Corporate Finance Revision Summary Notes

Corporate Finance: Revision Summary

INDEX OF ABBREVIATIONS

- RIE – Recognised Investment Exchange

- IPO – Initial Public Offering

- PR – Prospectus Rules

- LR – Listing Rules

- DTR – Disclosure Guidance and Transparency Rules

- LP – Listing Principles

- PLP – Premium Listing Principles

- FSMA 2000 – Financial Services and Markets Act 2000

- RAO – Financial Services and Markets Act 2000 Regulated Activities Order 2001

- FPO – Financial Services and Markets Act 2000 Financial Promotions Order 2005

- MAR – Market Abuse Regulations

- CJA – Criminal Justice Act 2002

- FSA – Financial Services Act 2012

- UK CGC – UK Corporate Governance Code

- RCF – Revolving Credit Facility

- LSE – London Stock Exchange

- AIM – Alternative Investment Market

- FCA – Financial Conduct Authority

- MAC - Material Adverse Change

- EoD – Event of Default

CORPORATE FINANCE: KEY TERMS AND CONCEPTS

- Recognised Investment Exchange (RIE) – Investment exchange recognised by the FCA + exempt from general prohibition in respect of regulated activities in s.19(1) FSMA 2000 – includes LSE Main Market and AIM.

- Regulated Market – Defined in FCA Handbook – includes Main Market of LSE but NOT AIM.

- Prescribed Market – Defined in FSMA Regulations + includes LSE Main Market and AIM.

- Quoted Company – Company whose equity securities are listed on the Official List.

- Traded Company – Company, any shares of which carry rights to vote at general meetings and are admitted to trading on a regulated market in an EEA Member State.

- Primary Issue – First time that company makes offer of listed shares – also known as a ‘flotation’ or ‘initial public offering’ (IPO).

- Secondary Issue – Subsequent issue of shares by a listed company.

- Companies Act 2006 s.755: Prohibition of Public Offers by Private Companies – Private companies prohibited from offering shares to the public.

- s.756: Public Offer – Includes offers not intended to be limited solely to persons to whom the offer was directly communicated.

- Public Companies – Generally larger companies capable of offering shares to public – private company can re-register as a public company by following the procedure in s.90 Companies Act 2006.

- Listed Company – 3^rd stage in development of a company where company’s shares are listed on the Official List and admitted to trading on the Main Market of the LSE.

- Central Securities Depository (CSD) Regulation 2014 – Governs ‘central securities depositories’ in the EU – aimed to harmonise the timing/conduct of securities transactions + requires all dealings in listed shares to be settled electronically.

- ‘Central Securities Depositories’ – Institution which holds financial instruments and facilitates electronic transfer of financial instruments.

- CREST – Computerised system which allows shares to be held/traded electronically between CREST members by issue of instructions to CREST regarding the price/number of shares being transferred BUT only UK listed companies or companies established in other jurisdictions which have adopted the CREST system can be traded using CREST – 4 ways in which investors may operate CREST accounts:

(a) Direct Users – Have direct connection to CREST – usually banks/stockbrokers who settle trades on CREST on daily basis.

(b) Sponsored Members – No direct connection to CREST but appoint a direct user to communicate with CREST on their behalf.

(c) Shares Held Through Nominee – Shareholder appoints a direct user to act as their nominee and hold shares on behalf of the shareholder in a nominee account – nominee’s name appears on company’s register of members and holds legal title to the shares BUT agrees to forward all communications/dividends/other payments received from company to shareholder.

(d) Non-CREST Members – Shareholders who are NOT CREST members wishing to transfer shares into CREST to sell them in course of a flotation must use a CREST Transfer Form.

ANALYSIS OF LISTING SECURITIES

(1) Advantages of Listing a Company’s Shares

(a) Access to Capital – Flotation allows for injection of cash/capital into company to fund expansion or reduce existing debts to improve gearing ratio – new shareholders also act as potential source of additional funding in the future.

(b) Providing a Market – No market for trading in shares in unquoted companies BUT by obtaining admission of shares to the Main Market/AIM company allows shareholders to buy/sell shares on a public market + makes it easier for company to conduct secondary share issues.

- Flotation allows existing shareholders to sell shares or invest in further shares + enables them to buy/sell shares in the company thereafter due to existing market in the company’s shares.

(c) Public Profile – Publicity generated by a flotation will usually benefit the business of the company.

(d) Investor Confidence – Listed companies must keep investors unformed of its financial performance – allows for closer monitoring of company by investors and ensures that financially successful companies acquire the confidence of their investors.

(2) Disadvantages of Listing a Company’s Shares

(a) Disclosure/Reporting Requirements – Companies on Official List must comply with large number of regulatory requirements (e.g. LPDT Rules + Market Abuse Regulation 2014 + LSE Admission and Disclosure Standards + Disclosure Guidelines and Transparency Rules + Prospectus Rules/PD Regulation) + non-compliance can lead to penalties/censure/suspension of trading/cancellation of listing.

(b) Management Time – Listing on Main Market or admission to AIM can be complex/time-consuming process – requires company directors to devote substantial amount of time/resources to the flotation process at same time as continuing to operate the business of the company.

(c) Changes to Board – Potential investors will want to ensure that investors have appropriate experience/expertise and may demand changes to the board.

- Listed companies must comply with requirements of Corporate Governance Code regarding...

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