Rich Dad’s Financial IQ Cultivation: Stock Fundamentals

Chapter 11 Issuance and Listing of Stocks (1)
((Section [-])) The market and method of issuance of stocks

([-]) The stock market
The establishment of a new company, capital increase or debt borrowing of an old company must go through the issuance market, and all of them must rely on the issuance and sale of stocks to raise funds, so that funds are transferred from suppliers to demanders, that is, savings are converted into investment. , so as to create new real assets and financial assets, increase social total capital and production capacity, and promote social and economic development. This is the role of the primary market.The issuance market refers to the whole process from planning to sales of stocks, and the issuance market is a market where capital demanders directly obtain funds.

1. The constituent factors of the stock market

The occurrence market is composed of three main factors connected with each other.These three are stock issuers, stock underwriters and stock investors.The issuer's stock issuance scale and the investor's actual investment ability determine the stock capacity and degree of development of the issue market; at the same time, in order to ensure the smooth progress of the transaction and enable the issuer and investors to achieve their goals smoothly, The intermediary issuance market for underwriting and underwriting stocks, issuing stocks on behalf of the issuer, and charging the issuer a handling fee.In this way, the issue market is centered on underwriters, who contact issuers with one hand and investors with another, and actively carry out stock issuance activities.

2. Characteristics of the stock issuance market

The characteristics of the issuance market are: first, there is no fixed place, and it can occur in investment banks, trust and investment companies, securities companies, etc., and new stocks can also be sold publicly in the market; Depending on the needs of the market and the trend of the market, you can decide when to issue.

([-]) Method of stock issuance

Under the different political, economic and social conditions of various countries, especially the differences in financial systems and financial market management, there are various ways to issue stocks.According to different classification methods, it can be summarized as follows: whether there is the participation of intermediary agencies in the issuance, the choice of investors is different, the ways of stock issuance include direct issuance and indirect issuance, public issuance and private placement, as well as paid capital increase, free capital increase and capital increase. Matching capital increase, etc., will be introduced separately below.

(1) Public offering and private placement

This is divided according to the different objects issued.Public offering, also known as public offering, refers to a method of publicly selling stocks to investors in the society without a specific offering target in advance.In this way, the scope of shareholders can be expanded, shareholding can be dispersed, and stock hoarding or manipulation by a few people can be prevented, which is conducive to improving the company's sociality and popularity, and laying the foundation for raising more funds in the future.It can also increase the marketability and liquidity of the stock.The public offering can be done directly by the joint-stock company itself, or through a financial intermediary agency by paying a certain issuance fee.Private placement, also known as private placement, refers to the way in which the issuer sells stocks only to specific target audiences.It is usually used in two situations: one is shareholder allotment, also known as shareholder apportionment, that is, the joint-stock company distributes the company's new share subscription rights to the original shareholders according to the face value of the stock, and mobilizes shareholders to subscribe.The issuance price of this new stock is often lower than the market price, which in fact becomes a kind of preferential treatment for shareholders, and most shareholders are willing to subscribe.If some shareholders are unwilling to subscribe, he can automatically give up the subscription right for new shares, or transfer this subscription right to others, thus forming a subscription right transaction.The second is private allotment, also known as third-party apportionment, that is, the joint-stock company sells new shares to third parties who have special relationships with the company, such as employees and customers of the company other than shareholders.This method is often adopted for two considerations: one is to allocate new shares to specific parties at preferential prices to show care; the other is to allocate new shares to a third party for support when new stock issuance encounters difficulties, whether Shareholders or private placement, since the target of the issuance is established, it is not necessary to go through the public offering method, which can not only save the handling fee of entrusting an intermediary agency, reduce the cost of issuance, but also mobilize the enthusiasm of shareholders and internal parties, project solid and develop the company's public relation.But the disadvantage is that the liquidity of such non-publicly issued stocks is poor, they cannot be transferred and sold in the market, and it will also reduce the sociality and popularity of the joint-stock company, and there is also the danger of being priced and controlled.

(2) Direct issuance and indirect issuance
This is based on how the issuer markets the stock for sale.Direct offering is also called direct offering.It refers to the way in which the joint-stock company undertakes all affairs and issuance risks of stock issuance, and directly promotes and sells stocks to subscribers.When adopting the direct issuance method, the issuer is required to be familiar with the procedures for offering shares, be proficient in offering techniques and meet certain conditions.If the subscription amount does not reach the planned offering amount, the promoters of the new joint-stock company or the board of directors of the existing joint-stock company must themselves subscribe for the shares to be sold.Therefore, it is only applicable to stocks with established issuers or with less risk of issuance and simple procedures.Under normal circumstances, stocks that are not publicly offered or have difficulties in public offering (such as poor market competitiveness due to low reputation, unable to bear large issuance costs, etc.); or are strong enough to be sure to achieve huge private placement The stock of a large joint-stock company that saves the cost of issuance can only be issued directly.

