4 - primary markets

2 types of offer you can have on the primary market

offer for sale

placing/selective marketing

an offer for sale is a type of…

…IPO

what kinds of shares are usually involved in an offer for sale

usually brand new shares but it can also be shares that the founders already own that they want to get rid of

how does an offer for sale work

a company sells its shares to an issuing house (like an investment bank), who then goes to sell those shares to individual investors

what is the issuer house doing in this situation

underwriting

two types of underwriting

hard form —> bank guarantees to buy all the shares

‘best efforts’ —> bank tries to sell what they can but anything leftover just doesn’t get sold

another term for hard form underwriting

bought deal

pro and con of hard form underwriting for the issuing house

pro —> reputation safe

con —> expensive

pro and con of best efforts for the issuing house

pro —> cheaper

con —> reputation if u dont sell them all

two ways the shares can be priced

fixed price offer —> one price

tender offer —> you say what u would pay for it

what is placing/selective marketing

the issuing house places shares directly with selected investors rather than going round to anyone

benefit of placing/selective marketing

cheaper than an offer for sale

what is an introduction

a form of LISTING

what is listing shares

making them tradable on the secondary market, but no new capital is raised

introductions are the __________ form of listing

cheapest

why do companies list at the same time as issuing on to the primary market

so that investors have an easy exit route

2 pros of deciding to list (float)

publicity

gives shares a recognisable value

2 cons of listing

could be taken over + bought by someone else

lots of regulations as a PLC

give 2 examples of potential regulations the company could face after listing

full annual accounts

full interim accounts

who is the ‘lead manager’ in an IPO

the firm (so like investment bank) that oversees the whole thing

what are the 5 parts of the origination team in an IPO, and where do they usually come from

usually but not always from lead manager firm:

sponsor

reporting accountants

legal advisers

PR consultant

corporate broker

what does the sponsor do (3 things)

prep prospectus

sponsor application to UKLA

check its suitable for listing

what do the reporting accountants and legal advisers do

due diligence

what does the PR consultant do

positive publicity - creates an ‘equity story’

what does the corporate broker do

advise on current market conditions —> avoiding volatility basically

larger deals may be ___________

syndicated

what does syndicated mean

more than one lead manager —> usually a lead and co-lead

who usually opts for syndication

very large deals

what does deal syndication involve

book building —> lead managers go on a ‘roadshow’

on this roadshow what are the two things the lead managers do

introduce the company to potential investors

find out what price people will pay —> make a demand curve

what is the aim after they’ve done bookbuilding when they use that info to determine the price etc

to be oversubscribed - so that people are also gunning for the secondary market

therefore they set the price lower than the general consensus was

what two types of demand then come from investors due to this oversubscription that the lead managers engineer

stated demand —> what people say they want (overstated)

actual demand —> what people actually want + are aiming for

how can the company take advantage of oversubscription to raise more capital

green shoe then stabilisation

green shoe meaning

release up to 15% more shares than u intended to take advantage of high demand

stabilisation meaning

the issuing bank uses proceeds from over-allotment (green shoe) to buy shares in secondary market to support the price

what is it called when someone buys shares at IPO and immediately sells them on secondary market for a profit

stagging

flipping

what is the LSE considered to be

an RIE —> recognised investment exchange

what 3 sets of rules do companies listed on the LSE have to follow, and what are they referred to as

constituents of regulation:

• companies act

• UKLA listing rules

• stock exchange rules

4 things the companies act includes

how companies r run and governed

directors’ legal duties

shareholder right

company accounts + reporting requirements

3 things the UKLA listing rules include

requirements for getting securities listed

obligations that apply to listed companies

info + notifications that companies must provide in particular circumstances

4 things stock exchange rules include

how securities are admitted to trading on the LSE

requirements for firms participating in the market

how trading is conducted

what happens when exchange rules are breached

UKLA criteria for a ‘premium listing’

SPeeD WaFT FaCe:

appoint a sponsor

prepare a prospectus

debt securities £200k

warrants not more than 20% of issued share capital

minimum free float = 10% of shares in public hands

minimum trading record = 3 years

pay appropriate fee

minimum market cap = shares £30m

what is a free float

the amount of shares of a PLC that are ‘readily available’ for trading

readily available shares =

total number of shares issued - restricted shares

3 examples of restricted shares

shareholdings of more than 5% of the company

restricted stocks (eg. directors’ holdings)

insider holdings

2 requirements to stay listed

financial information —> prepare interim + final accounts

price sensitive information —> release to market on an equal basis via a PIP

what is a PIP

primary information provider

what is the main PIP used in the UK

RNS —> regulatory news service

where does info go after its gone through a PIP

goes to a SIP (secondary info provider)

examples of SIPs

reuters

refinitiv

lseg workspace

bloomberg

dow jones

what is AIM

alternative investment market —> smaller companies on the LSE

we say they are ‘quoted’ instead of ‘listed’, and therefore have lighter requirements

who sets rules for AIM companies

LSE

2 requirements for admission to aim

shares freely transferrable

appoint a nominated adviser + a broker

another term for nominated adviser

nomad

how long do you have to replace a nomad or broker if you lose one

a month

what happens if you take more than a month

you are kicked off the exchange

what does a nomad do

advise the company on AIM rules

what does an appointed broker do

to ensure there is a market in the company’s shares

6 types of issuer in a bond offering

supranationals

governments

agencies

municipalities

corporates

financial institutions + SPVs

what is a fannie mae agency

a home loan agency

what is a sallie mae agency

student loan agency

who sponsors/backs agencies

the government

how has this backing changed since the crisis

pre 2008: implicit backing

post 2008: explicit backing

5 parts to bond issuance (in order)

similar to equities:

1. pitching/indicative bid

2. mandate

3. credit rating

4. roadshow

5. listing

pitching/indicative bid

bank pitches to the company explaining why they should choose them to organise the bond issue

may suggest an indicative interest rate + cost estimate

mandate

company officially appoints the bank

credit rating

credit rating agency assesses the company

roadshow

company + bank meet potential investors + advertise

listing

the bonds are formally listed on a stock exchange

what would be syndication in bond issuance

same thing - when several banks work on the one deal