Financial instruments 金融工具.ppt

Initial Public Offerings IPOs When companies raise capital for the first time by issuing new shares Seasoned equity offerings SEOs refer to issue of new shares by a company that is already publicly traded already made an IPO Company assesses proposals from investment banks and chooses one – ‘managing underwriter’ * IPO Risks Managing underwriter advises the company on security design registers the issue with the SEC 30-90 days orchestrates a “road show” assembles an underwriting syndicate who engage in book building Syndicate acts as wholesaler. Offer price set hours before stock goes public. Company bears price risk during the registration process ; syndicate bears risk associated with unsold shares, which they cannot sell above the offer price. * Shelf registration Shelf registration is a general purpose registration giving broad terms of the securities to be issued , good up to two years, that allows the firm to get quick approval A single underwriter often buys the entire issue. Cuts the time lag from several months to a few days Competitive bids lower the issue costs. * Private Placement Corporations can avoid registering with SEC by placing the securities privately with institutional investors. The private placement market is about half the size of the public market, excluding bank loans. Attractive option if public investors not especially receptive for reasons of complexity. Advantages to company are quicker and easier to negotiate, can be custom tailored to specific needs Disadvantage is that as unregistered securities they cannot be traded on financial markets – less liquid Rule 144A now allows for trading of privately placed securities among institutional investors. * Issue Costs For privately negotiated transactions, issue cost amounts to the investment banking fee. For public issues, there are also legal, accounting, and printing fees. Cost comparisons 2.2% for straight debt. 3.8% for convertible bonds. 7.1% for secondary offerings . 1