Chapter19IssuingSecuritiestothePublic1.ThePublicIssueTheBasicProcedureManagementgetstheapprovaloftheBoardofDirectors.ThefirmpreparesandfilesaregistrationstatementwiththeSEC.TheSECstudiestheregistrationstatementduringthewaitingperiod.ThefirmpreparesandfilesanamendedregistrationstatementwiththeSEC.IfeverythingiscopaseticwiththeSEC,apriceissetandafull-fledgedsellingeffortgetsunderway.TheProcessofAPublicOfferingStepsinPublicOffering Time1.Pre-underwritingconferences 2.Registrationstatements 3.Pricingtheissue 4.Publicofferingandsale 5.Marketstabilization

Severalmonths 20-daywaitingperiod Usuallyonthe20thday Afterthe20thday 30daysafteroffering1993至1995年，中國(guó)實(shí)行“額度管理”。其主要做法是，國(guó)務(wù)院證券管理部門(mén)先確定總額度，然后根據(jù)各個(gè)省級(jí)行政區(qū)域和行業(yè)的需要分配總額度，再由省級(jí)政府或行業(yè)主管部門(mén)來(lái)選擇和確定可以發(fā)行股票的企業(yè)(主要是國(guó)企)。此后，股票發(fā)行又實(shí)行了“指標(biāo)管理”。即由國(guó)務(wù)院證券管理部門(mén)確定在一定時(shí)期內(nèi)應(yīng)發(fā)行上市的企業(yè)家數(shù)，然后向省級(jí)政府和行業(yè)管理部門(mén)下達(dá)股票發(fā)行家數(shù)指標(biāo)。省級(jí)政府或行業(yè)管理部門(mén)據(jù)此推薦預(yù)選企業(yè)。

“額度管理”和“指標(biāo)管理”，都是以指令性計(jì)劃為特點(diǎn)的“審批制”。這一階段地方及一些部委在股票發(fā)行上擁有很大權(quán)力。這局面直到1998年才告一段落。1998年2月，根據(jù)國(guó)務(wù)院機(jī)構(gòu)改革方案，國(guó)務(wù)院證券委與中國(guó)證監(jiān)會(huì)合并組成國(guó)務(wù)院直屬正部級(jí)事業(yè)單位，即現(xiàn)在的證監(jiān)會(huì)。證券發(fā)行的審批權(quán)完全收歸中央后，證監(jiān)會(huì)發(fā)行部就成了這一權(quán)力的載體。行政化的審批制度成為滋生腐敗的溫床。1998年5月29日中國(guó)證監(jiān)會(huì)頒布的《股票發(fā)行審核工作程序》已經(jīng)明確地規(guī)定對(duì)上市公司的選擇分兩個(gè)階段進(jìn)行。第一個(gè)階段是預(yù)選階段，其中有五個(gè)步驟：(1)中國(guó)證監(jiān)會(huì)下達(dá)股票發(fā)行家數(shù)指標(biāo)；(2)地方政府或國(guó)務(wù)院有關(guān)產(chǎn)業(yè)部門(mén)推薦；(3)中國(guó)證監(jiān)會(huì)發(fā)行部受理預(yù)選材料；(4)征求國(guó)務(wù)院有關(guān)部門(mén)意見(jiàn)；(5)中國(guó)證監(jiān)會(huì)預(yù)選審核。第二階段是審批階段，其中又有五個(gè)步驟：(1)地方政府或國(guó)務(wù)院有關(guān)產(chǎn)業(yè)部門(mén)初審；(2)中國(guó)證監(jiān)會(huì)發(fā)行部受理申報(bào)材料；(3)中國(guó)證監(jiān)會(huì)發(fā)行部審核；(4)發(fā)行審核委員會(huì)審議；(5)發(fā)審委審議通過(guò)后，中國(guó)證監(jiān)會(huì)將根據(jù)市場(chǎng)情況，確定企業(yè)發(fā)行的具體時(shí)間，并按程序核發(fā)準(zhǔn)予公開(kāi)發(fā)行股票的批文。通過(guò)嚴(yán)格的審批程序和產(chǎn)業(yè)發(fā)展要求來(lái)選擇上市公司。

