Unit study guide · NISM Series II-A
Public Offer of Securities
10 questions in this unit
What this unit covers
- What is an initial public offer, commonly called an IPO, in the equity market?
- What is a further public offer, commonly called an FPO, by an already listed company?
- Which feature distinguishes a public offer of shares from an offer restricted to identified private-placement investors?
- In the offer-for-sale portion of an IPO, who normally receives the proceeds from the shares sold, before allocated costs?
- A company freshly issues 3 lakh ₹10-face-value shares at ₹120 each. What are the gross fresh-issue proceeds?
- For this example only, an offer reserves 12% of 5 lakh shares for an eligible category. How many shares are reserved?
- An investor tenders 500 shares into a buyback. Valid offers exceed the shares available for acceptance. Which assumption is NOT justified?
- A public-offer document has completed the regulatory review process. What should an investor NOT infer from that fact alone?
- An IPO includes 2 lakh fresh shares and 1 lakh existing shares sold at ₹150 each. How much goes to the company and sellers before costs?
- Before an offer, a company has 8 lakh shares and a promoter holds 4 lakh. It issues 2 lakh fresh shares to others. What is the promoter’s percentage afterward?
Key ideas
From the practice bank · 1
What is an initial public offer, commonly called an IPO, in the equity market?
An IPO is an unlisted company’s first public offer of shares, which may include fresh shares, shares sold by existing holders, or both. Remember: An IPO is a first public offer, not every transaction in a company’s shares.
Hint Identify the event that introduces the company’s shares to public investors through an initial offer. Common mistake: Calling the first share purchase made by any investor an IPO.
II-A-061From the practice bank · 2
What is a further public offer, commonly called an FPO, by an already listed company?
An FPO is a later public offer of shares by an already listed company. Remember: An FPO follows listing and is distinct from ordinary exchange trading.
Hint The company is already listed and is making another offer to the public. Common mistake: Treating every later exchange purchase as participation in an FPO.
II-A-062From the practice bank · 3
Which feature distinguishes a public offer of shares from an offer restricted to identified private-placement investors?
A public offer invites the public to participate under its prescribed offer process, unlike an offer to identified private-placement investors. Remember: The audience and legal offer process help distinguish public and private issuance.
Hint Compare who is invited to participate rather than the eventual market price. Common mistake: Classifying an offer solely by how many shares are involved.
II-A-063From the practice bank · 4
In the offer-for-sale portion of an IPO, who normally receives the proceeds from the shares sold, before allocated costs?
The selling shareholders receive the proceeds of their existing shares because this portion is an offer for sale rather than a fresh issue. Remember: Offer-for-sale proceeds and fresh-issue proceeds have different recipients.
Hint Track whose existing shares are being sold in this part of the offer. Common mistake: Assuming the entire IPO amount goes to the company.
II-A-064From the practice bank · 5
A company freshly issues 3 lakh ₹10-face-value shares at ₹120 each. What are the gross fresh-issue proceeds?
Gross fresh-issue proceeds are ₹3.6 crore. Calculation: 3,00,000 shares × ₹120 = ₹3,60,00,000 = ₹3.6 crore. Remember: Gross proceeds equal the subscribed quantity multiplied by the issue price.
Hint Use the full subscription price, not only the nominal value of each share. Common mistake: Using an assumed face value instead of the stated subscription price.
II-A-065From the practice bank · 6
For this example only, an offer reserves 12% of 5 lakh shares for an eligible category. How many shares are reserved?
The reserved quantity is 60,000 shares. Calculation: 5,00,000 × 12% = 60,000 shares. Remember: Calculate a reservation from the applicable offer terms and total relevant quantity.
Hint Apply the percentage specified in this case to the total offer quantity. Common mistake: Treating an example percentage as a universal regulatory reservation.
II-A-066From the practice bank · 7
An investor tenders 500 shares into a buyback. Valid offers exceed the shares available for acceptance. Which assumption is NOT justified?
Assuming every tendered share must be accepted is unsafe because an oversubscribed tender offer can result in partial acceptance under its applicable rules. Remember: Tendering shares does not guarantee acceptance of the whole quantity.
Hint Distinguish submitting shares from receiving confirmed acceptance. Common mistake: Recording a full buyback sale before the acceptance result is known.
II-A-067From the practice bank · 8
A public-offer document has completed the regulatory review process. What should an investor NOT infer from that fact alone?
The investor should not infer guaranteed profitability because regulatory review does not remove the business and market risks of an investment. Remember: Regulatory review is not a promise of investment returns.
Hint Distinguish regulatory processing from an assurance about investment performance. Common mistake: Reading a regulatory process as an investment recommendation.
II-A-068From the practice bank · 9
An IPO includes 2 lakh fresh shares and 1 lakh existing shares sold at ₹150 each. How much goes to the company and sellers before costs?
The company receives ₹3 crore and sellers receive ₹1.5 crore before costs. Fresh issue = 2,00,000 × ₹150 = ₹3 crore. Offer for sale = 1,00,000 × ₹150 = ₹1.5 crore. Remember: A mixed IPO must be separated into fresh issuance and existing-share sales.
Hint Separate the two portions of the offer before allocating proceeds. Common mistake: Allocating all offer proceeds using only the total IPO size.
II-A-069From the practice bank · 10
Before an offer, a company has 8 lakh shares and a promoter holds 4 lakh. It issues 2 lakh fresh shares to others. What is the promoter’s percentage afterward?
The promoter’s holding becomes 40%. Total shares after the issue = 8 lakh + 2 lakh = 10 lakh. Promoter percentage = 4 lakh ÷ 10 lakh × 100 = 40%. Remember: Fresh issuance can dilute an existing holder’s percentage ownership.
Hint The promoter keeps the same holding while the company’s total share count increases. Common mistake: Using the pre-issue total shares after new shares have been allotted.
II-A-070