Public Issue

Public Issue

Subject: Economy

Section: Money and monetary policy

Context:

The Securities and Exchange Board of India (Sebi) revised the limits for Unified Payment Interface (UPI) in IPOs by retail investors from Rs 2 lakh to Rs 5 lakh.

Earlier in December 2021, the National Payments Corporation of India (NPCI) enhanced the limit from Rs 2 lakh to Rs 5 lakh for UPI based applications supported by blocked amount (ASBA) in IPOs.

It would increase efficiency, eliminate the need for manual intervention at various stages, and will reduce the time duration from issue closure to listing by up to 3 working days.

Concept:

A company relies on various methods to raise funds like public issues, debentures, financial assistance from banks, etc. to meet its day-to-day business needs and working capital requirements. The sources of funds available to a business in India can be classified as:

• Public Issues-In this process, a company offers a prospectus to invite the general public to purchase its shares by paying the share application money. It is a way of offering convertible shares or securities in the primary market to attract new investors for the subscription.
  • Initial Public Offer: For Unlisted Companies-

An unlisted company (A company which is not listed on the stock exchange) announces an initial public offering (IPO) when it decides to raise funds through sale of securities or shares for the first time to the public. In other words, IPO is the selling of securities to the public in the primary market.

After listing on the stock exchange, the company becomes a publicly-traded company and the shares of the firm can be traded freely in the open market

• Offer for Sale-

securities held by the existing shareholders of an unlisted company are offered to the public

• Rights Issue: When a Company makes an Offer to raise capital from its existing shareholders.
• Further Public Offer: For Listed Companies-

When a listed company makes an offer for sale or comes out with a new issue of shares to the public to increase capital, it is known as Further Public Offer.

FPO means a company which is already listed and has complied with the process of an IPO, is going to issue shares to the public. FPO is not as risky as an Initial Public Offer, as the investors are already aware of the company’s performance and have a fair idea about its growth opportunities.

• Private Placement– a company sells securities directly to a few pre-decided numbers of investors or institutions.
  • A preferential Issue-

It is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital.

• Qualified Institutional Placement –

It enables an Indian-listed firm to raise funds from domestic markets without having to file any pre-issue documents with market regulators. According to the SEBI, companies can only raise money by issuing securities. The Securities and Exchange Board of India (SEBI) enacted this rule to prevent enterprises from relying on foreign financing.

Only institutions or qualified institutional buyers (QIBs) can participate in a QIP issuance, unlike an IPO or an FPO. Mutual funds, domestic financial institutions including banks and insurance firms, venture capital funds, foreign institutional investors, and others are all examples of QIBs.

National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.

Considering the utility nature of the objects of NPCI, it has been incorporated as a “Not for Profit” Company under the provisions of Section 25 of Companies Act 1956 (now Section 8 of Companies Act 2013), with an intention to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems. The Company is focused on bringing innovations in the retail payment systems through the use of technology for achieving greater efficiency in operations and widening the reach of payment systems. Another major objective of NPCI was facilitating an affordable payment system that can help the common people during financial inclusion.

Applications Supported by Blocked Amount (ASBA)

ASBA is a process developed by SEBI to apply for IPOs, Rights and Debts Issue, FPS and more. It entails that the amount to be paid for subscribing the shares does not get debited from the investor’s account until the shares have been allotted by the company.

Investors can apply for ASBA and have the bank block out the application money until the shares get allotted to the investor. This blocking is carried out by Self-Certified Syndicate Banks (SCSB). Self Certified Syndicate Banks (SCSBs) are SEBI authorized banks that confirm to the conditions laid by SEBI to accept the applications, verify and block the amount to the extent of what the application requires, upload the details to the web and stay updated with the process until the shares are allotted.

Subscribing to issues via ASBA is a mandatory option since as of 2016. If the money has been blocked in an interest bearing ASBA account then the amount will continue to earn interest during the time it takes to get the allotment of the share. The investor needs to be an Indian resident to avail ASBA.