Primary Markets — how a company sells shares to the public for the first time

The market where money reaches the company

There are two very different places where shares change hands, and confusing them is the commonest beginner's mistake.

The primary market is where investors buy the security from the issuer. The money goes to the company. This is why it is also called the new issue market — securities are issued here for the first time.

The secondary market is where investors buy and sell among themselves, without engaging with the issuer at all. Activities in the secondary market do not modify the capital available to the issuer.

Think of it as a car showroom versus an OLX listing. Buy a new car from the showroom and the manufacturer gets your money. Buy the same car second-hand from a stranger and the manufacturer gets nothing — but the price that stranger can command tells you what the manufacturer's cars are worth. That is exactly the relationship: secondary market prices are used as signals in pricing primary market issues.

The process of opening up a company's capital to investors who were never part of the early business is called "going public."

And the two markets rise and fall together. In a bull market, when secondary market activity is high and prices are rising, the number of primary issues is also higher and pricing is more favourable to issuers. A bear market is a tough time for primary issues, when getting adequate subscription is difficult.

Why a company bothers with all this

The workbook lists eight functions of the primary market. Learn them as a list — they are asked directly.

1. Tap larger markets for capital. A company shifts from known sources — promoters, interested parties, banks — to new investors. An Indian company issuing a GDR in the Euro markets reaches investors it could never have met otherwise.
2. Fosters a competitive process. Prices are set by demand and supply. Government securities, for example, are priced through an auction in which banks and institutions bid the rates they will accept. This enables fair pricing.
3. Diversify ownership. As new shareholders come in, existing stakes shrink and ownership becomes broad-based. Ownership and management get separated, professional managers run the business, and independent directors represent small shareholders — which strengthens governance norms.
4. Better disclosures. A business asking strangers for money must meet higher standards of disclosure and transparency, giving adequate, relevant, accurate and verifiable information.
5. Evaluation by investors. The disclosed information is scrutinised not only by auditors and regulators but by a large number of prospective investors, and also by analysts, researchers, activists and the media. That is an extra layer of scrutiny.
6. Exit for early investors. Promoters and early investors who nurtured the business can sell their stakes fully or partly at a profit.
7. Liquidity for securities. It is mandatory to list a public issue of securities on a stock exchange, which opens up a secondary market — without affecting the capital already raised and used by the business.
8. Regulatory supervision. Every step is supervised, to protect investors who put in capital but do not manage the business. Note the honest caveat: there is no assurance of return, risk, safety or security — regulation only ensures fair procedures, adequate and accurate information, and well-defined rights.

Who regulates what

This split is asked, so learn the table rather than the paragraph.

The primary issue of government securities does not come under SEBI's regulatory purview. It is governed by the Government Securities Act, 2006 and the Government Securities Regulations, 2007.

The full legal framework for primary markets: the Companies Act, 2013, the Securities Contracts (Regulation) Act, 1956, the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, the Government Securities Act, 2006 and the Government Securities Regulations, 2007.

The people who make an IPO happen

An issuer cannot do this alone. It has to work with a merchant banker.

