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Private equity and private placement

Presented by, Appanna Chaithra A.R Devareddy Mithilesh Mahesh

Introduction To Private Placement

Equity capital can be raised through public offers or through private issue. Since public offers have limitations with regard to market variables, cost and time, many a time ,they may not always be a practicable way of raising capital from the primary market. Private placements fill this gap by becoming an alternative method of fund raising from the capital market when a public issue is not a feasible option. Private placement can be made both by listed companies and unlisted companies

What Is Private Placement?

A process of inviting subscription to the securities of a corporate issuer otherwise than through a public offer is known as private placement. These are private offers circulated in among a target group of investors with an objective to raise funds by sale of securities to such investors. Though the intention behind a private placement is fund raising intention but to attain certain strategic objectivesConsolidation of stakes of promoters Induct a strategic investor or joint venture partner Provide management stakes to working directors and senior management Implement a employee stock option plan Reward share holders with bonus issues .

Assesment Of Private Placement

Private placement does not have a stringent regulatory framework that is applicable for public offers and at the same time it does not go through the rigorous due diligence of institutionalized lending. From the issuer perspective ,it provides faster access to public to funds, less market uncertainities and a more cost effective way of raising funds as compared to public offers. Private placements are more cost efficient for larger floatations if a widespread distribution is required. Lesser paper work and administrative pressure on the issuer on the issuer company in satisfying process requirements.

Research in the US markets has shown that private issuers of debt securities do not essentially pay a higher cost due to illiquidity to the investor. In addition, most privately placed debt is rated and only instruments with investment grade rating get placed eventually with institutional investors. From an investors perspective,private placement provides lesser trasparency and is therefore suitable more for informed institutional and HNI investors than retail

Instruments Used In Private Equity

In equity placement the instruments used are: Pure equity Warrants with options Convertible preference shares Debt instruments issued in private placement are Medium to longterm debt securities such as debentures and bonds. PTCs

Market Segments For Privately Placed Equity


Venture capital

Institutional Private Equity

Placement to other QIBs and Noninstitutional investors

Venture capital

Venture capital, rightly called as financing of innovation, is the financing of start-up (young)businesses with a view to grow them into large commercially successful businesses. It is defined as capital for investment which may easily be lost in risky projects, but can also provide high returns ; also called risk capital.