Introduction to Primary Markets

Introduction to Primary Markets

Most listed companies are usually started privately by their promoter(s). However, the promoters’ capital and the borrowings from banks and financial institutions may not be sufficient for setting up or running the business over a long term. So, companies invite the public to contribute towards the equity and issue shares to individual investors. The way to invite the public to subscribe to the share capital of the company is through a ‘Public Issue’. Once this is done, the company allots shares to the applicants as per the prescribed guidelines laid down by SEBI.

The Primary Market is, hence, the market that provides a channel for the sale of new securities to issuers, which may can be the Government or corporates, to raise resources to meet their fund raising requirements. The securities may be issued at face value, or at a discount/premium and may take a variety of forms such as equity, debt etc. They may be issued in the domestic and/or international market.
Issue at Face Value:
The nominal value of the share, assigned to it by the issuer, is called the Face Value or Par Value. It is the original cost shown on the share certificate and the extent to which the shareholder is liable to the company. In case of equity shares, the value is generally quite small; for instance Rs 1, Rs 2, Rs 5, Rs 10 etc. Hence, if shares are offered at this value then it is said they are being offered at Face Value or at Par.

Issue at a premium or at a discount:
When shares are offered at more than the Face Value, then it is said that the issue is at a premium. The premium is the amount charged over the Face Value. Conversely, if shares are offered at a price lower than Face Value, then the issue is at a discount. The difference between the Face Value and the Offer Price is the discount.
What Are The Types of Issues?
Primary market Issues can be classified into four types.

1. Initial Public Offer
2. Follow on Offer
3. Rights Issue
4. Preferential Issue

Who Are The Various Intermediaries In A Public Issue?
AThe Issuing Company has to appoint various intermediaries for the issue process. The various intermediaries involved are:

• Book Running Lead Managers (BRLMs)
• Bankers to the Issue
• Underwriters
• Registrars to the Issue etc.