Equity Financing Flashcards

Flashcards covering equity financing, IPOs, shareholder rights, share adjustments, rights issues, and TERP.

How is equity finance typically raised?

Equity finance is raised through the sale of ordinary shares to investors.

What are the two types of share value?

Nominal value and Market value

What are the main ways to acquire a listing in an IPO?

Placing, Public offer, and Introduction

Name some advisors a company needs to appoint when going public.

Sponsor, accountant, broker, lawyers

What are the benefits of going public?

Access to finance and Use of shares

What are the drawbacks of going public?

High costs and Shareholders' expectations

What are the rights of ordinary shareholders?

To attend general meetings, vote on critical matters, receive dividends, receive a share of assets after liquidation, and participate in new share issues

What preferential rights do preference shares carry?

Ordinary dividend cannot be paid unless all preference dividends due have been paid in full and Preference shares are also higher in the hierarchy in case of liquidation

What are some ways to decrease or increase the number of shares?

Scrip issues, Share splits, Reverse stock splits, Scrip dividends, and Share repurchases

In case of liquidation, what is the order of precedence for distributing proceeds?

Secured creditors, Unsecured creditors, Preference shareholders, and Ordinary shareholders

What are the main features of a rights issue?

Cheaper issuing costs, No dilution of ownership, Not appropriate for large amounts

What is a 'cum rights price'?

The price of an already issued share that carries the right to receive the new shares.

What is the 'rights issue price'?

The price at which the new shares will be offered, usually at a discount.

What is the 'ex-rights price'?

When buying shares no longer gives the right to participate in the rights.

How is the theoretical ex-rights price (TERP) calculated?

cum rights price * (number of old shares / total number of shares) + rights issue price * (number of new shares / total number of shares)

What is the value of the rights in a rights issue?

The difference between the theoretical ex-rights price and the rights issue price.

What can a shareholder do with rights?

An ordinary shareholder can detach the rights from the shares and sell them to other investors.

What are the possible options for an investor following a rights issue?

Subscribe for the new shares, Sell the rights, Take no action and allow the rights to lapse

How is the wealth affected after the first two options?

The wealth of the shareholder will not be affected if they subscribe for new shares or sell the rights.