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Equity Finance July 2019 > 2) Flotations: Offer & Listing Applications > Flashcards

2) Flotations: Offer & Listing Applications Flashcards

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1
Q

When should a company be advised to make an institutional offer rather than a retain offer?

A
  • If it is a specialist niche company
  • That is relatively unknown to the public
  • Unlikely to attract the same demand from retail investors as a recognised household name
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2
Q

What are the steps involved in a retail offering?

A
  • There are 2 elements
  • Offer for subscription: new shares are sold to the public
  • Offer for sale: existing shares are sold to the public
  • Non public offers: placings / intermediary offers - offers to more sophisticated investors.
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3
Q

What is a company likely to do if the listing is being effected by means of a retail offer?

A
  • Also likely to accompany that retail offer with an institutional offer
  • So as to be able to benefit from the institutional shareholder interest in its listing.
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4
Q

What is the slight downside of retail offers rather than institutional?

A
  • additional regulatory issues associated with a retail offer
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5
Q

How would marketing be focused on institutional investors?

A
  • Through the use of roadshows during the bookbuilding process.
  • This process may be cheaper than a retail offering
  • Depending on the extent of the marketing process.
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6
Q

What are the benefits of carrying out a global offer rather than a UK domestic issue?

A
  • Shares offered to a wider group of investors
  • E.g. investors in the European / US markets
  • Where they may already have a large customer base.
  • Flotation can increase its profile further in these markets
  • Additional interest in fundraising should also increase price at which company shares are sold to its investors.
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7
Q

What is bookbuilding?

A
  • Way of marketing an issue of shares
  • Involves the investment bank who can often be a ‘joint bookrunner’
  • Running a book of interest in the shares from interested investors.
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8
Q

What is the purpose of bookbuilding? When is it frequently used?

A
  • Allows the company to assess level of demand for its shares
  • And to set a realistic price for them
  • Frequently used for institutional equity offerings.
  • On an institutional offer that has no retail element - issuer may use pathfinder in the bookbuilding process to give potential investors info about the company.
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9
Q

When is a pathfinder used?

A
  • On an institutional offer with no retail element
  • Pathfinder used in the book building process
  • To provide potential investors with more information about the company.
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10
Q

What do issuers use to give potential investors information about the company in a retail offer?

A
  • A price-range prospectus.
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11
Q

When bookbuilding is used, how are presentations made and then what do the potential investors have to do?

A
  • In the form of roadshows to potential institutional investors.
  • They then BID in advance of the offer for the securities to be issued
  • Bids = not legally binding
  • State the number of shares that they would be willing to purchase and the price that they would be willing to pay for them.
  • Within the price range that is either given be the Global Coordinator or stated in the price range prospectus.
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12
Q

What determines the issue price of securities when book building is used?

A
  • The level of demand that is shown by potential investors
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13
Q

Why is bookbuilding advantageous for the issuer?

A
  • Because by assessing demand for the company shares in advance of the issue price being set
  • The issue price can be calculated more accurately
  • And therefore be set at the highest realistic level.
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14
Q

When is a prospectus required?

A
  • S85(1)(2) FSMA= general rule.
  • Have to apply BOTH of the tests to decide if proposed offer of shares requires a prospectus.
  • If EITHER test satisfied and there is no exemption available, prospectus required.
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15
Q

What are the exceptions to TEST 1 of the prospectus test?

A
  • TEST 1 - S85(1) FSMA
  • Defined- s102B FSMA
  • Exemptions - s86(1)
  • S85(5)(a)
  • S85(5)(b) - PR 1.2.2R
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16
Q

What are the exemptions to TEST 2 of the prospectus test?

A
  • Test 2 - s85(2) FSMA
  • Exemptions - exempt securities in Part 1 Schedule 11A FSMA, which is in PR 1.2.3R and
  • This is s 85(6)(a)(b) FSMA
17
Q

When do the exemptions to needing a prospectus work?

A
  • When BOTH of the exemptions apply
18
Q

When is it likely that the placing of shares will fall within the exemption to Test 1 of the prospectus test ?

A
  • Test 1 is s85(1) FSMA

- When being offered to qualified investors only (s86(1)(a) FSMA)

19
Q

What is the benefit of making up a prospectus with separate documents?

