investment bank-midterms

• Initial public offering (IPO)


  The debut of a private company on the stock exchange by issuing its shares for the first time to the general public
• IPO process

  1. Deciding the reason behind the release of the IPO

  2. Hiring an investment bank

  3. Underwriting Tasks/Team Assembly

  4. Road Show Marketing

  5. Conducting pre-IPO analyst research

  6. Trading

  7. Post-IPO
• Primary market


  • Shares are first issued here
• Secondary market


  • Contains stock exchanges and over-the-counter (OTC) market. Newly listed shares start trading amongst investors
• Reasons companies offer IPOs

  • Capital Infusion
  • Liquidity for investors
  • Enhanced visibility
• Fixed price offering


  Company sets a specific price for its shares during the initial sale
• Book building offering


  Company offers a price band (typically 20%) for its shares to potential investors. Investors bid on the shares specifying the number of shares they want and the price they are willing to pay per share. The final share price is determined based on the bids submitted by investors.
• Over-Allotment (Green Shoe Option)

  Underwriters allow the issuance of additional shares if the demand or subscription to the IPO exceeds their expectations. This stabilizes the price of the stock in the secondary market by covering excess demand.
• Rights Issue


  Existing shareholders are given the right to purchase additional shares of the said company before the IPO is open to the rest of the public. This makes sure that the existing shareholders have the opportunity to maintain their ownership stake in the company.
• Employee IPOs


  Reserved for the company's employees, giving them the opportunity to purchase shares at a discounted price. This improves employee loyalty and makes sure the interests of the company and its employees are on the same page.
• Pros of IPO


  • Monumental earnings arising out of the IPO help businesses expand themselves and address monetary issues if any
  • Original investors such as venture capitalists and angel investors who had been holding certain shares of the startup make their exit. After the IPO, they sell their shares at a tremendous profit
  • Sometimes, the value of pre-IPO shares is higher than the company's expectation due to hyping. It helps the company enter into accessible acquisition deals and minimize the capital cost
  • It allows favorable credit terms due to quarterly reporting of financial statements. Executives and workers are compensated after the IPO when the business sales and revenue grow
• Cons of IPO


  • A significant risk is not getting a positive response from the investors towards the IPO and thus chances of inability to raise the desired capital
  • Since the company becomes public, it has to reveal all its business information such as finances, team, revenue, tax, accounting, etc. This, in turn, may help the competitors gain an edge over the company
  • IPO is a costly business since a public company has to incur various non-operating expenses. Also, the overheads related to marketing, accounting, management and legal matters go up. Moreover, it consumes excessive managerial efforts and time to maintain the quarterly financial reporting as the company goes public
  • Other drawbacks are stringent legal and regulatory compliance requirements, loss of control, higher accountability towards shareholders, and changes in the board of directors
  • Companies are also thrown into adverse effects when their stocks are subjected to constant speculation post the initial public offering
• Biggest IPOs of All Time

  • Saudi Aramco - $25.6 billion
  • Alibaba Group - $21.7 billion raise
  • Softbank Corp - $21.3 billion
  • NTT Mobile - $18.1 billion
  • Visa - $17.86 billion
  • AIA - $17.78 billion
  • EneL SpA - $16.45 billion
  • Facebook - $16.45 billion
  • General Motors - $16.01 billion
  • ICBC Bank - $15.77 billion
  • Deutsche Telekom - $13.96 billion
• Biggest IPO Failures in History

  • TheGlobe.com
  • Pets.com
  • Vonage
  • Omeros
  • Etsy
  • Uber
  • SmileDirectClub
  • Root
  • Casper Sleep Inc.
  • Robinhood
• Issuer

  The company or the firm that wants to issue shares in the secondary market to finance its operations
• Underwriter


  A banker, financial institution, merchant banker, or broker that assists the company to underwrite their stocks. The underwriters also commit that they will subscribe to the balance shares if the stocks offered at IPO are not picked by the investors.
• Fixed Price IPO


