Admission To LSE Flashcards
How do companies list securities on main market exchanges
Two stages (must be completed) 1) securities admitted to stock exchange officially lost by UKLA
2) Co needs to be admitted to trading by SE
List the issue methods for unlisted companies bring securities to market for first time
An Introduction
Placing
An intermediaries offer
Offer for subscription*
Offer for Sale*
*public offers
Outline an introduction
Method unlisted Co can obtain listing without raising capital or issuing shares
Shares already widely held in public domain (25%)
Marketing operation
Used where guaranteed secondary market
No underwriter fees
Min requirement for advertising fees therefore less publicised co profile
Used by mergers
Condition for large shareholders to make shares available to market makers
Outline a placing
Offer shares to small number of institutional investors to raise capital
I.e - Pension funds, insurance cos, financial institutions
Through broker
Narrow shareholder base means less liquidity
Box advertisement requirement
Used together with rights issue
Outline intermediaries offer
Offer shares to other brokers who sell to clients to increase shareholder base and marketability
Similar to placing
Outline offer for sale
Public offer
Shares offered to private and institutional investors alike
Offer underwritten/ charges apply
Expensive
Greatly increase liquidity of shares and capital raised
Appointment of intermediary/ issuing house to manage issue
Issuing house will buy securities and sell slightly higher to public
How is offer for sale subscribed
Subscribed at fixed price determined by Co advisor
- subscribes state no shares purchase
- if oversubscribed allocations scales down as specified in prospectus
- if undersubscribed then subscribers get amount want and rest underwritten
Subscription by tender involves issuing house offer shares to public by inviting to subscribe, investors state price wiling to pay, after bids received house sets tender price and investors pay this price
Outline offer for subscription
Public offer
Shares offered to general public and institutional investors alike
No issuing house
Public apply for shares @ fixed price or tender
If min amount of cap not raised then offer withdrawn
What is underwriting
Form of insurances policy ensures new issues succeed/ risk not brought
Institutional investor agree to take up shares that public don’t subscribe too
Take up proportion agreed at outset
Fees 2% of issue and commissions payable whether or not they’re called upon
Issuing house is principal underwriter and followed by series of sub writers
Prior underwriting what happens
Prior under witting shares auctioned by tender / offered discount to increase popularity but not favourable for existing shareholders
Reasons why shares not subscribed to
- insufficient investor interest
- perceived over priced
- lack of confidence In market sector
If not enough taken up withdraw close to flotation date
What is a rights issue
Process of selling new shares to existing shareholders in direct proportion to existing holding (1 for 4)
Used to raise capital for specific purposes
So called because ord shareholders have right to subscribe under CA06 prior offered to investors
+Prevents dilution of shareholding and maintain control level (pre emption right)
Increase assets as paid for in cash
Reduce value of each ord share and % control by shareholders
If no investor takes up right cash value stays same
Alternative to bank borrowing & increase debt cap and inexpensive to issue
New shares offer same rights and are fungible (indistinguishable from another)
Outline method of rights issue
Shares offered at substantial discount to prevailing MP (15-20%)
Rights fully tradable securities
Existing holders given right to subscribe therefore nil paid
Allocated via rights letter
Right issued underwritten by city institutions on pro rata basis and agreed from outset
What’s the shareholders options for rights issue
1) take up rights and pay cash directly (maintain % shareholding and control through increase no shares held)
2) sell right for cash (increase bank balance however value of shareholding and control falls)
3) take up proportion and sell remainder (lose control, reduced bank balance but also receive cash for selling, total value of holding and shares increases slightly)
4) do nothing (rights sold in behalf by secretary and proceeds sent to them/ lose shareholding)
5) sell sufficient rights and use money to exercise some rights to purchase shares (value of portfolio remains unchanged as no cap contribution)
- existing holders can purchase rights in market above existing holding to increase % even more
How ordinary shares designated In Rights issues
Cum rights (with)
- share price just before issue
- securities traded on SE before cut off day so investors will receive shares and rights to buy new shares
- pay market price
Ex rights (without)
- share price after issue date
- investor purchase share without receiving right to participate in rights issue
- lower price (price less value of rights) because more In issue
How does markets perceive rights issue
Sign of strength/ favourable as funds invested into projects to expand/ grow
Prices rise after issue = marketable
