Page 18 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 1: Introduction to Capital Market

These entities are not required to register with SEBI as QIBs. Any entities falling under the Notes
categories specified above are considered as QIBs for the purpose of participating in
primary issuance process.
3. Placement: Under this method, the issue houses or brokers buy the securities outright
with the intention of placing them with their clients afterwards. Here, the brokers act as
almost wholesalers selling them in retail to the public. The brokers would make profit in
the process of reselling to the public. The issue houses or brokers maintain their own list
of client and through customer contact sell the securities.
Placement has the following advantages:
(a) Timing of issue is important for successful floatation of shares. In a depressed market
conditions when the issues are not likely to draw public response though prospectus,
placement method is a useful method of floatation of shares.

(b) This method is suitable when small companies issue their shares.
The main disadvantage of this method is that the securities are not widely distributed to
a large section of investors. A selected group of small investors are able to buy a large
number of shares and get majority holding in a company.
This method of private placement is used to a limited extent in India. The promoters sell
the shares to their friends, relatives and well-wishers to get minimum subscription which
is a precondition for issue of shares to the public.

Did u know? What has been the reason behind, the high rate of growth of private placements
has been higher than public issues as well as right issues during the last few years in India?
1. Accessibility: Whether it is a public limited company, or a private limited company,
or whether it is listed company or an unlisted one, it can easily access the private
placement market. It can accommodate issues of smaller size, whereas public issue
does not permit issue below a certain minimum size.
2. Flexibility: There is a greater flexibility in working out the terms of issue. A private
placement results in the sale of securities by a company to one or few investors. In
case of private placement, there is no need for a formal prospectus as well as
underwriting arrangements. Generally, the terms of the issue are negotiated between
the company (issuing securities) and the investors. When a nun-convertible
debenture issue is privately placed, a discount may be given to institutional investor
to make the issue attractive.
3. Speed: The time required, for completing a public issue is generally 6 months or
more because of several formalities that have to be gone through. On the other
hand, a private placement requires lesser time.
4. Lower Issue Cost: A public issue entails several statutory and non-statutory expenses
associated with underwriting, brokerages etc. The sum of these costs used to work
out even up to 10 percent of issue. For a company going for a private placement it is
substantially less.
Book-building – About Book-building
Book-building is basically a capital issuance process used in Initial Public Offer (IPO),
aiding price and demand discovery. It is a process used for marketing a public offer of
equity shares of a company. It is a mechanism wherein, during the period for which the

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