Factors Determining Capital Structure of the Company

Capital Structure is referred to as the ratio of different kinds of securities raised by a firm as long-term finance.

Importance of Capital Structure Planning

The Capital Structure Decision Process

Capital Budgeting Decision (Replace, Expand, Diverse, Modernize)

Need to Raise Funds (Internal & External Fund Raising Policy)

Capital Structure Decision Desired Debt-Equity Mix (Risk & Return)

Existing Capital Structure

Cost of Capital

Value of the Firm

Optimum Capital Structure

Factors Determining Capital Structure Internal Factors External Factors

General Factors

Internal Factors Cost of Capital Risk

Control

External and General Factors Trading on equity Degree of Control Flexibility of financial plan Choice of investors Capital market condition Period of financing Stability of sales Size of company

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Procedure for IPO & Book Building

Initial Public Offer (IPO)

Meaning An initial public offering or initial purchase offer (IPO), referred to simply as an "offering" or "flotation", and is when a company (called the issuer) issues common stock or shares to the public for the first time.

IPO Process
Hires Investment Bankers Process of negotiation Registration statement Document verification by SEBI Publishes an initial prospectus Decide the price Stock sold

Advantages of IPO
Raise cash Enhance Reputation No cost of capital Correct Valuation

Disadvantages of IPO
Short term Emphasis Disclosure of information Shareholders Approval Cost of IPO

Why Book Building?

The abolition of the Capital Issue Control Act, 1947 Book Building act as a scientific method Non flexibility of Fixed Price method Drawback of Fixed Price issue Failure of Fixed Price Method

Steps Involved in Book Building Process

Regulatory Frame Work

According to the SEBI, a public issue through Book Building route should consist of two portions: The Book Building portion and The fixed price portion.

Offer to public through Book Building Process

100% of the net offer to the public through book building process, or 75% of the net offer to the public through book building process and 25% of the net offer to the public at the price determined through book building process.

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Credit rating agency

Evaluate credit rating For debt Grading on basis of past performance, asset & current liabilities of present, financial risk in future. CRISIL-1987 CARE, ICRA, Fitch India SEBI guideline

Importance of credit rating agency

Development of Financial Markets Estimation of Risk Premiums Enhanced Transparency in the Credit Markets Investment Advice

Functions & approaches of CRAs

Rating related products & activities Non rating related activities:

Bonds/ debentures Commercial paper Structured finance products Bank loans Fixed deposits and bank certificate of deposits Mutual fund debt schemes Initial Public Offers (IPOs)

Economy and company research Risk consulting Fund research Advisory services Knowledge Process Outsourcing (KPOs

Analytical framework used by CRAs

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