The Primary Market is a place where new securities are issued. In this market, investors purchase securities from the issuing organization. The organization gets the cash and issues new security certificates to the investors. The techniques for raising money in the primary market are discussed below:
1. Initial Public Offer:
It is a kind of open offering in which offers of an organization are sold to institutional financial specialists and individual investors. The primary reason for the initial public offer is to raise capital for the organization. The assets assembled can be utilized for any of the reason like development, expansion or even take over of the organization. The term IPO defines the principal open issuance of an organization’s offer. The organization might be a new organization seeking an open issue for the first time. It might be existing public or private companies desiring the issuance of securities for the first time. As a rule, the Initial public offer makes the organization stock available to an extensive group of financial investors for the first time buying directly from the organization. The new issues of an organization’s share are given to the public that is possessed either by the advertisers or by new offers issuing organization.
The initial public offer work through various strategies/methods:
- The fixed price method
- Book building method
2. Rights Issue:
A right issue is offered to existing investors to buy extra stock shares in proportion to their existing shareholdings. At the point when an organization requires assets for further development, it may not really go to the public once more. The organization can choose to issue offers to the current investors through right offers issuance. Right issue is the issue of additional shares to the current investors of the organization. Membership to the new offers through the right issue isn’t available to everybody, except existing investors of the organization. If a current investor does not have any desire to buy into extra capital, the offer can be renounced for someone who isn’t the current investor of an offer. If an occurrence of rights offers arises in organizations, current investors may earn some premium through renunciation which relies upon the difference between the offer cost and the market cost of the organization. For example, an organization offered the right issue at the cost of $20 when the prevailing cost in the stock market was $25. The renunciation by the current investor could have effectively brought a premium of $5.
3. Follow on public offer:
It is the issuance of offers to investors by a public organization that is presently listed on a securities exchange market. At the point when a listed organization runs over the requirement for further assets, the organization can visit the essential market for further issuance of offers. When the open issue is made again by a currently listed organization, the issue is called follow on open offer. The procedures and systems for the follow on public offer are like that of the initial public offer.
4. Private Placements:
It is the financing of securities which are sold not through an open offering, but instead through a private offering, generally to few high profile investors. At the point when an organization issues money related securities, for example, shares and securities to a specific group of financial specialists it is known as a private placement. These offers/bonds can be then secretly placed with these chosen financial investors. It is an alternate way technique for an organization to mobilize money without general public issue and in this manner investment funds and expenses are saved in the procedure of issuance of securities. Some of the investors in private placements include insurance agencies, mutual funds, pension funds, and higher net worth investors.