我國(guó)股票一級(jí)市場(chǎng)對(duì)新上市公司的選擇基本上體現(xiàn)了國(guó)家的產(chǎn)業(yè)政策方向新股發(fā)行的大部分集中在水利、交通、通訊等基礎(chǔ)產(chǎn)業(yè)；電子信息、生物工程、新材料、航天航空等高新技術(shù)產(chǎn)業(yè)，電子、石化、汽車(chē)等國(guó)家支持的產(chǎn)業(yè)以及其他政府鼓勵(lì)支持的行業(yè)范圍，特別是其中的國(guó)有企業(yè)因所在行業(yè)中的地位重要、主業(yè)突出、潛力較大，在新股發(fā)行中的比重明顯提高。2000年3月《股票發(fā)行核準(zhǔn)程序》頒布實(shí)施，標(biāo)志著“核準(zhǔn)制”的正式施行。

核準(zhǔn)制取消了由行政方法分配指標(biāo)的做法，改為由主承銷(xiāo)商推薦、發(fā)行審核委員會(huì)表決、證監(jiān)會(huì)核準(zhǔn)的辦法。

2001年3月，中國(guó)證券市場(chǎng)開(kāi)始實(shí)行了核準(zhǔn)制下的“通道制”，也就是向各綜合類(lèi)券商下達(dá)可推薦擬公開(kāi)發(fā)行股票的企業(yè)家數(shù)。只要具有主承銷(xiāo)商資格，就可獲得2至9個(gè)通道，具體的通道數(shù)以2000年該主承銷(xiāo)商所承銷(xiāo)的項(xiàng)目數(shù)為基準(zhǔn)，新的綜合類(lèi)券商將有2個(gè)通道數(shù)。2004年2月以后“保薦制”階段即保薦代表人制度。保薦制的主體由保薦人和保薦機(jī)構(gòu)兩部分組成，滿(mǎn)足一定條件和資格的人可擔(dān)任企業(yè)發(fā)行股票的保薦人。凡具有兩個(gè)以上保薦人的證券公司（或資產(chǎn)管理公司），并具備推薦企業(yè)發(fā)行上市的資格，就可成為保薦機(jī)構(gòu)。管制結(jié)果發(fā)行腐敗ST資源AnExampleofaTombstoneAdvertisement19.2AlternativeIssueMethodsTherearetwokindsofpublicissues:ThegeneralcashofferTherightsofferAlmostalldebtissoldingeneralcashofferings.19.3TheCashOfferTherearetwomethodsforissuingsecuritiesforcash:FirmCommitmentBestEffortsTherearetwomethodsforselectinganunderwriterCompetitiveNegotiatedFirmCommitmentUnderafirmcommitmentunderwriting,theinvestmentbankbuysthesecuritiesoutrightfromtheissuingfirm.Obviously,theyneedtomakeaprofit,sotheybuyat“wholesale”andtrytoresellat“retail”.Tominimizetheirrisk,theinvestmentbankerscombinetoformanunderwritingsyndicatetosharetheriskandhelpselltheissuetothepublic.BestEffortsUnderabesteffortsunderwriting,theunderwriterdoesnotbuytheissuefromtheissuingfirm.Instead,theunderwriteractsasanagent,receivingacommissionforeachsharesold,andusingits“bestefforts”toselltheentireissue.Thisismorecommonforinitialpublicofferingsthanforseasonednewissues.Whatistheincentiveofaninvestmentbankertochooseafairpriceforanewsecurityissue?PricinganewsecurityisextremelydifficultInvestmentbankerhasbetterinformationandabilitytochoosefairpricethananyoneelseIfinvestmentbankeronaveragepricesissuestoohigh,buyersinthefuturewillnotwanttobuyfromthatbanker

Ifinvestmentbankeronaveragepricesissuestoolow,issuersinthefuturewillnotwanttousethatinvestmentbankerReputationofinvestmentbankerprovidesthemwithanincentivetopriceissuesaccuratelyDoinvestmentbankersonaveragepriceIPOsfairly?

Answer-NO!

Fact:10,626U.S.IPOswereconductedbetween1960and1992.Averagefirstdayreturnof15%.

Howshouldissuersfeelaboutthisunderpricing?

Explanationsforunderpricing: -makesissueeasiertosell -lowpriceaffectsthepricepathinthefuture -winner’scurseExampleofwinner’scurse:Underwriterneedstosell1millionsharesTwotypesofinvestors:informedanduninformed

Uninformedinvestors:willingtobuy1millionsharesatafairprice

accuratelyassesstruevalueofthesharesat$10withprob.=.5$12withprob.=.5

Informedinvestors:

knowifthesharesareworth$10or$12 willingtoorder1millionsharesifofferpriceislessthanthetruevalueSupposeunderwriterofferssharesat$11

Claim:Iftheuninformedpurchasesharesfor$11,onaveragetheywilllosemoneyCase1:Truevalueis$12Informedinvestorsorder1millionsharesUninformedinvestorsorder1millionshares

Eachsetofinvestorsgets500,000shares(pro-ratarule)

Informedanduninformedinvestorsbothmake$500,000each.

