Capital Market Interview Preparation Guide

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It is also been explained above in the zero coupon bonds but this kind of bond is used to sell in discount from par value. In this the bond which is selling at a discount from par value has less rates of fixed income and securities then other bonds and it also has risk profile as well. This also contains the market price of 20% or more but it is below its face value. They are a bit riskier than other similar bonds. They are also termed as low-coupon bonds and are used in long term.

Zero coupon bonds is also termed as discount bond or deep discount bond which is been bought at a price lower than its face value which will be given back at the time of maturity. This type of bond doesn't make payments of interest in periods. It has already been paid when the bond reaches to the maturity level and its investors are in great advantage of receiving huge about of sum equal to the initial investment Example includes U.S. Treasury bills. It is used or both long term and short term investments.

i.) Listed Company
Promoters in the listed company participate either at least of 20% of proposed issue or holding the post-shares to the extent of 20% of the post-issue capital. In this the participation of the promoter is done when the issue is being passed publicly.

ii.) Unlisted Company
Promoters in the unlisted companies contribute at most 20% of post-issue capital. Promoters also help in shareholding which offers for sale and it shouldn't be less than 20%. In the unlisted companies also securities which are issued to promoters at a low price which is lower than the equity gets offered to public and it doesn't remain eligible for promoters contribution. Contribution of the promoters are considered by post-issue capital where the promoter contributes through some optional convertible security and it is also been there to public.

Capital market is the market in which financial securities have been traded between the individuals and the institutions. These institutions sell securities on capital markets in public and private sectors to raise funds. This market is composed of both primary and secondary markets. The parts of capital markets are both stock and bond markets.

Large Corporation grow by doing innovations and by raising the capital to finance expansion. Corporations have five primary methods which are used to raise funds in capital market.

1) Issue of bonds : - Bond is an amount of money which has to be given at a certain date or dates in future. Bondholders receive interest payments at fixed rate and specific dates. Corporate issues bonds because interest rates which must pay investors are lower than rates of borrowing and holders can sell bonds to someone else before they due.

2) Issue of preferred stock : - company choose this to raise capital. If a company have financial trouble the buyers of shares gets special status. If profits are limited then owners will be paid the dividend after bondholders receive the interest payments.

3) Sell of common stock : - if financial condition of the company is good then it can raise the capital issue the common stock. Bank helps the companies to do the investment and issue stock. Investors’ gets interested if the company pays large dividends and offers steady income. Value of shares increases if investor expects the corporate earning to rise.

4) Borrowing:- companies used to raise short term capital by getting the loans from banks or other sources. After good market run the profits which the company gets can be used to finance their operating by retaining their earnings.

The rights and duties of shareholders are defined from time to time of issue of shares. The rights of shareholders are fixed which can't be altered unless the Companies Act gets modified.
Right issue which shareholders hold of a company under Companies Act, 1956 are as follows:-

1) Rights attached to shares of any class can be varied with the consent of shareholders holding not less then 75% of issued shares.

2) Rights of Dissenting Shareholders: Protection by Companies Act is given to the shareholders who doesn't consent to or vote for variation of their rights. If there is any variance in any rights of any class of shareholders then holders of not less than 10% of shares of that class can apply to the court to have the variation cancelled. It won't have any affect till it is been approved by the court.

3) Voting rights of the members: - Every member of public company which have the shares holding equity have votes in proportions to his share in paid up equity capital.

4) Preference shareholders don't have any voting rights. They can vote only on matters which are directly related to the rights attached to preference share capital.

The eligibility criteria which have to be satisfied by the Unlisted Company to make public issue are as follows:

1. Pre-issue networth of company should not be less than Rs. 1 crore and it should be maintained for last 3 out of 5 years with minimum networth.

2. The networth should be met for upcoming 2 years.

3. Tracking of the records of profits has to be maintained for at least 3 years out of immediately upcoming 5 years.

4. Issue size should not be more than 5 times its pre-issue networth.

5. Incase these requirements are not satisfied then the company can issue through book-building process, it has to allot at least 60% of issue size to Qualified Institutional Buyers.

