Read the following passage and answer the question.

AAMA Solar Limited is searching options to raise ₹2,000 crores from the primary market for diversification and modernisation of existing projects. It hired the services of a renowned financial consultancy firm, Laxmi Pvt. Ltd. for suggesting options for the same. Laxmi Pvt. Ltd. suggested a list of options to the board of directors. It was decided that for the immediate requirement of ₹150 crores, the company will give a privilege to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company ₹500 crores would be raised by allotment of securities to a consortium of financial institutions, instead of investing subscription from the public by making a direct appeal to investors to raise capital. It was further decided to raise capital to the tune of ₹650 crores through an issuing house. All these options were accepted by the Board of Directors. The Board further decided to raise ₹700 crores through the online system of the stock exchange by entering into an agreement with the exchange.

Which of the following is discussed in the given passage?

Primary market

The correct answer is option 2- Primary market.

The passage described the various methods of floating new issue. New issue is made in primary market.

The primary market is also known as the new issues market. It deals with new securities being issued for the first time. The essential function of a primary market is to facilitate the transfer of investible funds from savers to entrepreneurs seeking to establish new enterprises or to expand existing ones through the issue of securities for the first time. The investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals. A company can raise capital through the primary market in the form of equity shares, preference shares, debentures, loans and deposits. Funds raised may be for setting up new projects, expansion, diversification, modernisation of existing projects, mergers and takeovers etc. There are various methods of floating new issues in the primary market-

• Offer through Prospectus: Offer through prospectus is the most popular method of raising funds by public companies in the primary market. This involves inviting subscription from the public through the issue of prospectus. A prospectus makes a direct appeal to investors to raise capital, through an advertisement in newspapers and magazines.

• E-IPOs: A company proposing to issue capital to the public through the on-line system of the stock exchange has to enter into an agreement with the stock exchange. This is called an Initial Public Offer (IPO). SEBI registered brokers have to be appointed for the purpose of accepting applications and placing orders with the company. The issuer company should also appoint a registrar to the issue having electronic connectivity with the exchange.

• Private Placement: Private placement is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise capital more quickly than a public issue. Access to the primary market can be expensive on account of various mandatory and non-mandatory expenses. Some companies, therefore, cannot afford a public issue and choose to use private placement.

• Offer for Sale: Under this method securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stock brokers. In this case, a company sells securities enbloc at an agreed price to brokers who, in turn, resell them to the investing public.

• Rights Issue: This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. The shareholders are offered the ‘right’ to buy new shares in proportion to the number of shares they already possess.