01. What are the methods of floating of new issue of shares?
Ans. Initial issues are floated through:
- Offer through prospectus
- Bought out deals/offer for sale
- Private placement
- Right issue
- Book building
2. Offer through prospectus: Shares issued to public through prospectus which consists the following details:
- General information about the company.
- Capital structure of the company.
- Payments of the issue.
- Particulars of the issue.
- Company, management and project.
- Particulars regarding the other listed companies under the same management in last 3 years.
- Details of outstanding litigations pertaining to matters likely to affect financial position of the company.
- Financial information of the company.
3. Bought out deals:
- Promoter places his shares with an investment banker(dealer/sponsor) who offer to the public at a later date.
- In addition to the sponsor, individuals and other smaller companies participating in the syndicate.
- The sponsors hold on these shares for a period and at an appropriate date they offer the same to the public.
- The hold on period may be as low as 70days or more than a year.
- Dealer decides the price after analysing promoters background.
- Wholesaler may be merchant banker or company with surplus cash.
4. Private placement: The issue is placed with a small number of financial institutions, corporate bodies and high networth individuals. Financial intermediaries are:
- UTI
- Mutual fund
- Insurance companies
- Merchant banking subsidiaries
5. Right Issue:
- If a public company wants to increase its subscribed capital by allotment of further shares to existing share holder.
- Issue right shares after two years from the date of its formation or one year from the date of its first allotment, whichever is earlier.
- Time given to accept right offer should not be less than 15 days.
- Share holders have no legal binding to accept the offer and they have right to renounce the offer in favour of any person
6. Book building:
- In this process, the price determination is based on orders placed and investors have an opportunity to place orders at different prices as practised in international offerings.
- Recommendations given by Malegam committee for the introduction of book building process.
