IPO, Rights, Bonus Issue Process

Presented By : Agnel Peter Gyanesh Koshti Praveen Pillai Priyanka Nair Shashikala Balaji 43 83 44 33 49

Issues

Public

Rights

Bonus

Initial Public Offering

Further public offering

Fresh Issue

Offer for sale

Fresh Issue

Offer for sale

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Public Issues

Public Issues

IPO

FPO

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IPO

Initial Public Offering

An unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public.

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Eligibility for IPO

Paid up Capital Conditions Precedent to Listing At least three years track record of either

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FPO

Further Public Offering An already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document.

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Eligibility for FPO

Paid up Capital

Conditions Precedent to Listing

At least three years track record of either

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IPO PROCESS
1. Determine if your company is eligible to go public. 2. Contract with an investment banker. Investment banker serves as an underwriter. 3. Draft a prospectus and file it with the Securities Exchange Commission (SEC). Discloses the details.

4. Present the opportunity to potential shareholders. Leads to subscriptions

5. Sell the shares to the investment banker.

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 Pros of going public

New capital
- Almost all companies go public primarily because they need money to expand the business

Future capital
- Once public, firms have greater and easier access to capital in the future

Mergers and acquisitions

- Its easier for other companies to notice and evaluate a public firm for potential synergies - IPOs are often used to finance acquisitions

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Cons of going public

Expensive
A typical firm may spend about 15-25% of the money raised on direct expenses

Reporting responsibilities
Public companies must continuously file reports with the SEC and the stock exchange they list on

Loss of control
Ownership is transferred to outsiders who can take control and even fire the entrepreneur

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Rights Issue
Defining An invitation to existing shareholders to purchase additional new shares. Subscription price at which each share may be purchased in generally at a discount to the current market price

Why It's Used

Can be used by company to pay down their debts

Funding for acquisitions

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How Rights Issues Work ?

Lets take an example;

You own 100 existing shares in Company A at Rs. 10 each. This Company is planning to accumulate Rs. 50000 by issuing 10000 shares through Rights Issue. Consider ratio 10:1

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Shareholders have three options;

1. Subscribe to the rights issue in full

Estimation of share price dilution; 100 existing shares at Rs. 10 10 new shares for cash at Rs. 5 Value of 110 shares Ex-rights value per share Rs. 1000 Rs. 50 Rs. 1050 Rs. 9.54 (Rs. 1050/110 shares)

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2. Ignore your rights

3. Sell the rights to someone else

Non-renounceable rights Renounceable rights Sell your rights to other investors or to the underwriter. Nil-paid rights

Rough estimate of Nil-paid rights ; Ex-rights price of Rs. 9.54 less Rs.5 = Rs. 4.54

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'Bonus Issue'

What is it? An offer of free additional shares to existing shareholders. Shares are issued in a definite ratio like 1:1, 1:2 etc.

From where are bonus shares issued ?

What is the impact of issue of bonus shares?

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Advantages to the shareholders

1. Tax benefits 2. Indication of higher future profits 3. Increase in future dividend 4. High psychological value

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Advantages of issue of bonus shares to the company

1. Conservation of Cash 2. Keeps the EPS at a reasonable level 3. Increases the marketability of company's shares 4. Enhances prestige of the company 5. It helps in financing its projects

6. Retention of managerial control

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Limitations of Bonus Issues

Disadvantages for the company:

1. An increase in the capitalization of the company. 2. To retain the existing rate of dividend per share. 3. Prevents new investors from becoming the shareholders of the company
Disadvantages to the shareholders: 1. Shareholders expecting cash dividend may feel disappointed

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Conditions for issue of bonus shares

(1) Sufficient undistributed profits must be there. (2) Articles must permit such an issue. (3) Suitable resolution by the Board of Directors must be passed. (4) Formal approval of the shareholders in a general meeting must be secured. (5) Permission of the 'Controller of Capital Issues' must be obtained under the Capital Issues Control Act, 1947, regardless of the amount involved.

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