Primary Markets Flashcards
(32 cards)
what are the key advantages of an IPO?
can raise substantial sums of capital and create a great deal of publicity for the issuing companies
company assets aren’t encumbered or hypothecated in the same manner as they would be if capital was raised from debt offering
what is an IPO?
Initial public offering of a companies shares to investors.
what are the three braod stages of an IPO?
- decision to go public
- preparation of the prospectus
- sale of securities
what is underwriting and who is responsible?
generally the responsibility of the investment banks , guarantee in place to buy securities . also can be on a ‘best effort’ basis where the bank will do their best to sell shares involved in the offering but no formal guarantee
what is a follow-on offering?
secondary offer, considered if the equity markets are sufficiently robust
how is a follow-on offering structured?
structured with a base number of shares that the company is planning to use. quicker, easier and cheaper than an IPO as they’ve already been through the stages of the IPO.
what are the 3 broad stages of a follow-on offering?
- decision
- preparation of the prospectus
- sale of securities
what are offers for sale?
most common way of achieving a listing. company seeking listing approach an issuing house (IB) that specialises in approaching potential shareholders and preparing the necessary documentation
how does an offer for sale work?
issuing company sells shares to the issuing house who will then invite applications from the public at a slightly higher price than they paid.
what is contained in the offer document/prospectus?
provides comprehensive information about the company and its directors how proceeds from the share issue will be applied
how are shares released as part of an offer-for sale?
don’t necessarily require the company to create new shares specifically for the share issue, founders can release part or all of the equity stake in their company
what is a fixed-price offer?
price is usually fixed at just below that at which it’s believed the issue should be fully subscribed, encourage an active secondary market. If it is oversubscribed, shares can be allotted by scaling down each application or by satisfying randomly chosen proportion of the application in full.
what is a tender offer?
used to reduce the importance of judging demand required and setting the price at a level that doesn’t lead to the issue being excessively oversubscribed- no fixed price stipulated, invites tenders for the issue with a minimum tender price set
what does the ‘green-shoe’ provision allow?
underwriters of the IPO can sell up to an additional 15% of the original number of shares. used as a stabilisation tool if the demand for securities is in excess of the initial amount offered
what is a placing?
where an issuer markets the issue directly to a broker, issuing house who will then place the shares with selected clients, least expensive- used for IPOs and follow-on offerings
what is a special provision?
when the offering is marketed to a restricted class of investors (sophisticated or otherwise).
what is an introduction?
not actually an issue, common in emerging market exchanges, used when a company doesn’t need to raise capital through share-issue but needs the extra liquidity that being listed provides.
what is the use of a convertible/exchangeable bond offering?
enables issuer to raise borrowed funds more cheaply, structure of offering mirrors that of equities
what is the role of a listing advisor?
will include a listing agent at the IPO stage and a corporate broker to act for the company at the IPO and afterwards.
what is the role of a sponsor?
assess the company’s suitability for listing, the best method of bringing the company to the market and coordinating production of the prospectus
what is the role of reporting accountants?
attest to the validity of a company’s financial statements and information provided in the prospectus.
what does the origination team do?
act as an interface between the issuer and investors, advises the company on market conditions.
what is underwriting?
agreeing with FIs that if demand is insufficient, the FIs will buy the remaining shares- insurance policy, they will purchase the shares at a discount to the market rate. will be paid fees for taking on the risk of the shares lack of demand
how does the stabilisation process work?
the lead manager in the syndicate will agree to purchase the shares back from the market and support the price if the share price falls below a certain predetermined level. could also use the green shoe option if demand is very high. makes issuing companies shares seem less volatile.
