Process of issuing a stock

As we’ve stated before, firms will issue stock to raise capital for a variety of business decisions. It is important to note that a firm might also choose to issue bonds, or other sources of financing. This section will focus on the processes a firm undertakes when they decide to issue stock as a source of capital.

Firms can raise capital in several different ways. The most common ways are discussed below: [1]

Private placement: These are usually done through an investment bank or a stockbroker, and typically the purchaser will be high-net-worth individuals / institutional investors. These methods are typically used by unlisted companies (those not on the stock exchange).

Rights issue: These are shares that are offered to existing shareholders. They will usually be made on favourable terms to the existing shareholders, such as a discount to the current share price.

Stock exchange listings: Businesses can offer capital through issuing shares of the stock exchange if they are listed, known as ‘new stock issues’. Listed stocks can be purchased through a broker by any member of the public.

• If the company is unlisted, it can offer shares through an initial public offering (IPO):

  • Typically, an investment bank or stockbroker will be appointed to assist in the process – they will determine the market demand that is out there, assist in preparing the company financials, and assist in the prospectus preparation.

• Steps usually involve:

  • analysis of the funding needs

  • appointment of an underwriter and timetable

  • due diligence by a financial adviser

  • determining the offer structure and pricing

  • developing a marketing strategy

  • preparation and marketing of prospectus

  • receipt of funds

  • approval by stock exchange

  • listing of stock.

Read pages 19–23 of the Maddocks guide on how to prepare for an IPO.

Read: A guide to listing & the IPO process in Australia [2]

Below provides some insight into the timelines of an IPO listing on the Australian Stock Exchange.

Click to enlarge

Click to enlarge

References

_{1. How businesses raise financial capital [Internet]. BC Open Textbooks. Available from: https://opentextbc.ca/principlesofeconomics/chapter/17-1-how-businesses-raise-financial-capital/}

_{2. A guide to listing & the IPO process in Australia [PDF]. Australian Stock Exchange; 2018 Sep. Available from: https://www.asx.com.au/documents/resources/A-Guide-to-Listing-SEP-18-Maddocks.pdf}