Case2:Truevalueis$10

Informedinvestorsorder0sharesUninformedorder1millionsharesUninformedinvestorslose$1million.Uninformedgetrelativelymoreshareswhenthesharesarepricedabovetruevalue-winner'scurseExpectedprofittouninformed:. 5(500,000)+(.5)(-1,000,000)=-250,000

Basiclesson:Underwritermustsetofferprice<expectedvalue

AtwhatpricePwilltheentireissuesell?

ChoosePsothat:[.5x500,000x(12-P)]+[.5x1,000,000x(10-P)]=0P=10.667DoesthisexplaintheIPOunderpricinginChina?-NO!19.4TheAnnouncementofNewEquityandtheValueoftheFirmThemarketvalueofexistingequitydropsontheannouncementofanewissueofcommonstock.ReasonsincludeManagerialInformation Sincethemanagersaretheinsiders,perhapstheyaresellingnewstockbecausetheythinkitisoverpriced.DebtCapacityIfthemarketinfersthatthemanagersareissuingnewequitytoreducetheirdebt-equityratioduetothespecteroffinancialdistressthestockpricewillfall.FallingEarningsFact:marketreactiontoseasonedequityissuesisnegativeonaverage

Why?-Apossibleexplanationbasedonasymmetricinformation

Firmsthatknowtheyareundervaluedbythemarketarehesitanttosellequitytoocheaply

FirmsthatknowtheyareovervaluedbythemarketareveryeagertosellequityataninflatedpriceCompanyAwillbeveryhesitanttoissueequityat$80

CompanyBwillbequiteeagertoissueequityat$80 MaybenocrediblewayforCompanyAtoconvincemarketthattheirsharesarereallyworth$90

·

Marketrealizesthatafirmthatissuesequityisworthlessthantheircurrentprice

·

Marketwillonlypay$70persharetofirmsthatannouncetheywanttosellequity

·

Anticipatingthismarketreaction,companyAwillprobablychoosetoeitherusedebtorelsetopassupinvestmentprojects19.5TheCostofNewIssuesSpreadorunderwritingdiscountOtherdirectexpensesFilingfees,LegalfeesIndirectexpensesAbnormalreturnsUnderpricingGreenShoeOptionGivestheunderwriterstherighttocoveroverallotments.Givesinvestmentbankersrighttobuyadditionalshares(typically15%ofoffer)atofferpriceTheCostsofPublicOfferingsWhatdoweknowaboutthesecosts?

1.

1.Economiesofscaleinsecurityissuancecosts-trueforalltypesofissues:IPOs,seasonedequityissues,publicbondissues 2.Firm-commitmentvs.best-effortsIPOs-Directcostsareaboutthesame -Moreunderpricingforbesteffortsarrangements

TheCostsofPublicOfferings

3.Directcostestimates(spread+otherdirectcosts):1990-1994issues

IPOs:5-11% SEOs:3-7% Convertiblebonds:2-7% Straightbonds:?-4%

4.ForIPOs,underpricingisalargercostthandirectcosts

-Manyfirmsgoingpublicdonotconsiderthisacost -Totalcostsofgoingpubliccanbesubstantial19.6RightsIfapreemptiverightiscontainedinthefirm’sarticlesofincorporation,thefirmmustofferanynewissueofcommonstockfirsttoexistingshareholders.Thisallowsshareholderstomaintaintheirpercentageownershipiftheysodesire.MechanicsofRightsOfferingsThemanagementofthefirmmustdecide:Theexerciseprice(thepriceexistingshareholdersmustpayfornewshares).Howmanyrightswillberequiredtopurchaseonenewshareofstock.Theserightshavevalue:Shareholderscaneitherexercisetheirrightsorselltheirrights.RightsOfferingExamplePopularDelusions,Inc.isproposingarightsoffering.Thereare200,000sharesoutstandingtradingat$25each.Therewillbe10,000newsharesissuedata$20subscriptionprice.Whatisthenewmarketvalueofthefirm?Whatistheex-rightsprice?Whatisthevalueofaright?RightsOfferingExampleWhatisthenewmarketvalueofthefirm?Thereare200,000outstandingsharesat$25each.Therewillbe10,000newsharesissuedata$20subscriptionprice.RightsOfferingExampleWhatistheex-rightsprice?Thereare110,000outstandingsharesofafirmwithamarketvalueof$5,200,000.Thusthevalueofanex-rightsshareis:Thusthevalueofarightis$0.2381=$25–$24.761919.7TheRightsPuzzleOver90%ofnewissuesareunderwritten,eventhoughrightsofferingsaremuchcheaper.Afewexplanations:Underwritersincreasethestockprice.Thereisnotmuchevidenceforthis,butitsoundsgood.Theunderwriterprovidesaformofinsurancetotheissuingfirminafirm-commitmentunderwriting.Theproceedsfromunderwritingmaybeavailablesoonerthantheproceedsfromarightsoffering.Nooneexplanationisentirelyconvincing.19.8ShelfRegistrationPermitsacorporationtoregisteranofferingthatitreasonablyexpectstosellwithinthenexttwoyears.Notallcompaniesareallowedshelfregistration.Qualificationsinclude:Thefirmmustberatedinvestmentgrade.Theycannothaverecentlydefaultedondebt.Themarketcapitalizationmustbe>$75m.NorecentSECviolations.longrunperformance