• Merchant bankers manage the whole issue: advising on pricing, preparing the issue document, applying for listing, advertising, finalising the allotment. They also act as underwriters, committing to subscribe if the issue is not fully taken up, for a commission.
• Book Running Lead Manager (BRLM). An issuer may appoint several merchant bankers; one of them is the BRLM. He handles due diligence on the issuer's operations, drafting and vetting the prospectus, compliance with SEBI, the exchanges and other laws, and marketing the issue. Post-issue he finalises the basis of allotment, manages the escrow account money, and coordinates the other intermediaries.
• Registrar and Transfer Agents (RTA). Keep the record of applications and money received, help decide the basis of allotment, and after allotment despatch allotment letters and refund orders. Share Transfer Agents maintain records of holdings and handle transfer and redemption; they also act as DPs.
• Bankers to the issue. Banks appointed to manage the sale proceeds — accepting applications with money, refunding unsuccessful applicants, and keeping daily records.
• Brokers to the issue. Stock brokers who procure subscription, acting as the link between investors and the issuer.
• Depositories and Depository Participants. A depository holds securities in electronic form and settles transactions by book entry. Converting physical securities into electronic form is dematerialization. Note the ownership split, which is examined: the depository becomes the registered owner while the investor remains the beneficial owner. A DP is the depository's agent and the actual process of dematerialization is undertaken by the DP.
• Debenture trustees. Appointed before an issue of debt securities, to safeguard debenture holders' interests. They must ensure the secured assets are sufficient, and must call a meeting of all debenture holders when at least one-tenth of them require it, or on any default by the issuer.
• Portfolio managers. Advise on, or manage, a portfolio under an agreement. A discretionary portfolio manager manages each client's funds independently but in line with the client's needs; a non-discretionary one manages in accordance with the client's directions.
• Primary dealers. Licensed by the RBI to underwrite securities issued by the RBI on behalf of the government. They subscribe in RBI auctions and resell in the secondary market, earning an underwriting commission.

The rule that gets tested: all these intermediaries EXCEPT primary dealers must be registered with SEBI. Primary dealers are authorised by the RBI. Every intermediary must follow the Code of Conduct framed under the applicable SEBI regulations.

Four ways securities are issued

Not every primary issue is a public issue. Shares issued to promoters when a company is set up are a primary issue too.

A single public issue commonly mixes these: part preferential, part rights, part privately placed with institutions, before it opens to retail investors. The investment banker works out how much is offered to whom and at what price, within the regulatory framework and in consultation with the company.

Who issues, and who invests

Governments — central, state and local — issue bonds (G-secs) and, only the Central Government, treasury bills. They do not issue equity capital at all. Government instruments carry a government guarantee. Sovereign Gold Bonds are issued only in domestic markets in India.

PSUs issue equity shares and bonds; the government may sell its own holding to the public as disinvestment, and PSU bonds may carry special tax concessions.

Private sector companies have a high dependence on the securities market and can issue equity shares, preference shares, bonds, convertible bonds, commercial paper and securitized paper, including in international markets.

Banks, NBFCs and financial institutions have low dependence on the securities market because they have access to public deposits. They may issue long-term bonds and preference shares as Tier-2 capital, plus certificates of deposit and commercial paper.

Mutual funds issue units for specifically defined schemes, either closed-end (fixed tenor) or open ended, and only in domestic markets. Investment trusts such as REITs and InvITs also issue units.

On the investor side, the workbook notes a contrast: debt markets are dominated by institutional investors; equity markets have higher retail participation.

The classification that appears in questions:

Can this company even have an IPO?

SEBI sets eligibility conditions. An issuer may make an IPO only if it has all of the following:

• Net tangible assets of at least ₹3 crore, on a restated and consolidated basis, in each of the preceding three full years of 12 months each, of which not more than 50% are held in monetary assets. If more than 50% is in monetary assets, the issuer must have utilised or made a firm commitment to utilise the excess in its business or project. This 50% limit does not apply if the IPO is made entirely through an offer for sale.
• An average operating profit of at least ₹15 crore over the preceding 3 years, with operating profit in each of those 3 years.
• A net worth of at least ₹1 crore in each of the preceding 3 full years.
• If it changed its name within the last 1 year, at least 50% of the revenue for the preceding full year must come from the activity indicated by the new name.

And if it does not meet these? It can still do an IPO, but only through the book-building process, undertaking to allot at least 75% of the net offer to QIBs and to refund the full subscription money if it fails to do so.

The same name-change rule and the same 75%-to-QIB fallback apply to a Further Public Offer (FPO).

Promoters must keep skin in the game

In an IPO the promoters' contribution shall be not less than 20% of the post-issue capital.

