Sunday, July 25, 2010

Methods of Issuing Shares

Offer For sale
This is where the company which is issuing the shares will offer the shares to an issuing house. Generally a merchant bank will cat as an issuing house. The shares bought over by the issuing house will be re issued to the general public. Under this method the company which is issuing the shares can make use of the financial strength and the image of the issuing house to make.

Prospectus Issue
This is where the company will directly issue the shares to the general public by preparing a document called a prospectus which will be used to invite general public to participate in the share issue. Therefore the prospectus will carry information about the company, its past, its present and the future expectations. This will be an expensive method of issuing shares. This is because the company which is issuing the shares should bear the cost of preparing the prospectus, advertise, the share issue, pay underwriting cost. If the share issue is to be underwritten and incur any legal fees necessary to make the share issue possible such as changing the articles and memorandum of association. In a prospectus issue the company can make use of an issuing house for the administration of the share issue.

Placing
This is where the company which is carrying out the share issue will select large institutional investors and offer the shares by conducting “road shows”. A road show is where the company will conduct a presentation to educate the selected investors about the share issue. This will be a low cost method of issuing the shares. Some of the institutional investors who will be interested in the share issue will include pension funds, unit trusts, venture capital organizations, building societies.

Offer for Sale by Tender
This is where the company which is issuing the shares will call upon the investors to bid the price at which they are willing to buy the shares. Therefore each individual investor will indicate the quantity of shares they expect to buy and price they are willing to pay. The company should decide upon a price at which all the shares can be issued and collect the highest possible revenue. This price will be called the strike price.

Stock Exchange Introduction
This is where a company which already has shares in issue, wants to obtain a listing (quotation) in a recognized stock exchange. In a stock exchange introduction the company will not issue new shares but will obtain a facility to have the existing shares traded in the stock exchange. This can be used by the existing shareholders as an ‘exit rate’ where the shareholders can convert their paper wealth (share certificate) in to cash.

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