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Marketing securities

METHOD OF MARKETING SECURITIES

Pure Prospect method:


A method of marketing securities
where by existing securities corporate
enterprise mops up capital funds from the
general public by means of an issue of a
prospectus is called pure prospectus
method.

Prof. S.Visalakshmi,VIT
Offer for Sale Method:
Where the marketing of securities takes
place in bulk quantity to intermediaries such as
issue houses, stock brokers, and others, is a case
of offer for sale method.
Promoter places his shares with an investment
banker (bought out dealer or sponsor) who
offer it to the public at a later date
Hold on period is 70 days to more than a year

Prof. S.Visalakshmi,VIT
It consists of two stages: the first stage is
a direct sale by the issuing company to
the issue house and brokers at an agreed
price.
In the second stage, the intermediaries
resell the above securities to the ultimate
investors. The issue houses purchase the
securities at a negotiated price and resell
at a higher price. The difference in the
purchase and sale price is called turn or
spread.

Prof. S.Visalakshmi,VIT
Private Placement Method:
A method of marketing securities
where by the issuer makes the offer of a
sale to individuals and institutions
privately without the issue of a
prospectus.

Prof. S.Visalakshmi,VIT
Initial Public Offer Method:
The public made by a corporate entity
for the first time in its life is called I-P-O.
Securities are issued on the basis of
the orders placed.

Prof. S.Visalakshmi,VIT
E-IPO:
The issuing company would have the option
to issue securities to public either through the
on-line system of the stock-exchange or through
the existing banking channel.
For E-IPO the company should enter into
agreement with the stock-exchange(s) and the
stock-exchange would appoint SEBI registered
stockbrokers of the stock exchange to accept
applications.
Prof. S.Visalakshmi,VIT
The brokers and other intermediaries
are required to maintain records of
(a) orders received,
(b) applications received,
(c) details of allocation and allotment,
(d) details of margin collected and
refunded
(e) details of refund of application
money.
Prof. S.Visalakshmi,VIT
Right Issue Method:
Shares of an existing company are
offered to its existing shareholders.
Bonus Issue Method:
Accumulated reserves and surplus of
profits of a company are converted into
paid up capital, it takes the form of bonus
issue method.

Prof. S.Visalakshmi,VIT
Bought-Out Deals

A method of marketing the securities of a body


corporate where by 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
Bought out dealer decides the price after
analyzing the viability, the gestation period,
promoters background and future projections
Bought out dealer sheds the shares at a
premium to the public

Prof. S.Visalakshmi,VIT
Book Building Method:
The quantum and 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.
Book building is an alternative to the fixed-price method of security
issue.The issue price is not fixed.
It is a process of offering securities at various bid prices from
investors.
The demand for the security is assessed and the price is discovered
based on bids made by investors.
Price discovery, therefore, depends on demand for the shares at
different prices.
The issuing company indicates the floor price but not the ceiling
price.

Prof. S.Visalakshmi,VIT
Steps in Book Building
1.The company appoints an issue manager (usually a
merchant banker) as book-runner.
2.The company issues a draft prospectus containing all
required disclosure.
3.The draft prospectus is filed with SEBI.
4.The issue manager (book runner) appoints syndicate
members and other registered intermediaries.
5. Price discovery begins through the bidding process.
6. At the close of bidding, book runner and company
decide the allocation and allotments

Prof. S.Visalakshmi,VIT
A Comparative Analysis
Fixed Price Issue Book-Building Issue

Pre-determination of price / Determination of price on the


price band, which is made basis of bids received from the
known to the investors investors. Investors are made
known only an indicative floor
price / price range.

Demand for the securities Demand for the securities


offered is known only after the offered can be known everyday
closure of the issue. as the book is built.

Underwriting is not compulsory in Underwriting is compulsory in


case of Fixed Price Issue case of Book-Built Issue

Prof. S.Visalakshmi,VIT
Other Key Decisive Criteria
Fixed Price Issue Book-Building Issue

Track record required Track record not required

Book-building not compulsory Book-building compulsory

50% QIB allocation not 50% QIB allocation Mandatory


mandatory

No Appraisal Report from Appraisal Report Required, if not


Schedule Commercial Banks / opt for 50% QIB
Financial Institutions Required
Prof. S.Visalakshmi,VIT
ESOP (Employee Stock Option Scheme):

The employee encouraged to take up


shares and subscribe it is known as
ESOP.
Encourage employees participation
in the company.
Incentive to the employees to stay in
the company.

Prof. S.Visalakshmi,VIT
Green Shoe Option (Over Allotment):

It gives right to the underwriter to sell


additional shares than originally planned
by the issuer.
Legally called as over-allotment option.
The green shoe can vary in size up to 15%
of original no. of shares offered .
The term is derived from the fact that
the green shoe company was the first to
issue this type of option.
Green shoe now called Stride Rite
Corporation. Prof. S.Visalakshmi,VIT
The green shoe option in India is
governed by DIP guidelines and has to be
executed to stabilizing agent.
Stabilizing agent will operate a separate
demat called the special account for the
GSO

Prof. S.Visalakshmi,VIT

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