If post-issue promoter shareholding falls short of 20%, the gap may be filled by alternative investment funds, foreign venture capital investors, scheduled commercial banks, public financial institutions, insurance companies registered with IRDAI, any non-individual public shareholder holding at least 5% of the post-issue capital, or any entity in the promoter group other than promoters — subject to a maximum of 10% of the post-issue capital, and without being identified as promoters.

The requirement does not apply at all if the issuer has no identifiable promoter.

Then the lock-ins, which are four separate numbers:

How much must be offered to the public

Based on post-issue capital calculated at offer price:

Companies in the second and third bands must increase public shareholding to at least 25% within 3 years from the date of listing.

The clock: how long an issue stays open

• A public issue is open for a minimum of 3 working days and a maximum of 10 working days.
• If the price band is revised, the bidding period must be extended by at least 3 working days, still within the 10-working-day maximum.
• On force majeure, a banking strike or similar unforeseen circumstances, the issuer may — for reasons recorded in writing — extend by a minimum of 1 working day, again within the maximum.

The 90% rule and underwriting

An issue must receive subscription of at least 90% of the net offer to the public. If it does not, the company must refund the entire subscription amount not later than 4 days from the closure of the issue.

To guard against that, companies sign an underwriting agreement before filing the prospectus. Underwriters commit to subscribe to whatever the public leaves, for a commission. Stock brokers and merchant bankers perform the underwriting function.

The rules split by issue type, and this is a favourite:

• Fixed price issue → underwriting is DISCRETIONARY. If the issuer wants it, it must appoint SEBI-registered merchant bankers or stock brokers.
• Book built issue → underwriting is MANDATORY, by the lead managers and syndicate members.
• But: where 75% of the net offer must go to QIBs to meet eligibility, that QIB portion cannot be underwritten.

Two more requirements before an issue can go out:

• Dematerialization. A company making a public issue must enter into an agreement with all the depositories to dematerialize its shares.
• Grading of IPO (optional). One or more SEBI-registered credit rating agencies may grade the IPO on industry prospects, competitive strength and business risks. The grade runs from 1 to 5, with 5 indicating strong fundamentals and 1 poor fundamentals. Read the disclaimer carefully — the grade is an assessment of the fundamentals of the issuer; it is not a commentary on the issue price and not a recommendation to subscribe. If graded by several agencies, all grades must be published.

The types of public issue

Initial Public Offer (IPO) — the first public offer of shares by a company. It comes in two forms, and telling them apart is one of the most reliably examined points in this chapter.

Fresh issue — the company issues new shares.

• Issued share capital increases.
• Money goes to the company.
• Existing shareholders' percentage holding falls in the expanded base.

Offer for Sale (OFS) — existing shareholders (promoters, financial institutions) sell part of their own holdings.

• Share capital does not change — no new shares are created.
• Money goes to the selling shareholders, NOT to the company.
• The sellers' holding shrinks.

The workbook's example makes it concrete. A company has 1,000 shares of ₹10 face value, held equally by promoters X and Y (500 each).

Case A — fresh issue of 500 shares. Issued capital becomes 1,500 shares. X and Y still hold 500 shares each, but their stake falls from 50% to 33.33%. The money goes to the company, and share capital rises.

Case B — offer for sale of 250 shares by each promoter. Capital stays at ₹10,000 (1,000 shares of ₹10). X and Y drop from 500 shares to 250 each — 25% each, and the public holds 50%. The money goes to X and Y, not to the company.

Government disinvestment in PSUs is an offer for sale. The proceeds go to the government, not to the company; the share capital is unchanged; only the shareholder list changes.

An IPO may also combine an offer for sale with a fresh issue.

Further Public Offer (FPO) — a further issue of securities to the public by an issuer that has already made an IPO. Companies use it to raise capital for growth or to retire debt, or as an OFS when public shareholding must be raised to meet listing requirements, or when promoters dilute after the IPO lock-in ends.

Two ways to price an issue

Fixed price issue. The company, in consultation with the lead manager, decides the price in advance and justifies it by the expected performance of the company. Investors know the exact price when they apply.

