Companies need capital/funds from time to time in order to fulfil various business, operational or expansion needs. If a company is listed on a stock exchange, then they have the advantage of getting funds through issue of shares. Equity capital markets can be one of the best non-debt funding source for companies, if they are smart and diligent in managing their funding requirements through equity capital markets. An already existing company on a growth track can tap into the large pool of public funds through stock sale on stock exchanges. They have to follow the guidelines and procedure of the regulatory bodies before they are able to trade their stocks on the capital market.
There are different types of equity capital market funding options like, IPO (Initial Public Offering), Rights Issue, Follow-on Public Issue (FPO) etc. As the name suggests, an IPO is the first share offering by the company. New companies are required to get underwriting of their IPO’s done before going directly to the public. A Right issue is the dividend subscription rights offered to existing shareholders which allows them the first priority to buy additional shares of a company. A Bonus issue is a form of second issue through which a listed company capitalizes its cash reserves by converting it into shares. These shares are offered to existing shareholders in proportion to their current share holdings.
In the Indian context, listed companies are answerable to SEBI (Securities & Exchange Board of India) for conducting share listing, de-listing or buyback activities. They are also regulated by the RBI (Reserve Bank of India) and Government ministries like Finance, Trade & Commerce etc. There are different rules, procedures and protocols that the company has to follow in order to collect funds from equity capital markets. While requiring in-depth knowledge and special skill sets, this could involve a lot of time and efforts. Not every company is equipped with such manpower and or a battery of lawyers. Therefore, it is a prudent choice for the companies to hire professional merchant banking firms like Chartered Finance Management Limited (CFML), which specialize in fulfilling the financial requirements of a company through equity capital markets.