What is the difference between Public Issue, Right Issue, Bonus Issue and Private Placement?

Issues made by an Indian company in primary market can be classified as public, rights, bonus and private placement. While right issues by a listed company and public issues involve a detailed procedure, bonus issues and private placements are relatively simpler. The classification of issues is as illustrated below:

1. Public issue
   • Initial Public Offer (IPO)
   • Follow on Public Offer (FPO)
2. Rights issue
3. Bonus issue
4. Private placement
   • Preferential issue
   • Qualified institutional placement

Public Issue

When an issue / offer of securities is made to new investors for becoming part of shareholders’ family of the issuer, it is called a public issue. Public issue can be further classified into Initial Public Offer (IPO) and Follow on Public Offer (FPO). The significant features of each type of public issue are illustrated below:

• Initial Public Offer (IPO): When an unlisted company makes either a fresh issue of securities or offers its existing securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing and trading of the issuer’s securities in the Stock Exchanges.
• Follow on Public Offer (FPO): When an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, it is called a Follow on Public Offer (FPO).

Rights Issue:

When an issue of securities is made by an issuer to its shareholders existing as on a particular date fixed by the issuer (i.e. record date), it is called a rights issue. The rights are offered in a particular ratio to the number of securities held as on the record date.

Bonus Issue:

When an issuer makes an issue of securities to its existing shareholders as on a record date, without any consideration from them, it is called a bonus issue. The shares are issued out of the Company’s free reserve or share premium account in a particular ratio to the number of securities held on a record date.

Private placement:

A private placement is the sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. A private placement is different from a public issue, in which securities are made available for sale on the open market to any type of investor. Private placement of shares or convertible securities by listed issuer can be of two types:

1. Preferential allotment: When a listed issuer issues shares or convertible securities, to a selected group of persons as per SEBI guidelines, it is called a preferential allotment. The issuer is required to comply with various provisions which inter-alia include pricing, disclosures in the notice, lock-in etc., in addition to the requirements specified in the Companies Act.
2. Qualified Institutions Placement (QIP): When a listed issuer issues equity shares or securities convertible in to equity shares to qualified institutions buyers only in terms of provisions as per SEBI guidelines, it is called a QIP.