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Seasoned Capital Offering

Long-Run Performance following Private Placement of Equity

IBFS Project Presentation by Group 6

Equity Issuance in India

Methods of raising equity capital in India as per SEBI guidelines

Private Placement in India

India One of the fastest growing Economy Services account for more than 50% of GDP. Manufacturing hub for Auto, Pharmaceuticals, Textile and engineering goods 74% of GDP comes from Private Sector several companies now recognized world-class Private equity sector from $360m in 2003 to over $7.8b in 2006 Indian market wide, but not deep

Challenges and Trends

Poor infrastructure hold back rate of private equity placement Complex regulatory issues and increasing number of PE player looking at same investment opportunity Infrastructure sector should emerge as major PE destination Challenging China as an equally attractive destination

Challenges and Trends

Growth stage and secondary sale offer highest return Industry from interesting to must have to looking at it cautiously Secondary sales offered weighted IRR of 39.4% - unusual for secondary market from global prospective Participates more at growth stage

Indian Regulations

Securities issuance in India is now dominated by private placements. Often, we hear about the "impending scam" in the private placements market. SEBI typically restricts potential self-dealing in private placements by either:

(i) prohibiting managers from participating in private placements altogether, (ii) placing restrictions on the issue price in a private placement - to ensure that managers are unable to expropriate shareholder wealth by issuing shares to themselves or other\friendly investors at huge discounts.

Indian Regulations

The issue of shares on a preferential basis (equity shares/ fully convertible debentures/ partly convertible debentures) can be made at a price not less than the higher of the following:


The average of the weekly high and low of the closing prices of the related shares quoted on the stock exchange during six months preceding the relevant date; The average of the weekly high and low of the closing price of the related shares quoted on a stock exchange during the two weeks preceding the relevant date.

Key Sector for PE

Infrastructure Sector Energy, Real Estate and Logistics Retail and Consumer good growth in disposable income Media and Entertainment Financial Services

Performance following Private Placement of Equity

The generally positive market reaction to announcements of private placement issues of equity (in contrast to the generally negative reaction to public issues made through conventional secondary equity offerings) suggests that the market infers a positive signal about firm value when a private placement is announced.

Performance following Private Placement of Equity

Research paper by Hertzel, Lemmon, Linck and Rees (Journal of Finance, 2002). We picked 44 listed Indian companies for our study. Identified the market price of companies on pre-announcement and post-announcement of private equity Recorded the performance of share at -3 days, announcement day, 1month, 3 months, 6 months, 1 year, 3 year.

Performance following Private Placement of Equity

We calculated BHR and BHAR to identify whether these public companies that place equity privately experience positive announcements effects, with negative postannouncement stock-price performance.

Impact on existing Shareholders

The natural effect of such a transaction would be some reduction in the percentage ownership of existing shareholders.

References Documents/private_equity_india_O_0805.pdf