UNDERWRITING

• A marketing strategy corporate enterprises are able to sell their securities to the public

• Agreement between the issuing company & the financial intermediary, whereby sale of certain quantum of securities is guaranteed for the issuing company.

Underwriting Types

• Firm Underwriting: Underwriter agrees to take up a specified number of securities

• Sub-Underwriting: Underwriting of securities is contracted out by the main underwriter to other underwriting intermediaries for a commission.

• Joint Underwriting: Securities underwritten by two or more underwriting intermediaries jointly.

Underwriting Agencies

• Private Agencies: M/s Dalal and Co., M/s Kothari & Co. etc

• Investment Companies: Industrial Investment Trust of Bombay, Devkaran Nanji Investment Co. and Investment Trust of India Ltd.

• Commercial Banks

• DFI’s: LIC, IFCI, ICICI, IDBI, UTI etc.

Underwriter

Factors to be taken into consideration while selecting underwriter:

Financial StrengthExperience in primary MarketPast underwriting performance & defaults

if anyOverall reputation of the underwriter.

Factors to be taken into consideration while selecting the

company Company’s standing & record Competence of the management, Objectives of the issue project details offer price other terms of the issue etc.

SEBI Guidelines

Optional: Issue is not underwritten & 90 percent of the amount is not collected, amount will be refunded.

Number of underwriters: Lead Manager must satisfy themselves about the net worth of the underwriters & outstanding commitments & disclosing the same to the SEBI.

• Registration: Underwriting firm must registered with SEBI & having a minimum net worth of Rs.20 Lakh.

• Obligations: Should not exceed 20 times an underwriters networth.

Underwriting Commission

• No underwriting commission is payable on the amount taken up by promoters, employees, directors and their friends & Business associates.

• Commission is to be paid within 15 days of finalization of allotment.

Underwriting Commission

• In case of equity shares, 2.5% commission on the amount devolving on underwriter & amount subscribed by the public.

• In respect of preference, Convertible & Non-Convertible Debentures

a) Underwriting upto Rs.5lakh, 2.5% comm. on the amount devolved by the underwriter & 1.5% on the amount subscribed by the public.

b) Underwriting exceeding Rs.5lakh, 2%comm. For the amount devolving on underwriter & 1% on the amount subscribed by the public.