4 - Primary Mkts Flashcards
In an offer for sale, where is the pricing basis for the offer specified? In the case of a tender offer, how is a price determined?
Why are fixed-price offerings often oversubscribed? How is this dealt with (2)
What is the purpose of a greenshoe provision? How many more shares can be issued in a greenshoe option?
The offer document=Prospectus, which is prepared by directors and has comprehensive info on the co. and directors
The issuing house invites tenders (bids), with a set min. price. The offer is later closed and a single settlement price is determined, at which all applications at this price or above with be fulfilled. This maximises proceeds, and avoids the need to judge demand.
the fixed price is often at a discount to the expected fully subscribed price, in the hope to stimulate secondary market activity. The discount to real value means there is often oversubscription, so
1. Randomly fulfil applications
2. scale back the size of some applications
Greenshoe provision also known as an overallotment option stabilises price. With 15% more shares allowed if demand is in excess
What dictates whether a lead manager of an IPO gathers a syndicate? who is investing or how large the deal is?
What are the 5 key stages of book building discussed in this book?
What is another name for a lead manager?
Can there be more than 1 lead manager?
What is the role of a book runner?
- Stages of the book-building - who does each stage?
- Ask around about interest ; lead manager asks institutional investors
- Agree Price Range ; 10 - 15 % difference in top and bottom offer. Agreed by issuer and syndicate
- Marketing ; Road shows - public events, done by EDs at issuer
- Subscription requests ; syndicate gather and FWD to lead manager
- Finalise Price just before IPO.
- what is another name for the lead manager of a syndicate? Can there be more than one? What is their role?→book runner, coordinates level of demand across the syndicate. They book-build. Yes, lead managers can appoint other lead managers, so they are now both co-lead managers, this could be so one takes care of a geo. region while the other takes care of another. Role; Attain demand level - manage syndicate - assist in book building activities.
- Why would a syndicate be appointed? a) Quantity Issued b) Who is investing (institutions)?→a) Quantity Issued
What are the 3 tiers of regulation framework surrounding stock exchanges?
What is the Official List?
what % has to be free-float on AIM and LSE?
What are the 2 objectives of reguation surrounding exchanges?
What are the main market conditions in the UK? vs Junior Mkt?
Legislation (uk companies act), in order to become a plc as the LSE require you to be a plc. Then, FCA recognise the exchange and assess system and controls, and give rules for companies who join the exchange and then tier 3 = exchange rules
Official list is the main market in the uk. It is the official list of the LSE, but run by the FCA.
10% LSE, NONE for aim
1. liquidity - inv have to be able to buy/sell shares 2. Information provision
- 3 years of trading
- 10% held by public
- market cap of >£30mn
- Must be a plc and have a sponsor / listing agent , who act as the link between the company and FCA
- Prospectus
- Warrant < 20% of issued shares
- Fee paid
- Half yearly reporting
- disclose price sensitive information
vs
- No restriction on - Market Cap , trading history , % held by public
- Must have -
- nomad , who needs to be approved by the LSE, and act as an exchange expert , telling the company about their obligations to the exchange.
- Broker , who deals with ensuring there is a market and facilitating trading and provding info to those interested
- In case of beaching the 2 above, trade is Suspended , if it for more than a month, they are removed .
Give an example of a municipality and an agency.
Is an SPV a type of issuer?
What is the name of the issuer above governments?
- Supranational - worldbank
- Governments
- Agencies - US
- Fannie-Mae - Mortgage finance for disadvantaged
- Sallie-Mae - Finance students
- Municipalities - New York City - Local borrowing, for local governments
- Corporates
- SPVs - Financial institution create these for off-balance sheet financing,
Yes an SPV does issue bonds.
Name the 2 methods of issuance
Who is expected to bid when the DMO issue shares?
What is a reverse inquiry and what term to maturity is this most commonly used with?
what is a scheduled funding programme and why were they used?
Auction-Type and Tender - tender is the one that people can pay less than what they bid
GEMMs
Investors enquire with issuer about issuing bonds, to which the company oblige - MTN, as this is the most common time horizon
They are an agreement with a bank, basically a bank loan. Used to avoid the high cost of registering every time a co. wanted to make an issue
What has been used to bring flexibility to MTN markets, what is the requirement specified for this process?
Shelf Registering - 2 years where a company doesnt have to re-register. This allows for smaller batches to be issued, allowing companies to better react to economic conditions.
Must have 2 or more dealers willing to trade issue on best effort basis.
- What are the three broad stages to an initial public offering (IPO)?
Answer reference: Section 1.1 - How does a tender offer differ from a fixed-price offer for sale?
Answer reference: Section 1.3 - What is a greenshoe provision and what is the issue limit under this provision?
Answer reference: Section 1.3.1 - What is a placing?
Answer reference: Section 1.4 - How does a convertible bond differ from an exchangeable bond?
Answer reference: Section 1.6 - What is the role of the listing agent or sponsor in an intial public offering (IPO)?
Answer reference: Section 2.1 - What requires UK issuers to prepare annual audited accounts and hold annual general
meetings (AGMs)?
Answer reference: Section 3 - For how long must a company applying for a Premium Listing in the UK have a trading record?
Answer reference: Section 3.1 - What is a shelf registration?
Answer reference: Section 4.2 - What is a reverse inquiry in relation to medium-term notes?
What is one stage of an IPO in a bond issuance that does not happen in an equity issuance?
Credit Rating