Book built issue. The objective is to identify the price the market is willing to pay. The company and its managers specify either a floor price or a price band. Investors bid a price (at or above the floor, or within the band) and a quantity. Retail investors can revise their bids while the issue is open. The issuer, with the BRLM, then decides the cut-off price — the price at which the issue gets subscribed. All bidders at or above the cut-off price are successful and are eligible for allotment in their category.

The workbook's illustration — 5,000 shares on offer in a band of ₹120 to ₹144:

The offer fills up at a cut-off price of ₹135 — the highest price at which the full 5,000 shares can be sold. Everyone who bid ₹135 or more is eligible. The company may set the cut-off lower than the price at which it is subscribed, for the investors' benefit.

There is also a retail discount: a book built issue may allot to retail investors at a discount to the cut-off price, which cannot exceed 10% of the price at which shares are allotted to other investor categories.

Who gets how much — the allocation buckets

This is the densest table in the chapter, and both rows are examined.

Book built issue, issuer MEETS the eligibility criteria (net tangible assets, operating profit, net worth):

Book built issue, issuer does NOT satisfy the criteria:

Notice how the whole structure flips: when the company has no track record, the retail investor is deliberately kept small and institutions must carry the issue. That is investor protection by design.

Within the non-institutional category, in a book-built issue:

• One-third is reserved for applications above ₹2 lakh and up to ₹10 lakh.
• Two-thirds for applications above ₹10 lakh.

For issues made other than through book building: a minimum of 50% to retail individual investors, and the remainder to other individual applicants and other investors including corporate bodies and institutions, irrespective of the number of securities applied for.

The steps of a public issue

The order matters. Internally the company needs approval from its board of directors and existing shareholders, then appoints a lead manager.

1. Board resolution and shareholders' resolution for the issue.
2. Appoint the lead manager.
3. The lead manager, with the issuer, appoints RTAs, bankers, brokers and underwriters. Pricing is decided between issuer and lead manager.
4. Obtain in-principle approval from the stock exchange where the shares will be listed.
5. The IPO may be graded by an approved credit rating agency.
6. Enter into agreements with depositories.
7. File the draft prospectus with SEBI.
8. Make SEBI's suggested changes and file the prospectus with the Registrar of Companies.
9. The lead manager signs the due diligence certificate.
10. Marketing — advertisements, analyst and broker meetings; advertisements in national papers.
11. Print and dispatch the prospectus and application forms. Every application form must be accompanied by an abridged prospectus.
12. Investors bid through stock brokers, self-certified syndicate banks, RTAs or depository participants — using ASBA only, with UPI available to retail investors.
13. Collection banks and RTAs reconcile daily and issue a final collection certificate.
14. In a book built offer, bids are collated and the cut-off price determined.
15. The basis of allotment is finalised in consultation with the stock exchange.
16. Shares are credited to demat accounts of successful allottees; amounts are unblocked for rejected applications.
17. The shares are listed and trading begins.

Prospectus, and the red herring

The prospectus contains everything an investor needs to decide, for a fixed price public issue. Its content and format are prescribed by SEBI and the Companies Act. It covers: issuer details (company, promoters, board, key employees, industry and business overview); the objective of the issue; issue details (dates, lead manager, RTA, bankers, listing); terms (shares offered, method of offering, application, allotment and refund procedures); financial statements, capital structure and accounting policies; regulatory and statutory disclosures; and risk factors specific to the company, the industry and the type of issue.

A red herring prospectus is the equivalent document for a book building issue. It may state the upper and lower price band and the number of shares, or just the issue size — because the final price is only known after the issue closes. A preliminary red herring prospectus is filed with SEBI before the issue opens, SEBI's observations are incorporated, and once the price is discovered it is added and the signed and dated prospectus is filed with the regulator.

