Chapter 4: The Primary Market Flashcards
What is an IPO?
What does it do?
Initial Public Offering
Allows privatley owned companies to sell its shares on a public market to raise capital.
Advantages of an IPO?
Over other capital raising methods.
- Raise substantial sums
- Boosts Publicity
What is a Greenshoe?
Or an over allotment clause.
Whereby the issuing company reserves the right to release extra shares if demand remains unsatisfied.
What are the 3 Broad Stages of an IPO?
DPS
- Decision
- Prospectus
- Sale
What is Firm Underwriting?
Where a bank will gurantee the sale of all of the securities in an IPO.
What is Unconditional “Best-Efforts” Underwriting?
Where banks and co-underwriters will not guarantee the complete sale of issued securities. Not committing to buy back any unsold secutities.
What is Conditional “Best-Efforts” Underwriting?
Where banks and co-underwriters will not guarantee the complete sale of issued securities. But instead commit to buy back any unsold secutities, to keep prices stable.
What is a Follow-on Offering?
A secondary offer, that issues more shares if demand is still strong.
This is unlikley to work in a bear market.
Cheaper than an IPO, as most of the stages have been completed.
Stages of a Follow-on Offering?
- Decision
- Prospectus
- Sale
What is an Offer for Sale?
The most popular type of IPO is where an issuing house (Investment bank) will buy a package of shares and offer them to investors.
What is a Fixed Offer Price?
Is a price offered to an issuer, just below what it is believed they should be fully subscribed, to encourage an active secondary market.
What is a Tender Offer?
Why is this good?
Does not set a fixed price for the shares, it invites potential investors to bid to gauge both price and demand.
This does not lead to shares being excessivley demanded or underdemanded. A minimum price is set,
Why are Fixed Offers preffered over Tender Offers?
Less adminisration from both parties.
What is a Greenshoe Option?
Why is it used?
Gives the issuer the provision of an over allotment option of up to 15% the original amount of shares. This settles demand and stabilises the price.
What is Placing?
Selective Marketing?
Where shares are issued directly to a broker, and then offered to a select handful of clients. This is less expensive than most other options.
Can Placing Occur in Secondary Markets?
Yes. Provided the jurisdication allows it.
What is a Private Placement?
Whereby shares can be issued to investors without the provision of a regular public prospectus.
What does the UK Prospectus Regulations reflect?
The EU Prospectus Directive
What is the SEC Provisions for Private Placements Called?
Reg D
What is an Introduction?
Why are they used?
Listing shares on an exchange, not to raise capital, but to raise awareness, liquidity and often comply with certian regulations.
What is an Exchangable Bond?
Ex?
A bond that pays a coupon with a set redemption date. It then gives the holder the option to exchange for a set number of shares in ANOTHER company.
What is a Convertible Bond?
A bond that pays a coupon with a set redemption date. It then gives the holder the option to exchange for a set number of shares in the issuing company.
Benefits of both Exchangeable and Convertible Bonds?
Safety of repayment and coupons, as well as the capital growth of the securities.
Stages of both Exchangeable and Convertible Bonds?
- The Decision
- The preperation of the prospectus
- The sale of the securities
