Methods of offer

Question 1

What are the three methods of offer?

Answer 1

offer for subscription, offer for sale and placing

Question 2

What are the two methods of offer for retail offer?

Answer 2

• There are two main methods for retail offer: offer for subscription and offer for sale.
• Both methods will require appointment of receiving bank by the offeror (company/SH) – they accept the applications from the public and deal with the payment for the shares
  Note that these methods are not mutually exclusive and in practice often combined

Question 3

What is an offer for subscription?

Answer 3

Company offers new shares to public, raises capital for company, the investors subscribe for the shares
The company will appoint a receiving bank to accept the applications from the public and deal with payment for the shares

Question 4

What is an offer for sale?

Answer 4

Existing SHs offer existing shares to public
No capital for company; instead SH realizes investment
The selling shareholder will appoint a receiving bank to accept the applications from the public and deal with payment for the shares.

Question 5

What is the common method of offer for institutional offer?

Answer 5

Placings
- The most common method of making an institutional offer is by way of a placing.
- In an institutional offer, both new and existing shares are offered by both the company and selling SHs respectively.
- The shares are placed by a broker, offered to placees = sophisticated investors rather general public
• Placees are clients of either the sponsor, broker or the investment bank. They are other financial institutions including banks and pension funds. They indicate to the broker prior to the day when the final price of the shares is announced, how many shares they would be willing to purchase in the placing and at what price.
• A placing letter is sent to placees providing terms and conditions of the offer. The placees sign and return this letter if they are going to take up shares in the placing.
• The sponsor/broker may also have a placing agreement/underwriting agreement with the
company.

• Cash received is dealt with by an investment bank. The investment bank may also bookbuild the offer.