Fact:For5yearperiodfollowingtypicalIPOsandSEOs,thesestocksunderperformmarketindices–effectislargestforsmallfirms

IPOSIfyouinvestedinIPOsover1970-1990andheldeachfor5years,youraverage5yearreturnwouldbe15.7%.

Ifyouinvestedinnon-IPOswithsimilarcharacteristicstotheIPOfirmsyouraveragereturnwouldbe66.4%SEOS

IfyouinvestedinfirmsafteranSEOover1970-1990andheldeachfor5years,youraverage5yearreturnwouldbe33.4%.

Ifyouinvestedinnon-SEOfirmswithsimilarcharacteristicstotheSEOfirmsyouraveragereturnwouldbe92.8%

Arethesefindingsconsistentwithefficientmarkets?Explanations

-measurementerror/statisticalproblems

-“windowsofopportunity”Bondofferings

Publicbonds-samebasicprocedureasissuingequity

-engageaninvestmentbanker -registerissuewithSEC

Notes:underwritingcostsaresmallerthanforequityissues asymmetricinformationproblemsarealsosmaller

PrivateplacementmarketDefinition:Sellingdebttoasmallgroupofinvestors-oftenbydirectnegotiationwithoutaninvestmentbanker

Accountsfor?ofallnewcorporatedebt,typicalbuyers:

-insurancecompanies -pensionfunds

Whyissueprivatelyplaceddebtratherthanpublicdebt?

AvoidsregistrationrequirementsLowertransactionscoststoissueEasiertocustomizeandrenegotiateWhyissuepublicdebtratherthanprivatelyplaceddebt?

Privateplacementinvestorsdemandapremiumforlackofliquidityofprivatedebt

Developmentsintheprivateplacementmarket

Rule144A(1990)-qualifiedinstitutionalbuyersallowedtotradeunregisteredsecurities.Result: -increasedliquidity -increasedforeignissuesinU.S.19.9ThePrivateEquityMarketTheprevioussectionsassumedthatacompanyisbigenough,successfulenough,andoldenoughtoraisecapitalinthepublicequitymarket.Forstart-upfirmsandfirmsinfinancialtrouble,thepublicequitymarketisoftennotavailable.PrivatePlacementsAvoidthecostlyproceduresassociatedwiththeregistrationrequirementsthatareapartofpublicissues.TheSECrestrictsprivateplacementissuestonomorethanacoupleofdozenknowledgeableinvestorsincludinginstitutionssuchasinsurancecompaniesandpensionfunds.Thebiggestdrawbackisthatthesecuritiescannotbeeasilyresold.VentureCapitalThelimitedpartnershipisthedominantformofintermediationinthismarket.Therearefourtypesofsuppliersofventurecapital:Old-linewealthyfamilies.Privatepartnershipsandcorporations.Largeindustrialorfinancialcorporationshaveestablishedventure-capitalsubsidiaries.Individuals,typicallywithincomesinexcessof$100,000andnetworthover$1,000,000.Oftenthese“angels”havesubstantialbusinessexperienceandareabletotoleratehighrisks.StagesofFinancingSeed-MoneyStage:Smallamountofmoneytoproveaconceptordevelopaproduct.Start-UpFundsarelikelytopayformarketingandproductrefinement.First-RoundFinancingAdditionalmoneytobeginsalesandmanufacturing.Second-RoundFinancingFundsearmarkedforworkingcapitalforafirmthatiscurrentlysellingitsproductbutstilllosingmoney.Third-RoundFinancingFinancingforafirmthatisatleastbreakingevenandcontemplatingexpansion;a.k.a.mezzaninefinancing.Fourth-RoundFinancingFinancing