Public issue management

Compiled byShivakriti Kapoor Sec.A

Introduction
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 of 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 . The merchant bankers provide their skills and expertise to companies in the management of capital issues. This essentially aims at channelling 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.

Functions
The general functions that form part of the capital issues management of merchant bakers are as follows:

Obtaining approval for the issue from SEBI. Arranging for underwriting the proposed issues. Preparation of draft and finalization of the prospectus and obtaining its clearance from the various agencies concerned. Preparation of draft and finalization of other documents such as application forms, newspaper advertisements and other statutory requirements. 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. Arranging for press conference and the investors conferences. Coordinating printing, publicity and other work in order it get everything ready at the time f the public issue. 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.

Rights Issue:

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.

Private Placements: 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.

Issue Manager
Any financial institution / intermediary which can carry out the activities connected with issue management is registered with SEBI and follow its regulations and guidelines is capable of venturing into issue management. Issue management is an important activity for merchant bankers. Requirements: The issue manager needs to satisfy the following requirements before being allowed by the SEBI to carry out various issue management activities: i. Adequate and necessary infrastructure such as adequate office space, equipments and manpower to various issue management activities. ii. Minimum number of two persons needed, who are professionally qualified in Law, Finance or Business Management and have the experience to conduct the business of the merchant banker. iii. Fulfilling the capital adequacy requirements i.e. a minimum net worth of Rs 5 crores.

Categories of Issue Managers:

SEBI has classified Issue Managers into four categories: 1) Category I: Merchant banker who is authorized to act as issue manager, advisor, consultant, underwriter and portfolio manager. 2) Category II: Merchant banker who is authorized to act only as advisor, consultant, underwriter and portfolio manager. 3) Category III: Merchant banker who is authorized to act as underwriter, advisor and consultant to an issue. 4) Category IV: Merchant banker who is authorized to act only as advisor or consultant to an issue. The registration requirements for the respective categories are progressively less stringent. However, with a view to facilitating only high net worth companies to operate as merchant, so as to ensure the provision of quality service and to have a screening effect, merchant bankers of categories II, III and IV were abolished through an amendment, dated December 9, 1997 to the SEBI Merchant Bankers Regulations, 1992. Similarly, only corporates, and not proprietorship firms will be registered with SEBI as merchant bankers. The objective was to enhance corporate discipline and professionalism in the sphere of issue management.

Restrictions on Issue Managers: SEBI regulations have prescribed restrictions on the number of issue managers who can be associated with an issue. This is presented below:
Issue Size Permissible Number of Lead Managers

Less than Rs 50 crores

Rs 50 crores but less than Rs 100 crores Rs 100 crores but less than the Rs 200 crores Rs 200 crores but less than Rs 400 crores Rs 400 crores & above

2
3 4 5 5 & more

Role of Issue Manager

The merchant banker as an issue manager is helpful in the following ways: 1) Easy floatation: An issue manager acts as an indispensable pilot facilitating a public / rights issue. This is made possible with the help of a repository of special skills possessed by him to execute the management of issue. 2) Financial consultant: An issue manager essentially acts a financial architect, by providing advice relating to capital structuring, capital gearing and financial planning for the company. 3) Underwriting: An issue manager allows for underwriting the issues of securities made by corporate enterprises. This ensures due subscription of the issue. 4) Market makers: Merchant bankers, as issue managers often act as the market makers for the issues lead managed by them. They invest, continue to old and provide, buy and sell quotes for the listed scrips of the company

5) Due diligence: The issue manager has to comply with SEBI guidelines. The merchant banker will carry out activities with due diligence and furnish a Due Diligence Certificate to SEBI. The detailed diligence guidelines that are prescribed by the Association of Merchant Bankers of India (AMBI) have to be strictly observed. SEBI has also prescribed a code of conduct for merchant bankers. 6) Coordination: The issue manager is required to co-ordinate with a large number of institutions and agencies while managing an issue in order to make it successful. 7) Liaison with SEBI: The issue manager, as a part of merchant banking activities, should register with SEBI. While managing issues, constant interaction with the SEBI is required by way of filing of offer documents, etc. In addition, they should file a number of reports relating to the issues being managed.

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