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Question
Explain 'Private Placement' and 'Rights Issue' as methods of floatation of new issues in the primary market.
Short Note
Solution
- Private Placement: Private placement is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise capital more quickly than a public issue. Access to the primary market can be expensive on account of various mandatory and non-mandatory expenses. Some companies, therefore, cannot afford a public issue and choose to use private placement.
- Rights Issue: This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. The shareholders are offered the ‘right’ to buy new shares in proportion to the number of shares they already possess.
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Methods of Floatation in the Primary Market
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RELATED QUESTIONS
State any four methods of floatation of new issues in the primary market.
'Gujarat Textiles Ltd.' needs to raise a fund of ₹80 crores. It cannot afford the cost of a public issue, so it was decided to allot its equity shares to institutional investors like LIC and some selected investors.
Identify and explain the method of floating new issues used by 'Gujarat Textiles Ltd.'
