CAPITAL MARKET INSTRUMENTS

Equity Shares

Charecteristics

Owners of the company to the extent of the shareholding No specific rate of income in the form of dividend Vote in general meetings and thereby control management Share in profits in the form of dividends and bonus shares Not redeemable Limited liability Marketable

Equity Shares

Market Classification

Growth Shares
Income Shares Defensive Shares Cyclical Shares Speculative Shares

Sweat Equity Shares

Sweat Equity Shares means

equity shares issued by the company

to employees or directors

at a discount or for consideration other than cash

for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

Provisions relating to Sweat Equity Shares

(Sec. 79A and SEBI regulations

Special Resolution

Resolution valid for 12 months

Each transaction of issue of sweat equity to be passed separately Pricing shall not be less than the higher of

the average of the weekly high and low of the related equity shares for the past 6 months preceeding the relevant date

the average of the weekly high and low of the related equity shares during the 2 weeks preceeding the relevant date
(Relevant date is the date which is 30 days prior to the date on which the meeting of the shareholders in convened for this purpose)

Provisions relating to Sweat Equity Shares

(Sec. 79A and SEBI regulations

In case of IPR valuation shall be carried out by a Merchant Banker who in turn has to obtain a certificate from an independent CA that the valuation is in accordance with the relevant Accounting Standards. Certificate from Audits of the company that the company has complied with the regulations relating to Sweat Equity and is in accordance with the resolution passed by the company In acsxe where Sweat Equity Shares are alloted to Directors the same shall be taken into consideration for calculating the ceiling on remuneration to Directors

Lock in period of 3 years

Listing possible if these regulations are complied with

Provisions relating to Sweat Equity Shares

(Sec. 79A and SEBI regulations

Other Provisions

Auditors Certificate to be placed in the meeting of the shareholders

The company shall, within 7 days of the issue of sweat equity, send a statement to the exchange giving the following details of the issue

number of sweat equity shares issued

price of issue
amount invested persons to whom issued consequent changes in the capital structure and the shareholding pattern

Differerential Voting Rights

Differential Voting Rights (DVR) shares are

shares

which have different rights as to voting and dividends when compared with ordinary shares

Requistes for issuing DVR shares

Distributable profits for preceeding 3 financial years No defaults in filing Annual Accounts and Annual Returns for preceeding 3 financial years No default in repayment of deposits or interest thereon on due date or redeem debentures on due date or pay dividend Authorisation in Articles of Association Company has not been convicted for any offence under FEMA, SCRA, SEBI Act. Not defaulted in meeting investors grievances Approval of shareholders in General Meetin Listed company to obtain approval by postal ballot

Requistes for issuing DVR shares

Notice to meeting at which resolution is to be passed shall state

(a) the rate of voting rights which the equity share capital with differential voting right shall carry; (b) the scale or in proportion to which the voting rights of such class or type of shares will vary;

(c) the company shall not convert its equity capital with voting rights into equity share capital with differential voting rights and the shares with differential voting rights into equity share capital with voting rights;

Requistes for issuing DVR shares

(d) the shares with differential voting rights shall not exceed 25% of the total share capital issued; (e) that a member of the company holding any equity share with differential voting rights shall be entitled to bonus shares, right shares of the same class; (f) the holders of the equity shares with differential voting rights shall enjoy all others rights to which the holder is entitled to excepting right to vote as indicated in (a) above.

Maintainence of Register

Preference Shares

Charecteristics

Owners of the company to the extent of the shareholding Specific rate of income in the form of dividend Cannot vote in general meetings No share in profits in excess of the rate of dividend other than in the case of Participating Preference Shares Redeemable Limited liability Marketable

Preference Shares

Types

Cumulative Non cumulative Convertible Non convertible Redeemable Irredeemable Cumulative Convertible Preference Shares Participating Preference Shares

Debentures

Charecteristics

Debentureholders are creditors and not owners Specific rate of income in the form of interest Cannot vote in general meetings No right of share in profits Redeemable Limited liability

Marketable

Debentures

Types

Secured Unsecured Fully Convertible (FCD) Non-Convertible (NCD) Partly Convertible (PCD) Redeemable Irredeemable

Issues

Public

Initital Public Offering (IPO)

Fresh Issue Offer for Sale Fresh Issue Offer for Sale

Further Public Offering (FPO)

Rights Bonus Preferential or Bought Out Deals (BOD)

Bought Out Deal stories

For Maxwell Apparel a BOD was put together with ICICI as a sponsor and Times Guaranty as the cosponsor. Under this deal, the total number of shares alloted to the sponsors were 5.3 lakh shares at a premium of Rs. 55 each.

Subsequently, these were offloaded to the public through OTCEI at a premium of Rs. 65, i.e. a gain of Rs. 10 per share

Bought Out Deal stories

Reliance Capital and Finance Trust accquired 1 lakh shares of Nielcon Ltd. at a premium of Rs. 20 per share These were latter offered to the public at a price of Rs. 38, a gain of Rs. 8 per share

Siris Ltd.'s 17.50 lakh shares were offloadd to the sponsorers Videocon Leasing and Finance Ltd. And Videocon Applicances Ltd. At Rs. 200.

