The management of securities of the corporate sector offered to the public on a regular basis, and existing shareholders on a rights basis, is known as public issue management. Issue management is an important function if merchant bankers and lead managers.
The management of issues for raising funds though various types of instruments by companies is known as Issue management. The function of capital issues management in India is carried out by merchant bankers who have the requisite professional skill and competence. One of their functions, in fact, is issue management. Factors such as the tremendous growth in the number and size of public listed companies, and the complexity arising due to the ever increasing SEBI requirements have all attributed to the increasingly significant role played by merchant bankers in the recent past.
The definition of merchant baker as contained in SEBI (Merchant Banker) Rules and Regulations, 1992 clearly brings out the significance of Issue Management as follows: any person who is engaged in the business of issue management either by making arrangement regarding selling, buying or subscribing to securities as manager, consultant advisor or rendering corporate advisory services in elation to such issue management.
A fast growing economy like India offers tremendous scope for issue management and the merchant bankers provide their skills and expertise to companies in the management of capital issues. This essentially aims at channeling household savings into the corporate sector through the issue of corporate securities. Companies raise funds for the purposes of financing new projects, expansion/modernization/diversification of existing units and augmenting long term resources for working capital purposes.
The general functions that form part of the capital issues management of merchant of merchant bakers are as follows:
1. Obtaining approval for the issue from SEBI
2. Arranging for underwriting the proposed issues
3. Preparation of draft and finalization of the prospectus and obtaining its clearance from the various agencies concerned.
4. Preparation of draft and finalization of other documents such as application forms, newspaper advertisements and other statutory requirements.
5. Making a choice regarding registrar to the issues, printing press, advertising agencies brokers and bankers to the issue and finalization of the fees to be paid to them.
6. Arranging for press conference and the investors’ conferences
7. coordinating printing, publicity and other work in order it get everything ready at the time f the public issue.
8. Complying with SEBI guidelines after the issue is over by sending various reports as required by the authorities
Categories of Securities issue:
Corporate enterprises use several sources for raising funds from the capital market. Issue of securities constitutes an important mode of raising such finances. Security takes the following forms:
1. Public Issue
2. Right Issue
3. Private Placements
Public Issue of Securities:
When capital funds are raised through the issue of a prospectus, it is called public issue of securities. It is the most common method of raising funds in the capital market. A security issue may take place either at par, or at a premium or at a discount. The prospectus has to disclose all the essential facts about the company to the prospective purchasers of the shares. Further, the prospectus must conform to the format set out in Schedule II of the Companies Act 1956, besides taking into the account SEBI guidelines. SEBI insists on the adequacy of disclosure of information that should serve as the basis for investors take a decision about the investment of their money.
When shares are issued to the existing shareholders of a company on a privileged basis, it is called as Rights Issue. The existing shareholders have a pre-emptive to subscribe to the new issue of shares. Rights shares are offered as additional issues by corporate to mop up further capital funds. Such shares are offered in proportion to the capital paid up on the shares held by them at the time of the offer.
When the issuing company sells securities directly to the investors especially institutional investors, it takes the form of private placement. In this case no prospectus is issued since it is presumed that the inverts have sufficient knowledge and experience and are capable of evaluating of the risk of the investment. Private placement covers shares, preference shares and debentures. The role of the financial intermediary such as the merchant Bankers and lead managers assumes greater significance in private placement. They involve themselves in the task of preparing a offer memorandum and negotiating it investors.