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(^58) Financial Management
The first four would result in money or assets flowing in and the last one would result in
no additional asset as it is merely a book entry.
Selling Shares Directly to Public: Public Issue
Selling shares directly to the public is known as 'public issue'. You would have seen
companies issuing advertisements for sale of its equity shares in the newspapers and
other media targeted at potential buyers. The company has to get its issue managed by
a merchant banker (finance intermediaries specialising in raising money for the
companies). Certain norms specified by the Securities and Exchange Board of India
(SEBI) apply to the companies who want to raise money from the public. Additionaly
there is a 'listing agreement' (specified by the stock exchanges where the company
wants to list its shares for trading), which the company has to adhere to. Cosco India
Ltd is listed on Bombay Stock Exchange and Delhi Stock Exchange, which means that
it would have signed the listing agreement with both the stock exchanges separately.
Both the listing agreements would nearly be the same with very minor differences.
Can you look at the newspapers and find out what is the rate that one share of Cosco
is quoting at on these stock exchanges? This rate is known as the market price of the
share. Market price of the share is influenced by a variety of factors, including expected
future earnings, dividends, growth and other company specific and economic events.
Market value of frequently traded shares are reported daily in newspapers such as The
Business Standard, The Times of India, etc. and are available on the internet. Can you
locate two web sites that give you the latest price information on Indian listed companies?
Selling Shares Directly to Select Investors: Private Placement
Selling shares directly to selected investors is known as 'private placement'. For making
private placements the companies do not issue advertisements in the newspapers but
offer shares directly to selected institutional investors like mutual funds and foreign
institutional investors, etc. There is no obligation for the company to get its issue managed
by a merchant banker but many of them employ financial intermediaries to help them
sell the issue. Certain norms specified by the Securities and Exchange Board of India
(SEBI) apply to the companies who want to raise money this way so as to protect the
rights of existing shareholders. For example, the companies cannot issue shares below
the average market price of the last six months. Of course, these guidelines apply to
only those companies, which are listed on the stock exchange. Closely held companies
can sell new shares to whomsoever they want and at whatever price per share that is
mutually acceptable to the company and the buyers. However, this price cannot be less
than the par value of the share.
Selling Shares only to existing Shareholders: Right Issue
The main difference between a public issue and a rights issue is that the rights issue is