The eligiblity criteria which need to be satisfied by the listed company to make a public issue are as follows:-

1. If the issue size which is a collective combination of offer document, firm allotment, and promoters’ contribution is less than 5 times its pre-issue net worth.

2. The listed company goes through the book building process and allot 60% of the issue size to Qualified Institutional Buyers if issue size is more than or equal to 5 times of pre-issue net worth.

Yes, a company can make public issue of equity shares if partly paid shares are not fully paid as equity shares are that part of share capital of company which is not been included in the preference shares. The condition which has to be considered for this is that at any time after 2 years of expiray from the date of starting of company or after 1 year of shares allotment, public company shares the issues within the authorised area, and directors must decide to offer shares to existing holder of equity shares in proportion to capital which has been paid up on the holder's shares at the time of further issue.

Minimum application which is required if equity shares are being issued at par is that the company should have a nationwide trading terminal for the duration of at least 1 year. The other applications which are necessary for doing this are as follows:

1. Issue of prospectus: For a company to raise capital by issue of shares for public requires the public to accept the offer to buy shares

2. When the prospectus is being read by the public then according to the public satisfaction they can apply to company for purchase of the company's share.

3. When the shares are used through cash then the issued at par share can have the discounted and this can be payed either in lump sum along with the application or in installments at different stages.

4. Issues are at par when their price is equal to the face value. For example if share is of Rs. 30 is issued at Rs. 30 then it is been said that they have been issued at par.

a.) Listed Company : Listed company issues the pricing by making it free for the equity shares securities through the public/rights issue. It makes composite issue of capital (public and right basis which is been made through the offer document in which allotment for both public and rights components is proposed which are used to issue securities at different prices.

b.) Unlisted Company : Unlisted company also does the same as the listed company does as it is used to exachange within the recognised stock. It is also not easy to find rights issues as shareholders are unable to raise funds to take the rights which might not have the aletrnate available as the firm's shares are also not listed. In this a company has to rely on the profits which they have got as their main source of equity or they can seek to raise venture capital or can also take debt from others.

There are many responsible personalities who take up the decision in the denomination of shares in public issue of the company and they people are as follows:-

1. Company directors : take decision on the basis of the profits and return of the company. They also gets involved in the discussion where they see all the positives and negatives regarding the issue which is having with the company.

2. Company secretaries: company secretary can be also called as joint secretary of the company as it is a person who appears to the directors to have the knowledge and ability to fulfil the functions of a secretary.

The days for public issues of shares which has to be kept open is around 3 weeks after the closure of the book built issue. As the book built public issue takes around 3-7 working days which can be extended by 3 days if any how any price band case happens against it.

The days for right issues of shares which kept to be opened are 15 days of the clousure of the issue where the allotment and refund of shares takes place and it takes 15-30 days for the issue to be kept open to see and settle down everything.

Underwriting is a process in which there are those financial service provider such as bank, investments and inusrers which uses these to find out the eligiblity of a customer to receive the products which is owned by them such as equity capital, insurance and credit. In this process there are risks which are involved and mostly financial provider participates in those kind of risks and remain prepared to tackle them.

Underwriting is a process which refers to the services which have been given to the client without finding out that the client is eligible to receive those services or not from the large financial institution. It also shows the risk management which might be useful in financial activities. It is used in professional field to describe the methods which are related to loan or insurance or to the bank that buys up new insurance or debt. It is basically based on the actuarial science which is a study of risk assessment by the use of various mathematical and statistical methods under the finance industry. The two important terms under which this is used are as follows:-

1. Bank Underwriting is also termed as conventional banking which is used to explain the behaviour of the borrower and its ability to pay. For private people it is a credit report which gives all the details about their finances.

2. Insurance Underwriting under this it is used as a risk assessment. In this evaluation of the person or the project takes place where the receiving of the insurance and their payment related terms are handled.

Minimum subscription is the term which is used to represent the amount of the issue which has to be subscribed or else the shares can't be issued if it is not being subscribed. Company which is offering the shares to the public then they set a specific amount for the subscription which can be taken by the public in order to issue the shares.

