Chapter 5 - Issuing Equities

Question 1

What is the primary market used for

Answer 1

raising new long term capital

Question 2

What is a dilutive issue

Answer 2

a secondary offer, where the company already has issued shares but choose to issue more. the company creates new shares to issue. Non-dilutive is when the company directors release some of their own, already issued equity to the public

Question 3

What is an offer for subscription?

Answer 3

A company producing shares directly to the general public, needs to produce a prospectus

Question 4

What is an offer for sale?

Answer 4

An issuing house initially buys up new shares from the issuing company before re-selling them to the investment community

Question 5

What is a placing?

Answer 5

• Uses an issue house to market the shares
• only reselling to selected investors, not the public at large

Question 6

Intermediate offering?

Answer 6

Making a placing though several brokers

Question 7

What is an Introduction?

Answer 7

• not used to raise new capital
• involves a company obtaining a listing on an exchange without issuing new shares
• does not require a prospectus, only listing particulars

Question 8

Rights Issue

Answer 8

• invitation to shareholders to buy new shares in proportion to their existing holdings
• ratio between new and existing shares ex. if 1 for 5, they would get 1 new share for every 5 they currently hold at a discounted price
• will dilute the share price

Question 9

Theoretical ex-rights price

Answer 9

• the expected price of the shares after a rights issue has taken place

Question 10

Theoretical nil-paid price

Answer 10

• the maximum price someone would pay for the right to buy the share at the discounted price resulting from the rights issue

Question 11

Script Issue

Answer 11

• issuing shares to existing shareholders free of charge
• the effect is to dilute the market price of each share
• useful if the share-price has reached a high level causing lack of liquidity

Question 12

What is underwriting?

Answer 12

• guaranteeing a minimum level of proceeds from a share issue
• the cost of the guarantee is a fee payable to the underwriter

Question 13

A 5 for 3 rights issue at 90 p means

Answer 13

• you can buy 5 issues at 90p for every 3 you have

Question 14

cum-rights price

Answer 14

price of a share before the rights issue

Question 15

ex-rights price

Answer 15

price of a share after the rights issue