July 29th, 2009 
Tushar Mathur
Primary Market
Initial Public Offering (IPO): An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company is raising money through equity for the first time then it is termed as a IPO. Primary reason behind the company becoming public is raising money for future expansions and it gives an opportunity to the original investor or promoters to make gains on the investment as well as time and efforts given. A company which is closely held and does not need to meet the strict Securities and Exchange Commission filing requirements is known as a private company. While a publicly-traded company is one which has offered its securities (stock, bonds, etc.) for sale to the general public, typically through a stock exchange.
Private equity: Private equity is an opportunity to invest in equity securities of companies which are not listed on the exchange. Private equity can either be in the form of investment of capital into an operating company or the acquisition of an operating company. Primary investors in the private equity are institutional investors. Different types of private equity are leveraged buyouts, venture capital, growth capital, distressed investments.
Secondary Market
Rights issue: Rights issue is offered by the existing listed company to its existing shareholders. It is offered in case of new capital requirement of the company. It is the right given to shareholders to subscribe to new shares or debentures in proportion to their current holdings. The rights issue could be offered at a discount or premium to the market price. A particular shareholder who does not wish to subscribe for the rights issue has the right to sell his rights to another shareholder.
Foreign Currency Convertible Bond (FCCB): A FCCB is a convertible bond which is a combination of debt and equity. Owing to the equity option attached to this bond the coupon payments on the bond are lower for the company, thereby reducing its debt-financing costs. In a FCCB one has to make regular coupon and principal payments however the bondholder also has the option to convert the bond into equity where in the coupon and principal payment is waived off. Thus though FCCB the investors not only receive guaranteed payments on the bond but they can also take advantage of any large price appreciation in the company’s stock as the Bonds are issued at a fixed price.
Fully convertible debentures: It is a debt security which is fully convertible into equity shares at the issuer’s notice. The conversion ratio is decided at the time of issuance itself by the issuer. Post the conversion of such debentures the investors enjoy the same status as ordinary shareholders of the company. The differentiating factor between the FCDs and other convertible debentures is that the issuer can compel conversion into equity, whereas in other types of convertible securities, the owner of the debenture may have that option.
Warrants: A warrant is a security issued by a company granting the holder of the warrant the right to purchase a specified number of, shares at a specified price any time prior to an expiry date. Warrants may be issued with debentures or equity shares. The specific rights are already set out in the warrant.
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