Introduction to Public Issue

7/31/2019 Introduction to Public Issue

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Presented by- Manjeet Kumar Choudhary.


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(a) Public issue(i) Initial Public offer (IPO)

(ii) Further public offer (FPO)

(b) Rights issue

(c) Bonus issue

(d) Private placement

(i) Preferential issue

(ii) Qualified institutional placement


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Public issue means raising funds from public. Promotersof the Company may have plans for the Company, whichmay require infusion of money. The main purpose of thepublic issue, amongst others, is to raise money throughpublic and get its shares listed at any of the recognized

stock exchanges in India.

When an issue / offer of securities is made to newinvestors for becoming part of shareholders family of theissuer3 it is called a public issue. Public issue can be

further classified into Initial public offer (IPO) and Furtherpublic offer (FPO).


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When an unlisted company makeseither a fresh issue of securitiesor offers its existing securities forsale or both for the first time tothe public, it is called an IPO. Thispaves way for listing and tradingof the issuers securities in the

Stock Exchanges.


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When an already listed companymakes either a fresh issue of securitiesto the public or an offer for sale to the

public, it is called a FPO.


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When an issue of securities is made by an

issuer to its shareholders existing as on aparticular date fixed by the issuer (i.e. recorddate), it is called an rights issue. The rights areoffered in a particular ratio to the number of

securities held as on the record date.Bonus issue

When an issuer makes an issue of securities to itsexisting shareholders as on a record date, without anyconsideration from them, it is called a bonus issue. Theshares are issued out of the Companys free reserve orshare premium account in a particular ratio to thenumber of securities held on a record date.


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The sale of securities to a relatively small numberof select investors as a way of raising capital.Investors involved in private placements are usuallylarge banks, mutual funds, insurance companiesand pension funds. Private placement is the

opposite of a public issue, in which securities aremade available for sale on the open market.

When an issuer makes an issue of securities to aselect group of persons not exceeding 49, and

which is neither a rights issue nor a public issue, itis called a private placement. Private placement ofshares or convertible securities by listed issuer canbe of two types:


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When a listed issuer issues shares or convertible securities,to a select group of persons in terms of provisions of ChapterXIII of SEBI (DIP) guidelines, it is called a preferentialallotment. The issuer is required to comply with variousprovisions which inter-Alia include pricing, disclosures in thenotice, lock-in etc, in addition to the requirements specified in

the Companies Act.Qualified institutional placement

When a listed issuer issues equity shares or securitiesconvertible in to equity shares to Qualified InstitutionsBuyers only in terms of provisions of Chapter XIIIA ofSEBI(DIP) guidelines, it is called a QIP.


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Money non-refundable except in the case of winding upor buy back of shares.

No financial burden i.e. no fixed rate of interest payable.However, in order to service the equity, dividend may bepaid.

Enhance shareholders value if the Company performswell.

Greater Transferability.

Trading & Listing of securities at stock exchanges.

Better liquidity of securities. Helps building reputation of promoters, Company & its

products/services, provided the Company performs well.


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Time consuming process.

Expensive.

Several legal formalities.

Involvement of many intermediaries.

Transparency requirements and public disclosure of information

may lead to lack of privacy.

Continuous compliance of provisions of listing agreement and other

legal requirements.

Constant scrutiny of performance by investors.

May lead to takeover of the company

Securities of the Company may be made subjective to speculativeattacks.


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Companies can freely price its securities. Company can not come out with public issue unless all its existing partly paid up

shares, if any, are made fully paid up.

Before filing the final prospectus, the Company can keep a price band of maximum20%, it means that if the Company is not sure of the issue price, it may keep a floorprice with a price band of 20%.

Companies are now free to determine the denomination of shares.

Net offer to public should be at least 25% of the issue size. Public issue should be opened for at least 3 working days and not more than 10

working days.

The minimum amount to be received from each investor should be Rs. 2000/-.

Promoters may at its discretion arrange for buy back facility or safety net facilities inthe prospectus subject to the maximum 1000 shares per allotted. The validity of suchscheme, if any shall be at least 6 months from the date of dispatch of certificates.

Company can come out with an issue within 365 days from the date of observationletter received from SEBI or where such letter is not received, issue can come outwith in 365 days from the 22nd day of the date of filing of the prospectus.

Trading of securities of all new public issues will be in dematerialized form only.


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Since private placements do not require theassistance of brokers or underwriters, they areconsiderably less expensive and time consuming.

private placements may be the only source of

capital available to risky ventures or start-up firms. The private placement offering remains one of the

most viable alternatives for capital formationavailable to companies.

private placement may also enable a small businessowner to hand-pick investors with compatiblegoals and interests.


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Suitable investors may be difficult to locate,for example, and may have limited funds toinvest. In addition, privately placedsecurities are often sold at a deep discountbelow their market value.

. Companies that undertake a privateplacement may also have to relinquish moreequity, because investors wantcompensation for taking a greater risk and

assuming an illiquid position. Finally, it can be difficult to arrange private

placement offerings in multiple states.


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Introduction to Public Issue

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