Corporate Actions

objective is to raise capital for various purposes such as clearing company debt, acquiring assets, or facilitating expansion without resorting to bank loans. Rights can also be traded separately in the market as options. For instance, if a company issues rights in the ratio of 2:5, each investor holding 5 shares will be eligible to buy 2 new shares. Investors can choose to subscribe to or forfeit their rights shares. Right issues are traded in the secondary markets.

Bonus Issues : Bonus shares are distributed to reorganize a company’s cash reserves. They are free additional shares provided to existing shareholders and are always fully paid up. Companies utilize their free reserves to issue bonus shares. For example, a bonus issue in the ratio of 1:3 means that shareholders receive 1 bonus share for every 3 shares held. Sometimes, companies issue bonus shares when they cannot pay dividends to shareholders due to additional requirements or a shortage of funds, even if they are earning significant profits.

Dividends : Dividends represent the distribution of a company’s profits or surplus to its shareholders. There are interim dividends declared during the financial year and final dividends at the year-end. Dividends are a cash payout to shareholders based on the fixed rate per share they hold in the company. A dividend yield of 4% and above is considered favorable.
Stock Splits : A stock split involves splitting the face value of a stock, essentially increasing the number of shares outstanding by issuing more shares to existing shareholders. For instance, this could be reducing the face value of a stock from Rs.10 to Rs.5 or Rs.2. The reverse of a stock split is called the consolidation of company equity. Similar to bonus issues, stock splits have a neutral impact on the company’s capital, and there is no change in the share value from the company’ perspective.

Share Buyback : Share buyback is when a company purchases its own shares listed on a stock exchange from existing shareholders using its available reserves and surplus. Typically, the buyback price is higher than the market price, leading to a reduction in the number of outstanding shares on the market. This, in turn, enhances the company’s dividend and earnings per share (EPS) as there are fewer shares in circulation.

Mergers : A merger is a strategic process in which two or more companies integrate their businesses into a new legal entity, leading to the cessation of one company as it merges into another. Shareholders of the merged company usually receive shares in the surviving entity. Following the deal announcement, the shares of the target company tend to rise, while those of the acquiring company may experience a temporary decline due to the added responsibilities.
Takeovers : An acquisition occurs when one company successfully bids to acquire another company. The acquisition can be settled through a cash transaction or a share swap, representing a popular strategy for expansion and diversification. In many cases, a larger company seeks to take over a smaller one. For instance, in 2008, Tata Motors acquired both Jaguar Cars and Land Rover, fully integrating them into Jaguar Land Rover Limited in 2013.

shareholders must have purchased the stock before the ex-dividend date. On this date, stock prices usually decrease by the amount of the dividend.

Record Date : Book Closure date (also known as the record date or ex-dividend date) is the date that a shareholder must hold the stock to receive certain benefits (like share bonus issue, splits and dividend payments). It is the cut-off date established by a company in order to determine which shareholders are eligible to receive a dividend or distribution.

Payable Date : The payable date is when any declared stock dividends are scheduled to be distributed to shareholders who held the stock as of the ex-date. Investors who bought the stock before the ex-dividend date are eligible to receive dividends on the payable date, even if they sold the stock on or after the ex-dividend date.

Public Sector Units (PSUs) Funds are raised through the issuance of shares, bonds, tax-exempt bonds, and tax-free bonds, targeting institutions and other investors. Public sector units in India contribute significantly to the capital inflow.

Private Sector Companies : A public limited company can raise funds through various means such as Initial Public Offering (IPO), Follow-on Public Offer (FPO), and Offer for Sale (OFS). These fundraising methods involve issuing equity or debt securities, preference shares, commercial papers (CPs), and convertible instruments.

Banks, DFIs and NBFCs : This entity raises funds through avenues such as providing loans and advances, issuing credit cards, securing investments from early-stage investors, acquiring equity shares, preference shares, bonds, debentures, convertible bonds, commercial papers, certificates of deposits, and securitized paper.

Mutual Funds : They raise funds through New Fund Offerings (NFOs), which include both open-ended and closed-ended funds (interval funds). These funds, with a shared investment objective, gather capital from investors and issue units in the domestic markets.

Infrastructure Investment Trusts (InvITs) : These are investment instruments regulated by SEBI and function similarly to mutual funds. Infrastructure Investment Trusts (InvITs) own, operate, and actively manage operational infrastructure assets. These long-term revenue-generating infrastructure assets generate cash flows, which are periodically distributed to investors or unitholders. Once the contract period expires, the projects are either returned to the authority upon completion or need to be rebid.

Real Estate Investment Trust (REIT) : Investors gain diversified investment opportunities by participating in real estate investments through Real Estate Investment Trusts (REITs). These companies own or finance income-producing real estate and infrastructure projects across various sectors such as office spaces, warehouses, malls, etc. REITs typically allocate 90% of their income as dividends to investors.

(ii) Unorganised Market : The unorganised sector in the money market comprises unregulated non-bank financial intermediaries and local money lenders, including traders, landlords, seths, shroffs, mahajans, etc. These entities lend money to individuals and institutions at higher interest rates than formal markets.