Raising capital

A public company that wants to raise money from the public goes through capital subscription. Many firms begin as private companies and later become public ones; then they follow these same steps.

• SEBI approval: the Securities and Exchange Board of India must approve the issue first, and the company must give full disclosure of facts, to protect investors.
• Filing the prospectus: the prospectus invites the public to buy shares. It is filed with the Registrar, and must contain no mis-statement.
• Appointing bankers, brokers and underwriters: bankers receive the application money, brokers help sell the shares, and underwriters agree to buy the shares the public does not take up.
• Minimum subscription: the company must receive applications for at least 90 per cent of the issue size; otherwise, no shares are allotted and the money is returned.
• Application to a stock exchange, so that the shares can be bought and sold there.
• Allotment of shares, and a return of allotment filed with the Registrar within 30 days.

An example of underwriting: a company offers shares worth ₹100 crore. If the public applies for ₹95 crore, the 90 per cent minimum is met. If it applies for only ₹85 crore, the minimum would not be met, and this is where underwriters help: they buy the shares the public did not take.

Sometimes the public applies for more shares than are offered: say ₹150 crore for a ₹100 crore issue. The company then refunds the excess money, or adjusts it against amounts due later on the shares, or does a mix of both.