  The issue price that some companies set for the initial sale of their shares
• Price Band

  A value-setting method where a seller offers an upper and lower cost limit, the range within which the interested buyers can place their bids
• Draft Red Herring Prospectus (DRHP)


  The document that lets the public know about the company's IPO listings after the approval made by SEC
• Under Subscription


  When the number of securities applied for is less than the number of shares made available to the public
• Oversubscription


  When the number of shares offered to the public is less than the number of shares applied for
• Green Shoe Option


  An over-allotment option. An underwriting agreement that permits the underwriter to sell more shares than initially planned by the company. It happens when the demand for a share is seen higher than expected.
• Book Building


  The process by which an underwriter or a merchant banker tries to determine the price at which the IPO will be offered. A book is made by the underwriter, where he submits the bids made by the institutional investors and fund managers for the number of shares and the price they are willing to pay.
• Flipping


  The practice of reselling an IPO stock in the first few days to earn a quick profit
• Treasury Bills


  Short-term securities issued by the BTr on behalf of the Government of the Philippines. Used for the effective management of short-term funding needs of the government. Mature in less than 1 year.
• Treasury Bonds


  Government securities issued by the Government of the Philippines via the BTr to raise funds from the domestic financial market. Denominated in Philippine pesos and have maturities beyond 1 year.
• Retail Treasury Bonds (RTBs)


  Issuances of the Government of the Philippines with tenors ranging from 3 years to 25 years that primarily cater to the retail market, due to their smaller denominations and frequent (quarterly) fixed-rate coupon payments
• Multicurrency RTBs


  Retail Treasury Bonds denominated in foreign currencies (USD or EUR) to enable Filipinos to invest in foreign-currency-denominated government securities at an affordable minimum denomination
• Dollar-Linked Peso Notes

  Interest bearing, issued with a tenor of 2–3 years, and can be traded in the secondary market before maturity. Payments of interest and principal are linked to the movement of the exchange rate and computed based on the FX factor
• Retail Treasury Bonds (RTBs)


  Bonds that cater to the retail market, with smaller denominations and frequent (quarterly) fixed-rate coupon payments
• RTBs


  • Minimum denomination of PHP5,000
  • Issued to GSEDs and/or selling agents
  • Issue sizes typically range from PHP20 billion to PHP40 billion
• Government Securities


  • Retail Treasury Bonds
  • Others
• Multicurrency RTBs


  Bonds issued by the government in 2010 to enable Filipinos to invest in foreign-currency-denominated government securities at an affordable minimum denomination of USD100 or EUR100
• Dollar-Linked Peso Notes


  Interest bearing notes issued with a tenor of 2–3 years, can be traded in the secondary market before maturity, payments of interest and principal are linked to the movement of the Philippine peso exchange rate to the US dollar
• Treasury Issuing Process and Auction

  1. Public announcement by the Treasury

  2. Competitive and noncompetitive bidding

  3. Auction date

  4. Issue date

  5. Maturity date

  6. Terms and conditions of the offering

  
• Competitive Auction


  • English auction (or price discrimination method): Successful competitive bidders pay the price for which they have bid; each winning bidder may pay a different price
  • Dutch auction (or uniform price method): Pegging a uniform coupon rate at the stop-out level of arrayed amounts of bids with the corresponding yield rate tendered

  
• Noncompetitive Bid

  A tender by a GSED to buy a specified amount of government securities at a primary auction of government securities, without indicating any yield rate, on the understanding that the award shall be at the weighted average yield rate of the competitive bids awarded at the same auction
• Corporate Bonds


  Medium- to long-term debt instruments issued by corporations and financial institutions to finance their business activities
• Commercial Paper

  Evidence of indebtedness of any person with a maturity of 365 days or less, requires registration with the SEC and a rating from a Philippine credit rating agency, subject to final withholding tax
• Corporate Notes


  Private placements, evidence of indebtedness by private corporations, do not require a rating