4. Primary Markets Flashcards
What are the stages of an IPO?
- make decision on which bank/corporate finance house they will assign as underwriting firm
- that bank will then form the origination team
- Preparation of prospectus
- Sale of securities
What is another name for underwriting firm?
Lead manager (often the ‘sponsor’)
What is the origination team?
Range of advisors working with the lead manager to help company place a new issue of shares/bonds
What is a prospectus?
detailed document providing potential investors with information required to make informed decision on company and its shares
When is a prospectus required?
Whenever a company issues securities in order to raise capital from the public
what is a sponsor and their role?
- Listing agent
Role:
- Assess company’s suitability for listing
- assess best method of bringing company to market (main market for listing - not junior market)
- coordinate production of prospectus
What is the role of legal advisors in issuances?
Ensure all relevant matters covers in the prospectus
- due diligence
What is the role of public relations in an issuance?
Create positive perception of company
What is the role of accountants in an issuance?
Validates financial statements in prospectus
Which members of origination team perform due diligence?
- legal advisors
- accountants
Corporate broker
- interface between the company and the market
- advises company on current market conditions
What is another name for corporate broker?
Issuing house
what is a syndicate group?
Group of banks involved in helping issuing company
- made up of lead manager and co-lead managers
What is a lead manager?
Firm who is given the responsibility to co-ordinate the
issuance of securities through a syndicate - Generally the sponsor
What is a co-manager?
Firm who has been appointed by the lead manager to
assist in the issuance
What is a co-lead manager?
Firms given joint responsibility to coordinate the issue of securities
- usually in different geographical
areas
What is an issuing house?
– invites applications from public at a slightly higher price than the issuing house has paid the issuing company through an offer document
- usually an investment bank
What is the role of the bookrunner?
firm given the role to co-ordinate the overall level of investor demand
Typically the lead manager
- all banks can be involved but only one can be named bookrunner
What is the underwriter?
- a firm (or syndicate of firms) who guarantees a minimum level of proceeds from a share issue
What is the key difference between co-manager and co-lead managers?
Co-managers appointed by lead manager
Co-lead managers appointed by issuing firm
What is the purpose of underwriting?
- means of guaranteeing a minimum level of proceeds from a share issue
- used in all situations where share issues are generating proceeds (marketing operations)
What is the process of underwriting?
- Underwriter buys shares upfront (usually at a discount)
- However if they cannot all shares the risk lies with underwriter
What is ‘best efforts’ shares issuance?
- In the case that some shares remain unsold - shares go back to issuer
- risk lies with issuer
What is the structure of an underwritten issue?
Base deal - agree initial level of guarantee as base deal
- underwriting firm may ask issuer for a greenshoe option
What is greenshoe?
If issue is highly successful underwriters can issue more shares
- allows them to increase their offering by up to 15%
How many underwriters can there be?
Unlimited
What is stabilisation?
Where lead manager in an issue purchases stock in the secondary marker to support issue price
What are the regulations around stabilisation?
- has to have letter ‘s’ on exchange screen to let investors know its in the process of stabilisation
- can only stabilise for up to 30 calendar days after initial issue
Can greenshoe be used for other securities?
Yes - can also be used for issue of convertible and exchangeable bonds and works in the same way as for shares