Types of issues in primary market
The primary market refers to a market where equity or debt funds are raised by the companies from investors through an offer of securities. Here, the investors are the ones, who are not associated with the promoters.
In the primary market, investors purchase the security directly from the issuer, which is called the ‘new issue market’ since these securities are issued for the first time by the company. In the primary market, capital can be issued in the following ways –
Public issue -
Public issue means an initial public offer (IPO), where securities are issued to the members of the public and anyone eligible to invest can participate in the issue. IPO means an offer of specified securities by an unlisted issuer to the public for subscription and includes an offer for sale (OFS) of specified securities to the public by any existing holder of such specified securities in an unlisted issuer.
Private placement -
Securities are issued to a select set of investors, who can bid and purchase the securities on offer. This is primarily a wholesale issue of securities to institutional investors by an unlisted company.
Preferential issue -
Preferential issue means an issue of specified securities by a listed issuer to any select person or group of persons on a private placement basis. This does not include an offer of specified securities made through employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or depository receipts issued in a country outside India or foreign securities.
Qualified institutional placement -
Qualified institutional placement (QIP) means the issue of eligible securities by a listed issuer to qualified institutional buyers on a private placement basis and includes an offer for sale of specified securities by the promoters and/or promoter group on a private placement basis. Qualified institutional buyers include institutions such as mutual funds, foreign portfolio investors, insurance companies, public financial institutions, etc.
Rights issue -
For the Rights issue, an offer for securities is made to the existing shareholders of the company. There is a specific ratio, in which, the shares are offered to the investor at a specific price (rights). Securities are issued to investors as on a specific cut-off date.
Bonus issue -
A bonus issue of shares is made to the existing shareholders of a company without any consideration from them. The entitlement to the bonus shares depends upon the existing shareholding of the investor. Securities are issued to existing investors as on a specific cut-off date.