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Private Placement: C.Venkatasubramanian 2009507057

Private placements allow companies to sell securities to a small number of investors without a prospectus or underwriter. This process is faster and less expensive than a public offering. Private placements appeal to companies due to their accessibility, flexibility, speed, and lower costs compared to public issues. They provide an option for companies of any size or public status to raise funds. Institutional investors considering private placements typically require the company to have a net worth over $1 million, an interest coverage ratio over 2x, and asset coverage over 1.25x, along with a history of dividend payments. The private placement process takes 2-3 months while public offerings take over 6 months.

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369 views12 pages

Private Placement: C.Venkatasubramanian 2009507057

Private placements allow companies to sell securities to a small number of investors without a prospectus or underwriter. This process is faster and less expensive than a public offering. Private placements appeal to companies due to their accessibility, flexibility, speed, and lower costs compared to public issues. They provide an option for companies of any size or public status to raise funds. Institutional investors considering private placements typically require the company to have a net worth over $1 million, an interest coverage ratio over 2x, and asset coverage over 1.25x, along with a history of dividend payments. The private placement process takes 2-3 months while public offerings take over 6 months.

Uploaded by

venkatvolks
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© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd

PRIVATE PLACEMENT

by,
[Link] 2009507057

Introduction
A private placement results in the sales of securities by a company to one or few investors The distinctive features of Private Placements are there is no need for a formal prospectus as well as an underwriting assignment The terms of the issue are negotiated between the company (issuing securities) & the investors

The issuers of securities are typically


Listed public limited companies which may find private placement more convenient and perhaps less expensive

Closely held public limited companies and private limited companies which cannot access general investing community through a public issue in the capital

APPEAL OF A PRIVATE PLACEMENT


The growth of private placements is attributed to the following factors Accessibility Flexibility Speed Lower issue costs

Accessibility
Almost every company irrespective of whether it is a public limited company or a private limited company ,or whether it is a listed or an Non-listed company can access the private placement market Private placement market can accommodate issues of smaller size whereas the public issues market does not permit an issue below a certain minimum size

Flexibility
In a private placement ,there is greater flexibility in working out the terms of issue In addition to the greater flexibility at the time of structuring the issue initially , there may be latitude to re-negotiate the terms of issue subsequently and even roll over the debt.

Speed
Time frame required for completion :

Public Issue Cycle 6 months or more


Private Placement cycle 2-3 months

Lower Issue Costs


A public issue entails several statutory and Non-statutory expenses Sum of these costs often works 7 to 12 percent of the issue amount Issue cost for a private placement is substantially less hence , private placement is preferred by most companies

CRITERIA APPLIED BY INSTITUTIONAL INVESTORS


Some of the important conditions that a company should ordinarily satisfy in order to be acceptable to institutional investors are : The net worth of the company should be at least 1 crore The interest cover should be at least two times, as per the latest balance sheet. The Asset cover should be at least 1.25

Contd.
The company must have paid dividend for at least two years in the preceding three years In the case of a listed company the stock price should be above par for six months prior to the issue

Interest Cover => Profit before interest and depreciation/ (Existing Interesting liabilities + Interest liability on proposed debentures) Asset Cover => Fixed assets/(Secured borrowings and debentures charged to fixed assets (Revaluation of assets not to be considered)

Questions ????

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