SEBI may reject a draft offer document if: the promoter's contribution is not compliant; the document does not clearly lay out the usage of issue proceeds or does not result in the creation of tangible assets; the business model is misleading; there are inconsistencies in the financial statements; or there are litigation issues that may put the business at risk.

Prospectus information must be updated annually by the issuer and made available to the public.

How you actually apply

Offer documents are on the SEBI website and the lead manager's website. Application forms are with brokers, syndicate members and collection banks.

The NSE and BSE run an online bidding system. Investors enter bids through brokers' trading terminals. This segment is called the IPO market and operates from 10 a.m. to 5 p.m. during the IPO period; the lead manager may seek an extension of bidding time on the closing date. From 2013, all public issues have the e-IPO facility, letting investors bid through any broker of the exchange, whether or not that broker is appointed to the issue.

The price band is announced at least 2 working days before the issue opens, so investors can evaluate and decide their bid.

The minimum bid lot must be set so that the minimum application value falls in SEBI's prescribed range of ₹10,000 to ₹15,000.

You can either name a price or bid at the cut-off. Bidding at cut-off means accepting whatever price the bidding process determines — and since every bid at or above the cut-off succeeds, bidding at cut-off ensures the application is always accepted. A price bidder can revise or modify the bid any time before the issue closing date, using the revision form or the online facility.

Payment must be through ASBA — Application Supported by Blocked Amount. ASBA is an application containing an authorisation to the investor's bank to block the application money in the account and release it only on allotment. The money stays in your own account earning your own interest until shares are actually allotted. Applications go to a Self-Certified Syndicate Bank (SCSB) where the investor holds the account. SEBI has mandated ASBA for all public issues.

On top of ASBA, SEBI introduced UPI as a payment mechanism for retail individual investors applying through intermediaries, in a phased manner from 1 January 2019. It then required that all individual investors applying in public issues where the application amount is up to ₹5 lakh must use UPI, effective 1 May 2022. Banks and UPI apps must send SMS alerts for blocking and unblocking.

Additional channels for subscription and call money on partly paid securities: Online ASBA (through an SCSB's online portal), Physical ASBA (at an SCSB branch), and an additional online mode through a linked online trading-demat-bank account offered by some brokers.

Allotment, and what happens when everyone wants in

Once the issue closes the cut-off price is set. All investors who bid at or above the cut-off are successful and receive allotment at the cut-off price. Money blocked for lower bids is released.

• Over-subscribed — more shares were demanded at the cut-off and above than were offered. Shares are allotted on a proportionate basis, with a refund where the allotment is less than the application.
• Under-subscribed — everyone who applied at or above the cut-off gets an allotment.

Basis of allotment is the process of deciding how many shares each investor gets. Applications are collated category by category — retail, HNI, QIB, firms — because over-subscription differs by category, and the ratio for each is applied separately. The basis of allotment is then approved by the board of directors and published in national newspapers. The minimum allotment will be the minimum application size disclosed by the issuer.

The workbook's example: the retail portion is over-subscribed 1.52 times.

An investor who bid for 20 shares gets 13 and a refund for 7.

The green shoe option

Newly listed shares sometimes crash on day one. The Green Shoe Option (GSO) exists to provide stability to the share price in the secondary market immediately on listing.

How it works: the company allots additional shares not exceeding 15% of the issue size to the public who subscribed. The proceeds of that additional allotment are kept in a separate bank account, and used to buy shares in the secondary market once listed, if the price falls below the issue price — supporting the price. The stabilising entity is appointed for the purpose, usually the lead manager. And there is a time limit: the intervention in the secondary market will be done only for a period of 30 days from the day of listing.

Listing, and the honest bit

After allotment, the company must get the shares listed. It signs a listing agreement with the exchange, pays listing fees, and agrees to the rules on notification and disclosure of price sensitive information, investor services and corporate governance.

Listing brings liquidity and enables discovery of the fair price based on the company's performance.

