Equities

Question 1

Definitions of: authorised share capital, issued share capital, nominal value, market capitalisation, and free float

Answer 1

Authorised share capital
Authorised share capital is the maximum amount of capital that can be raised through share issue.
Issued share capital
Issued share capital is the number of shares the company has allotted to shareholders.
Nominal value
The fixed legal value of a share. An accounting term.
Market Capitalisation
Number of shares in issue multiplied by the market price of the share.
Free float
All shares being held by investors other than:
• Owners holding 5% or more of all shares
• Restricted stocks
• Insider holdings

Question 2

Ordinary shares

Answer 2

A and B ordinary shares
• Different classes of shares created to separate ownership and control
Redeemable Shares
• Offered by a company to shareholders that may be bought back by the company at its election. Companies are permitted to issue ordinary shares that can be redeemed, as long as conventional non-redeemable ordinary shares are also in issue.
Partly Paid
• Each ordinary share has a nominal value, which represents the minimum amount that the company must receive from subscribers on the issue of
the shares. Occasionally, the company may not demand all of the nominal value at issue, with the shares then referred to as being partly
paid.

Question 3

Types of preference shares

Answer 3

• Cumulative – any unpaid dividends accumulate in the share
• Participating – entitled to more than fixed dividend per a profit formula
• Convertible – into ordinary shares at shareholder’s discretion
• Redeemable – carry a specified redemption date
• Zero dividend – pay no income, redeemed by shareholder above the price at which they were issued

Question 4

American Depository Receipts

Answer 4

American Depository Receipts (ADRs) are used by non-US companies in order to encourage US Dollar investors to buy an equity stake.
ADR: features
• US$ denominated and US$ dividend
• Bearer document (American form)
• Settlement T+2
• Rights issues: ADR holders receive cash
• Bonus issues: alters number of shares
Pre-release (grey market rules)
An ADR, or issuing an ADR, secured by cash collateral rather than deposited securities and can be issued in a pre-release format for up to three months (US$ collateral required)

Question 5

Warrants

Answer 5

Background
• Right to subscribe for new shares from a company at a fixed price on a future date
• Not part of ordinary share capital of company
Issuance
• Typically issued as a sweetener with other investments (e.g. corporate debt)
• Detachable or non-detachable form
Conversion premium
Conversion premium = Warrant price + Exercise price - Current share price
On exercise, warrants create new shares whereas options and covered warrants are exercised into existing shares.