The shares were offloaded to the public at a price of Rs. 265, thus making a profit of Rs. 13.12 crore

In the case of Growel Times the lead sponsor 20th Century Finance Corpn. along with the co-sponsors had to take 3.5 lakh equity shares of the 5 lakhs accquired by them

Public Issues
Inititial Public Issue (IPO)

Unlisted company makes a fresh issue of securities or sale of it's existing securities or both for the first time to the public This paves the way for the securities of the company to be listed and traded

Follow on Public Issue (FPO)

A listed company makes a fresh issue of securities or sale of it's existing securities to the public. The company would have already made earlier offer/s to the public An offer for sale is allowed only if listing obligations are to be met

Eligibility norms for IPO or FPO

Entry Norm I

The company shall meet the following requirements

Net Tangible Assets of Rs. 3 crores for 3 full years Distributable profits in atleast 3 years Networth of Rs. 1 crore in 3 years In case of change in name at least 50% revenue in the preceding 1 year should be from the new activity The issue size should not exceed 3 times the pre-issue net worth

Eligibility norms for IPO or FPO

Entry Norm II

Issue shall be through the book building route, with at least 50% to be mandatorily allotted to Qualified Institutional Bidders (QIB) The minimum post-issue face value capital should be Rs. 10 crore or there should be compulsory market-making for 2 years

Eligibility norms for IPO or FPO

Entry Norm III

The project is appraised and participated to the extent of 15% by FI / Scheduled Commercial Banks of which at least 10% is contributed by the appraisers The minimum post-issue face value capital should be Rs. 10 crore or there should be compulsory market-making for 2 years

In addition to satisfying the requirements under any one of the the 3 entry norms it is necessary for the company to satisfy the criteria of having at least 1000 prospective allottees to the issue

Pricing of the Issue

The issuer (company) in consultation with the merchant banker shall decide the price There is no formula stated either by SEBI or any other regulator regarding the pricing Disclosure regarding the parameters considered for arriving at the issue price are to be made by the company and the merchant banker Pricing of an issue can by of two types

a fixed price issue, or An issue where the floor price or the price band is stipulated

Exemptions from Eligibility norms

Private Sector Banks

Public Sector Banks

An infrastructure company whose project has been apprised by a Public Financial Institution or IDFC or ILFS or a bank which was earlier a PFI and not less than 5% of the project cost is financed by these institutions Rights issue by listed companies

Book Building

Book building is a process of price discovery

The Red Herring Prospectus does not contain the issue price.
RHP contains either the floor price or the price band. A price band is range of prices within which the bidding can be done. The lower limit is called as the floor and the upper limit the cap. The spread between the floor and cap cannot exceed 20% The applicants bid for the shares quoting the price and the quantity that they would like to bid The applicants can revise a bid by changing the price and / or quantity bid. This has to be done before the closure date Book Building Issues have to be kept open for a minimum of 3 days and a maximum of 7 days

Intermediaries to Issue

Merchant Bankers or Book Running Lead Managers (BRLM)

Registrars to the issue Bankers to the Issue Underwriters to the Issue Auditors of the Company Solicitors

Others

Merchant Bankers

Pre Issue

Due Deligence of company's operation, business plans, management, legalaties, etc. Drafting and design of offer documents, prospectus, statutory advertisements and memorandum containing the salient features of prospectus Compliance with requirements of SEBI, ROC, Stock exchanges, etc. Appointment of other intermediaries such as registrars, bankers, printers, advertisers, etc. Marketing strategies for issue in cosultation with company

Merchant Bankers

Post Issue

Management of Escrow accounts Co-ordinate non-institutional allocation Co-ordinating intimation of allottment or refunds to bidders Finalisation of dealing with exchanges for trading Co-ordinating Dispatch of certificates and / or demat of delivery of shares

Co-ordinating activities of other intermediaries to the issue.The responsibility of the other agencies discharging thier functions is on the BRLM`

Registrars

Processing of applications on acontinues basis from the collecting bank branches till the basis of allottment is finalised Finalises the list of eligible allottees after deleting invalid ones Ensures corporate action for crediting of shares to the demat accountof the applications who have been allotted shares Despatch of refund order to the applicants Co-ordinating with BRLM

Bankers

Ensuring funds are collected and transferred to the escrow account Lead Merchant Banker has to appoint other bankers to the issue are appointed in all the mandatory centres as per SEBI guidelines Provides information to the BRLM regarding the progress of the issue by providing collection estimates and advising the issuer regarding the closure of the issue based on the collections

Red Herring Prospectus (RHP)

It is prospectus which does not contain the details of either the price or the number of shares offered or the amount of issue Only after completion of the bidding process the details of the final price are included in the offer document

The offer document filed thereafter with the ROC is called as the prospectus

Other Documents

Offer Document means a Prospectus in the case of a public issue and a Letter of Offer in the case of a Rights Issue Abridged Prospectus means a document which contains all the salient features of a prospectus. It accompanies the application form of the public issues

Draft Offer Document means the offer document in draft stage. This document has to be filed with SEBI 21 days prior to filing the offer document with ROC