Day 132 Issuing shares

Issuing shares

Share investment is probably the most common and mostly participated investment vehicle in the financial system. It has the characteristic of high liquidity, return and more risks. The information on the stock market is broadly available, so the price is relatively fluctuated in regard of market factors. In order to comprehend this instrument, we have to understand the procedure of issuing shares. 

If a unlisted company wants to enter the market, it must comply with all the provisions and legislative regulations implemented by ASIC and ASX listing rule. The company has to run through a complicated and costly audit process, hence they can publish the prospectus of the offering. The prospectus needs to include all the information refer to the price of share, company’s main business forecast or the schedule of the offering. Since it is a new company entering the market, the whole process is called the Initial Public Offering (IPO). As we mentioned above, the IPO can be very expensive and complicated, therefore, the listed company tends to avoid repeating this process by other methods of issuing shares. One of the common approaches is the right offering, where the company allocates a right certificate to existing shareholders. This certificate lasts for a short period and allows the holder to purchase the new issued shares in priority. If the shareholders refuse to buy these new shares, they may sell this certificate to other investors. In addition, the private placement is also very common. The new shares are sold to financial institutes of investors at a discounted price. It can be a positive figure in the market, because it indicates the institutions recognize the value to these shares. However, the private placement is strictly limited on 10% of the share capital per annum by the ASX listing rules, due to the prevention of takeovers. Furthermore, the stock spin-off works as a cost reduction tool. The name itself vividly depicts the procedure, that the company distributes the existing shares of the subsidiary company to shareholders, as a result the subsidiary can be de-merged as a separated entity. At last, the company may want to reduce its share price by performing the stock split. Normally, the company will allocate the new shares corresponding to the proportion of current shareholding. It can effectively reduce the market price of the share, thus encourage trading appeal. 

In conclusion, the corporation would prefer different method than IPO to issue new shares. Obviously, the major reason behind it is the cost and reporting duty in the process.