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Capital raising

Capital Raising for a Listed Company

A listed company has several methods available to raise capital, whether to fund expansion, reduce debt, or strengthen its financial position. These methods can be broadly categorized into equity financing and debt financing. Here are the main ways a listed company can raise capital:

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    1. Issuing Additional Equity (Shares)

    a) Follow-on Public Offer (FPO)

    An FPO is when a company issues additional shares to the public after its Initial Public Offering (IPO). The company can raise capital by offering new shares in the market. This is typically done to fund growth, acquisitions, or reduce debt.

    • Process:
      • Board approval and shareholder resolution.
      • Filing of a prospectus with regulators (e.g., SEBI in India).
      • Pricing and offering to the public through book-building or fixed-price methods.
      • Shares are then listed on the stock exchange.

    b) Rights Issue

    A rights issue involves offering new shares to existing shareholders in proportion to their current holdings, usually at a discounted price. This ensures that existing shareholders have the opportunity to maintain their proportionate stake in the company.

    • Process:
      • Approval from the board and shareholders.
      • A letter of offer is sent to shareholders outlining the terms.
      • The company raises funds by issuing new shares to existing shareholders.

    c) Private Placement

    In a private placement, a company issues shares to a select group of institutional or accredited investors, rather than the general public. This can be faster and involves less regulatory oversight compared to a public offering.

    • Process:
      • The company identifies potential investors.
      • Negotiation of terms and price.
      • Filing with regulators, such as SEBI (for Indian companies), to ensure compliance.

    2. Debt Financing

    a) Issuance of Bonds/Debentures

    A listed company can issue bonds or debentures to raise capital. These debt instruments are sold to investors, who are repaid with interest over a set period.

    • Process:
      • Board and shareholder approval.
      • Preparation of a prospectus or offer document.
      • Rating agencies may assess the creditworthiness.
      • Bonds/debentures are sold to investors via public or private placement.

    b) Secured Loans from Banks or Financial Institutions.

    A listed company can also raise capital through loans from financial institutions or banks. These loans may be secured against company assets or unsecured, depending on the company’s credit profile.

    • Process:
      • Company negotiates terms with the bank/financial institution.
      • Loan agreement and documentation.
      • The capital is raised in exchange for the commitment to repay with interest.

    3. Employee Stock Options (ESOPs)

    If a listed company has an ESOP scheme, it can raise capital by issuing new shares to employees. This method is often used to align employees’ interests with those of shareholders, and to retain talent within the company.

    • Process:
      • Board and shareholder approval for the ESOP scheme.
      • Employees exercise options and buy shares at a discounted price, raising capital for the company.

    Feel free to contact us for assistance with the conversion process and any related queries.