And then the sentence the workbook does not soften: the price in the stock market may be above or below the issue price in the IPO. Its own illustration shows ABC Infra up 199.33% from ₹15 to ₹44.90, XYZ Retail up 66%, DEF Restaurants up 4.67% — and MNP Microfinance down 42.56%, from ₹985 to ₹565.80. An IPO is not a guaranteed profit.

Rights issues

When a company issues fresh shares, existing shareholders' proportionate holdings shrink. A company with 10 lakh shares of ₹10 (paid-up capital ₹1 crore) that issues another 10 lakh shares halves everyone's proportion. That is dilution of holdings.

To prevent it, the Companies Act requires a company raising more capital through an issue of shares to first offer them to the existing shareholders. That offer is a rights issue.

Rights are offered in a proportion approved by the board. A 1:1 rights issue doubles the capital while leaving proportionate holdings unchanged. Ratios can be 1:2, 2:3, 2:5 — whatever the board decides.

Process points:

• A listed company must fix a record date to determine eligibility.
• It must issue a letter of offer stating the purpose of the funds; the draft letter of offer is filed with SEBI; an abridged letter of offer is dispatched to all investors before the issue opens.
• Investors can apply on plain paper if they do not receive the application form.
• The rights issue stays open not less than 7 days and not exceeding 30 days.
• Rights entitlements are credited to the investor's demat account.
• Payment must be through ASBA only. Email delivery of the entitlement form and offer document is permitted for investors who have registered their email with a DP or RTA.
• A shareholder may decline the offer or sell the entitlement to someone else — this is called renouncing the rights. Rights entitlements are traded on the stock exchange, distinct from the equity share, and trading in the entitlement ceases before the rights issue period ends, so the buyer has time to apply.

Public issue of debt securities

A company can publicly issue debentures through a prospectus, governed by the Companies Act and the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021.

Note the eligibility point that surprises people: an unlisted company — one that has never made an IPO of its shares — CAN make a public issue of debentures and list them. The issuer must be a public limited company under the Companies Act, 2013. Under the NCS Regulations an "issuer" also includes a public sector undertaking, statutory corporation, or a SEBI-registered REIT or InvIT.

Requirements:

• Offer document filed with the stock exchanges through the lead managers, available for public comments for a stipulated period, then the final offer document filed with the Registrar of Companies. Before that filing, the lead manager gives a due diligence certificate to SEBI.
• Shelf prospectus. Eligible entities may file one with the RoC and make multiple issues under it through tranche prospectuses. Eligible entities include Public Financial Institutions, scheduled banks, entities allowed by the CBDT to issue tax free secured bonds, Infrastructure Debt Funds, listed entities, NBFCs and Housing Finance Companies meeting net worth, profitability and credit rating requirements. A copy of each tranche prospectus goes to the exchanges, SEBI and the RoC.
• Listing is mandatory for debentures issued under a public offer, with in-principle approval obtained before the draft offer document is filed.
• Credit rating from at least one SEBI-registered credit rating agency, disclosed in the offer document. If obtained from more than one, all ratings must be disclosed.
• Minimum subscription: not less than 75% of the base issue size. If not received, the entire blocked application money is unblocked within the stipulated time, and delay attracts interest payable by the issuer. Issuers of tax free bonds specified by CBDT are exempt from the minimum subscription limit.
• Dematerialization agreement with a depository.
• Debenture trustees — banks and financial institutions registered with SEBI — appointed to oversee investors' interests, ensuring for secured debentures that the charged property is adequate at all times.
• Debenture Redemption Reserve — the issuer must create one and transfer a portion of profits into it each year until redemption.
• Creation of security — the proposal to create a charge must be disclosed in the offer document, with an undertaking that the assets are free from encumbrances, or that consent for a second or pari passu charge has been obtained from the earlier creditor. An unsecured debenture is treated as a deposit and must follow the Companies (Acceptance of Deposits) Rules.
• Coupon rate — fixed by the issuer with the lead manager, or determined through a book building process.

The issuer must not be a wilful defaulter and must not have been barred from accessing the capital market.