The minimum subscription which is required for a company to utilize funds as follows:-

1. Infrastructure company won't have to have the requirement of 25% of its securities as public offer.

2. If the infrastructure company offers the requirement for the shareholders in that case Rs. 1 lakh can be waive off.

3. Infrastructure companies which are having public issues for them minimum subscription of 90% is not necessary and it should be given by the alternate source through that fund is coming to the company.

4. Infrastructure company can keep the issue open for 21 days only which would give the sufficient amount of time to get the funds for their issues.

Promoters in the unlisted companies contribute at most 20% of post-issue capital. Promoters also help in shareholding which offers for sale and it shouldn't be less than 20%. In the unlisted companies also securities which are issued to promoters at a low price which is lower than the equity gets offered to public and it doesn't remain eligible for promoters contribution. Contribution of the promoters are considered by post-issue capital where the promoter contributes through some optional convertible security and it is also been there to public.

Promoters in the listed company participate either at least of 20% of proposed issue or holding the post-shares to the extent of 20% of the post-issue capital. In this the participation of the promoter is done when the issue is being passed publicly.

Company decides the rate of interest for debentures where debenture is just a simple document which is used to create either debt or acknowledge the debt. When the company issues it then it does it in the form of a certificate which acknowledge's indebtedness. The debentures are issued to the lenders under the Company's Common Seal and against the charge on the assets of the Company. Whoever holds the debentures doesn't have the right to hold the meeting with the company. The rate of interest with which the debentures gets issued are called as coupon rate. They are of two types:

- Fixed Rate
- Floating rate of interest are in accordance with the rate of bank and reward of risk.

Company decides the amount of premium on redemption and period of conversion for debentures as the period of conversion which has been there in SEBI is restricted to only 36 months. If any conversion has to be made then the credit rating is required. The premium on redemption and period of conversion for debentures has to be stated clearly and it should be predetermined in the prospectus. The company is then free to determine the rate of interest which will be payable according to the company guidelines.

If the issue of debentures has a maturity period of 18 months then the company has to remove all the creation of Debenture Redemption Reserve (DRR) account which has not been provided under the company’s guidelines or rules. The company is not allowed to make any public issue or right issue until it has one or more debenture trustees which comes under the SEBI guidelines as it is needed and required when the maturity period is of 18 months or more.

Reserve bank issue under the denominations, includes the issue of rupees and all the Non Bank Finance Companies (NBFCs) are also come under Reserve Bank of India, and also the need to do the issue which is greater than Rupees 100 crore are subject to the financial standards, which can be reported the requirements which will be considered as fair practice. The company which has to also maintain records and see that the system is robust and can be taken further without any complications.

The pre-requisites which a company has to follow to make the public issue of FCDs/PCDs/NCDs are as follows:-

1. For NCDs which is known as Nonconvertible Debentures and PCDs which is known as Partly convertible debentures the maturity period should be less than 18 months in this duration it is not necessary to create a charge or appoint a trustee. If the charge is not created on the debentures then they are called as unsecured and will be treated as deposits. In PCDs, premium account during conversion has to be stated and predetermined in the prospectus. Everything from redemption amount to the maturity period has to be stated in the prospectus.

2. For FCDs and PCDs which has to be issued in the past and the conversion has to be made at a price which has to be determined by the Controller of the capital and SEBI.

3. Equity shares of all the companies are listed which are having nationwide trading terminals for atleast 1 year. Warrant and the security must be issued for a period of time. In case of NCDs the holder of the equity warrants is been given an option to buy specific number of shares from company to a predetermined price.

4. In case of FCDs the interest won't be paid to the investors and fully paid FCDs will be converted automatically into shares.

5. Warrants must be issued as a security by the company granting the right to the holder to purchase specified number of shares at specified price any time prior to the exipry date.

SEBI guidelines for the issue of debt instruments are as follows:-

1. Issuer should be from the trust and the trustees of the company has to get registered themselves from SEBI. The registration which will be approved by SEBI will be permanent and it will be in synchronization with SCCR.

2. If any trustee is registered with SEBI then the issuer without any registration from SEBI won't be required to register.

3. Debt instruments which gets issued to the public or listed companies should acknowledge the benifts interest of investors which are assigned to the issuer. Security can be issued to the issuer for debt instruments to public for subscribing through the offer document which contains the disclosures of the relevant facts which includes financia of issuer.