shareholders are offered the right to subscribe to new shares in proportion to the number of
shares they already hold.

Did u know? This offer is made by circular to ‘existing shareholders’ only.

14.2.2 Role of Primary Market

The main role of the New Issue Market is to facilitate the ‘transfer of resources’ from the savers
to users. Conceptually, however, the New Issue Market should not be conceived as a platform

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