Oxbridge Notes | Equity Finance - Public Companies and Equity Finance

Equity Finance

1. Flotations – Preparation for listing

Advantages and disadvantages of listing

Advantages

Access to capital to fund growth and or reduce debt
Providing a market
Public profile

Disadvantages

Burden of disclosure and reporting requirements
Management time
Changes to the board
Cost and fees
Loss of Control

AIM v Market

Advantages of AIM

LR apply only to companies listed on the Official List and do NOT apply to companies on AIM
Besides DTR 5, DTRs DO NOT apply to Aim companies because AIM not a regulated market
AIM companies may find it easier to fall within exemption from requirements to produce full prospectus under the PR. (NB: if no exemption available for s 85(1) FSMA AIM company will still need to produce a full FCA approved prospectus)
AIM rules less onerous than LPDT Rules

Advantages of Main Market

More money, more investors interested
Prestige, greater profile, greater publicity (of course flipside, muss more regulation and disclosure requirement).
Exposure to analyst coverage, investor confidence (and remember that the main investors are professionals so for them the work of analysts is very important.)
Access to LSE only main market.
Since main investors are institutional, they will tend to be roaming around on the main market, this is an advantage.

	AIM only	Main Market only	AIM and Main Market
Applicant must be a public company			X
Minimum market cap of 700,000		X
No restrictions on transferability of shares			X
An applicant requires a nominated adviser and a broker	X
Applicants must comply with the rules of the London Stock Exchange and the LSE Admission and Disclosure Standards		X
Applicants must comply with the Listing, Prospectus, Disclosure and Transparency Rules		X (except DTR 5)
25% of the applicant's shares must be held in public hands at the time of admission		X
Class 1 transactions will require shareholder approval		X
The market has "regulated market" status		X
Applicants must publish annual audited accounts no later than four months after the end of the financial period to which they relate		X
If a company contravenes its continuing obligations, it may be fined or censured and/or the admission of its securities may be cancelled/suspended			X

Steps to be taken by a company in preparation for listing including

Preparation for listing
Re-registration
s. 755 s 90(1)-(3) CA; s. 21(1) s 77(1) CA	Prohibition of public offers by private companies Re-reg as public company Amendment of articles Change of name

LR 6.1.3	Accounts
LR 6.1.16	Working Capital
LR 2.2.4R LR 6.1.23R	Constitution
Listing Principles LR 7.2.1	Corporate procedures at LP 2, 4, 5
Management
LR 9.8.6R(5)-(6)		Two statements relating to Corporate Governance Code
DTR 7.2.1R DTR 7.2.2R DTR 7.2.3R DTR 7.2.4G		Must include a corp gov statement in directors report What the corp gov statement must contain a reference to Publicly available and ‘comply or explain’ A listed company which complies with LR 9.8.6R will satisfy requirements of DTR 7.2.2R and 7.2.3R
UK CG Code B.1 B.1.1 B.1.2 B.2.1		Composition of the Board Independence Make-up of non-executive v executive Nomination Committee
UK CG Code A.2 A.2.1 A.3.1		Division of Responsibilities Chairman and Chief Exec not same person Chairman on appointment must meet B.1.1. If CEO also Chairman, requirements to be met.
UK CG Code D.1.5 D.2.1		Remuneration committee
DTR 7.1.1R DTR 7.1.3R UK CG Code C.3.1		Audit Committees and their functions Relevant Audit body must do certain things Composition of Audit Committee guidance
s. 273 CA 2006		Qualification of secretaries
Share Capital
LR 2.2.3R LR 2.2.9R		Admission to trading Whole class to be listed
s. 551 CA 2006 s. 570(1)		Authority to allot shares Disap of pre-emption rights
s. 618(1)(a) + (3)		Sub-division of shares and resolution needed
LR 2.2.7R		Market Capitalisation minimum requirement to be listed
Shareholders
LR 6.1.19R(1) LR 6.1.19R(3)		Shares in Public hands Definition of “sufficient number of shares”
LR 6.1.19(4)		Examples of when NOT held in “public hands”
LR 6.1.20G		Power of FCA to modify the 25% rule in 6.1.19R(3) above, but this is rare.

2. The offer and application process

Methods of offer: offer for subscription, offer for sale and placing

There are two main types: retail and institutional offerings

	Retail	Institutional
Cost	More expensive as must appoint receiving bank to deal with share applications. Also more advertising required which adds to cost	Shares offerd through IB and broker directly to investors
Timing	More marketing required and share application requests to be processed, so generally takes longer	Fewer investors usually identified prior to Launch
Shareholder Liquidity	Results in larger shareholder base	Lower liquidity as shares held in hands of fewer SH

Retail Offers

Includes two elements: offer for subscription (in which new shares are sold to public) and offer for sale (in which existing shares sold). Often both are used in same floatation.

Offer for subscription: “…subscribe for securities not yet in issue..”
A. Company issues new shares as way of raising capital for company
B. Shares offered to public in IPO: Investors subscribe for shares; and
C. Company appoints receiving bank to accept applications from public and eal with payment for shares

Offer for Sale: “…purchase securities of issuer already in issue or allotted…”
Offer of existing shares. Sold to public in IPO by selling shareholders. Does not raise any new capital for company. Selling shareholder appoints bank to accept applications and receive payment

Institutional Offers

Placing: “…marketing of securities already in issue but not listed…”
Both new and existing shares can be offered by company and selling shareholders. Shares offered to “placees” (clients of sponser, broker, or IB) rather than...

Equity Finance - Public Companies and Equity Finance

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