How government securities are actually issued

The RBI conducts periodic auctions, on a calendar announced roughly every six months.

• Competitive bidding is open only to participants — mainly scheduled commercial banks and primary dealers — that maintain a current account and a subsidiary general ledger account with the RBI.
• Non-competitive bidding is for co-operative banks, NBFCs, mutual funds, pension funds and companies who lack those facilities or the technical expertise. Non-competitive bidders receive allotment at the weighted average price or yield that emerges from the competitive bidding. In other words, they do not name a price at all — they accept the average.
• Retail investors can now participate through stock exchanges via the non-competitive route. Brokers enter bids until a cut-off time on the auction day; the exchange aggregates them into a single consolidated bid and then makes investor-wise allocation from the consolidated allotment received from the RBI.

Private placement, preferential allotment and QIP

Private placement is an offer to a select group — financial institutions, banks, mutual funds and other eligible investors. Its advantages: investors are better informed and there are fewer regulatory compliances, and it is less time consuming and more cost-efficient.

Under the Companies Act, 2013, an offer to subscribe made to not more than 50 persons is a private placement. SEBI's public-issue requirements do not apply. Other rules:

• The offer must be made by name to identified persons, and details filed with the Registrar of Companies.
• Payment must be only through banking channels, not by cash.
• The company may not advertise the issue or use marketing or distribution channels to inform the public.
• A privately placed security may seek listing if it meets SEBI and exchange listing requirements.
• A company can privately place whether or not it has made a public offer of shares.

Preferential allotment is a private placement by a listed company of shares, or of securities convertible into shares later — fully and partly convertible debentures, warrants. It requires a resolution passed by the existing shareholders, pricing per SEBI's formula, and lock-in for allotments to promoters or the promoter group as stipulated. The purpose is to ensure promoters and large investor groups do not act against the interests of public investors.

Qualified Institutions Placement (QIP) is an issue of eligible securities by a listed issuer to QIBs on a private placement basis, including an offer for sale by promoters or the promoter group. To be eligible the company must:

• Pass a special resolution of shareholders, and
• Have its shares listed for at least 1 year before the notice of the issue.

Other QIP rules: investors must bid using ASBA only, and bids cannot be revised downward or withdrawn after the issue closes. A minimum of 10% of the eligible securities must be allotted to mutual funds, with any unsubscribed part of that going to other QIBs. Pricing follows SEBI's formula. Shares allotted in a QIP can be sold by the allottee within 1 year of allotment only on a recognised stock exchange. Promoters may use a QIP offer for sale to achieve the minimum public shareholding of 25%.

Electronic book building for privately placed debt

Companies in India prefer private placement to public issues for debt securities, because it is more cost-effective and less time-consuming. SEBI built an Electronic Book Provider (EBP) platform, run by the stock exchanges, to make that process transparent.

Electronic bidding is compulsory for:

• A single private placement debt issue of ₹50 crore or more (including green shoe);
• A shelf issue of multiple tranches cumulatively ₹50 crore or more in a financial year;
• A subsequent issue where all previous issues in a financial year aggregate ₹50 crore or more;
• Private placement of debt by issuers in existence for less than 3 years; and
• Debt securities that are non-equity regulatory instruments forming part of the capital of a bank or NBFC.

Key features:

• All participants — issuer, arranger, qualified institutional investors, custodians — must register with the exchange.
• Issue documents must be uploaded at least 2 working days before the issue opening date — at least 5 working days for an issuer using EBP for the first time.
• The bidding announcement must be made on EBP at least 1 working day before bidding starts.
• The EBP must not give preferential access to any bidder on a selective basis.
• A participant cannot bid for more than ₹100 crore or 5% of the base issue size, whichever is lower, through arrangers. FPIs may bid through their custodians.
• The cut-off price or yield is calculated by the system after bidding ends.
• Successful bids are determined on price-time priority (where the issuer specified the coupon) or yield-time priority (where the coupon is discovered during bidding).