A
  • Can have separate registration document
  • This part stays valid for up to 12 months
  • Can therefore be re-used with a new securities note and summary note during that period
  • But is more usual now that an applicant only produces one document for its flotation
20
Q

What are the 8 steps of the flotation process?

A
  1. Publication of pathfinder
  2. Formal bookbuilding process
  3. Submit documents to the FCA before prospectus is approved
  4. Approve + publication of the fixed price prospectus
  5. Submission of documents to the FCA and LSE before admission hearings
  6. (and 8) Hearings for admission of shares to listing at FCA and admission of shares to trading at LSE
  7. CREST accounts credited
  8. Admission and unconditional dealings commence.
21
Q

What are the requirements for when there is publication of the pathfinder?

A
  • Not a prospectus
  • So does NOT require FCA approval
  • Subject to the advertisement regime in the prospectus rules.
22
Q

What happens while formal bookbuilding takes place?

A
  • Pathfinder used as a marketing tool during the bookbuilding process.
  • Institutional investors will make non-binding committments to purchase shares on the basis of the pathfinder.
23
Q

What happens when the documents are submitted to the FCA before the approval of the prospectus?

A
  • The draft prospectus has to be submitted to the FCA together with a cross reference list
  • That identifies the pages where each disclosure item can be found in the prospectus - PR 3.1.1R
  • Final date for submission - 20 clear working days before the intended approval date of teh prospectus.
  • Clear days - UKLA guidelines
  • Should submit the prospectus early to allow time to respond to the FCA comments on the draft.
24
Q

When does there need to be approval and publication of the fixed price prospectus?

A
  • Approved by the FCA before publication

- After approved by FCA - must be filed w/ FCA and made available to the public.

25
Q

Why are certain docs called 48 hour documents?

A
  • LR 3.3.2R - need to be submitted to the FCA by midday two business days prior to the listing hearing.
  • Docs = approved prospectus and Application for Admission form.
26
Q

What are unconditional dealings?

A
  • Any dealings after admission of shares to listing and trading
27
Q

What are conditional dealings?

A
  • Conditional on the admission actually taking place.
28
Q

Why would an issuer elect to publish a fixed price prospectus?

A
  • So that it can offer institutional investors a fixed price offer of shares.
29
Q

What happens if a company elects to publish a price range prospectus instead of a fixed price prospectus?

A
  • Would have to file the final offer price and the amount of share to be issued
  • As soon as practicable with the FCA following completion of the offer
  • Then make this information available to the public
  • Because of PR 3.2.4 - 3.2.6 before the admission and listing hearings
30
Q

To what extent does s21 FSMA apply to a pathfinder document?

A
  • A pathfinder doc = invitation / inducement to engage in investment activity unless they are an authorised person
  • Pathfinders and roadshows do constitute an invitation or inducement to engage in an investment activity, as it is encouraging investment and is a financial promotion
  • Therefore - company should limit the presentations in both forms to INSTITUTIONAL INVESTORS, to be able to come within an exemption of the FPO under Arts 50 / 49 / 19. (yellow tabs)
31
Q

What are the main characteristics of the article 70 fpo exemption?

A
  • Only covers information actually in the prospectus, not any info that replicates part of a prospectus
  • Exemption applies regardless of whether prospectus is sent to retail as well as institutional investors
32
Q

What are the advantages of bookbuilding?

A
  • Allows company to get a non binding indication as to whether to go ahead with the float
  • And allows company to assess the level of demand and set a realistic achievable price for the shares
33
Q

What is a pathfinder?

A
  • Draft of the prospectus
  • That is not approved by the FCA PR 3.1.7
  • Does not contain the price of the shares
  • Only sent to institutional investors.
34
Q

How does a pathfinder differ from a prospectus?

A
  • Pathfinder = draft of prospectus that is not approved by the FCA, PR 3.1.7
  • Pathfinder does not contain the price of the shares
  • Pathfinder only sent to institutional investors.
35
Q

How should I count the working days in the prospectus rules?

A
  • Always clear working days, FCA guidance has confirmed that it is CLEAR working days
  • And include the public holidays.
  • when it is clear days add 2 days to whatever is in the PR.

But for secondary issues offer periods, just count normal business days - not clear.

Equity Finance July 2019 (9 decks)

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