4. Offers and Capital Adjustments

Question 0

How are Securities listed?

Answer 0

In order to have its securities listed, the company concerned will have to find and appoint certain advisers. The precise requirements and roles are laid down in the local regulations that apply to the particular exchange. Generally, the advisers will include both a listing agent (at the IPO stage) and a corporate broker (both at IPO and afterwards).

Once the decision has been made to list, the company will have to find and appoint a listing agent, alternatively referred to as a sponsor. The sponsor is likely to be an investment bank, a stockbroking firm or a professional services firm such as an accountancy practice. The role of the sponsor includes assessing the company’s suitability for listing, the best method of bringing the company to the market, and co-ordinating the production of the prospectus. The prospectus is a detailed document about the company, including financial information that should enable prospective investors to decide on the merits of the company’s shares.

Question 1

Listing Securities

Answer 1

Deciding to list (or float) securities on a stock exchange such as the LSE is a significant decision for a company to take. Flotations have both pros and cons – the fact that the company can gain access to capital and enable its shares to be readily marketable are often-quoted positives. The most often- quoted negatives are the fact that the original owners may well lose control of the company and that the ongoing disclosure and attention paid to the company after listing is much greater than previously.

Question 2

Origination Team

Answer 2

The sponsor is only part of the origination team helping the company in the flotation. In addition to the sponsor, the issuing company will appoint a variety of other advisers, such as reporting accountants, legal advisers, public relations (PR) consultants and a corporate broker.

Question 3

Reporting Accountants & Legal Advisors

Answer 3

The reporting accountants will attest to the validity of the financial information provided in the prospectus. The legal advisers will make sure that all relevant matters are covered in the prospectus and the statements made are justified. The combination of the reporting accountants and the legal advisers is said to be providing due diligence for the prospectus – making sure the document is accurate and complies with the regulations.

A PR consultant is generally appointed to optimise the positive public perception of the company and its products and services in the run-up to listing.

Question 4

Corporate Broker

Answer 4

Finally, the origination team may require a corporate broker, who may be the same firm as the listing agent. The responsibilities of the corporate broker are to act as an interface between the company on the one hand, and the stock market and investors in the company’s securities on the other. In particular, the corporate broker advises the company on market conditions – the way existing and potential investors are viewing the company in relation to its peers, and the general direction of the market.

An issuer that is planning to have its securities listed will have to undertake certain obligations. Like the requirements for advisers, the precise obligations can vary across jurisdictions, but they always include obligations in relation to corporate governance and reporting.

Question 5

Corporate Governance

Answer 5

Corporate governance is the way a company (the corporate) manages and controls its activities (governs itself). Corporate governance is often described as the set of laws, rules, customs and both external and internal policies that guide how a company is directed and managed. In particular, it is expected (and, in some jurisdictions, required) that the listed companies have put in place appropriate corporate and management structures. Examples include reducing the influence of a single individual by splitting the roles of chairman and chief executive of the company, appointing a reasonable proportion of non-executive directors (NEDs) to the board, and having a suitably qualified finance director.

Question 6

Reporting Requirements

Answer 6

Reporting requirements are designed to make sure that existing and potential investors are kept informed of progress and developments at the listed company. It is particularly important that financial information is provided regularly and that the information is reliable, and so listed companies are generally required to provide audited annual accounts and less detailed half-yearly, or perhaps quarterly, reports.