From the given situations, identify and explain the method of floatation of new issues: (i) ICICI raises funds by selling issues mainly to GIC and LIC. (ii) Jay holding 100 shares given privilege to subscribe to new issue on pro-rata basis. (iii) Gopal given 25 equity shares as performance bonus.

Question

Accepted Answer

(i) **Private Placement:** ICICI raises funds by selling issues mainly to GIC and LIC. Private placement means the direct sale by a company of its securities to a limited number of sophisticated investors such as institutional investors like General Insurance Corporation of India and Life Insurance Corporation of India.

(ii) **Rights Issue:** Jay holding 100 shares is given privilege to subscribe to new issue on pro-rata basis. Rights issue is a method of raising additional finance from existing shareholders by offering securities to them on a pro-rata basis, i.e., giving them a right to a certain number of shares in proportion to the shares they are holding.

(iii) **Offer to Employees:** Gopal is given 25 equity shares as performance bonus. Stock options or offering shares to employees enables employees to become shareholders and share the profits of the company, leading to higher efficiency, low labour turnover, better industrial relations, and low flotation cost.