Indirect offering, also known as indirect offering, refers to the way in which the issuer entrusts a securities issuing intermediary agency to sell stocks.These intermediaries, as the promoters of stocks, handle all issuance affairs, assume certain issuance risks and extract corresponding income from them.There are three methods for the indirect issuance of stocks: one is consignment sales, also known as agency offerings. The promoters are only responsible for selling stocks according to the issuer’s conditions, acting as an agent for the offering business, and do not bear any issuance risks. How much, and the stocks that cannot be sold at the expiration date will be returned to the issuer.Since all issuance risks and responsibilities are borne by the issuer, the securities issuance intermediary agency is only entrusted to sell the securities on its behalf, so the agency sales fee is relatively low.The second is underwriting, also known as surplus stock underwriting. The stock issuer and the securities issuing intermediary agency sign a sales contract that clearly stipulates that within the agreed time limit, if the actual sales result of the intermediary agency fails to reach the issuance amount stipulated in the contract, the difference will be paid by the company. The intermediary agency will purchase it by itself.The feature of this issuance method is that it can guarantee the completion of the stock issuance quota, and is generally more popular with issuers. However, intermediary agencies need to bear certain issuance risks, so the underwriting fee is higher than that of consignment sales.The third is underwriting, also known as package buying. When issuing new stocks, the securities issuing intermediary agency first buys all the stocks to be publicly issued with its own funds at one time, and then gradually sells them according to market conditions. Earn the bid-ask spread.If there are unsalable stocks, the intermediary agency sells them at a reduced price or holds them by itself. Since the issuer can quickly obtain all the funds raised, and the promoter has to bear all the risks of the issuance, the underwriting fee is higher than the agency fee and underwriting fee.As to which method to use in the indirect issuance of stocks, the issuer and the promoter have different considerations and need to be negotiated and determined by both parties.Generally speaking, issuers mainly consider their own reputation in the market, time to use funds, issuance costs, and degree of trust in promoters; promoters mainly consider the risks they undertake and the benefits they can obtain.

(3) Paid capital increase, free capital increase and matching capital increase
This is divided according to whether the investor pays the share capital when subscribing for the stock.Paid capital increase refers to an issuance method in which the subscribers must pay cash at a certain issue price of the stock in order to obtain the stock.Generally, public offering of stocks and private placement of shareholders and private placements all adopt the method of paid capital increase. Issuing stocks in this way can directly raise equity from the outside world and increase the capital of the joint-stock company.Free capital increase refers to the issuance method in which subscribers do not need to pay cash to the joint-stock company to obtain stocks. The public reserve or surplus balance is used to increase the capital fund. Generally, the issuance method of free capital increase is only used when stock dividends are distributed, stock splits and statutory public reserves or surplus are transferred to capital. The new shares are delivered to the original shareholders for free in proportion. Mainly for the benefit of shareholders, to enhance the confidence of shareholders and the company's reputation or to adjust the capital structure.Since gratuitous issuance is limited by the source of funds, this method cannot often be used to issue shares.Matching capital increase means that when a joint-stock company allocates new shares to original shareholders, it only allows shareholders to pay a part of the issue price to obtain a certain amount of shares. The rest will be issued free of charge and offset by the company's public reserve.This way of issuance is also a kind of preference for the original shareholders, and only part of the share funds can be collected from them, so that the company's capital increase plan will be realized soon.

The above-mentioned stock issuance methods have their own advantages, disadvantages and constraints. When issuing stocks, a joint-stock company can adopt one of them, or several methods in combination. Each company proceeds from its own actual situation and chooses the best one.At present, the most common methods adopted by countries all over the world are open and indirect disclosure.

(Section [-]): Issue Prices of Common Stocks
[-]. How to determine the issue price of the stock

In the international stock market, when determining the issue price of a new stock, generally four aspects of data should be considered:

(1) It is necessary to refer to the average after-tax net profit per share of the listed company in the past three years before listing, multiplied by the average profit rate of other similar stocks that have been listed in the past three years.Data in this area accounted for [-]% of the final stock issue price.

(2) It is necessary to refer to the average dividend per share of the listed company in the past four years before listing, divided by the average dividend rate of other similar stocks that have been listed in the past three years.Data in this area account for [-]% of the determination of the final stock issue price.

(3) Refer to the most recent net asset value per share of the listed company before listing.Data in this area account for [-]% of the determination of the final stock issue price.

(4) It is necessary to refer to the estimated dividend of the listed company for the year divided by the bank's one-year fixed savings deposit rate.The data in this area also accounted for [-]% of the determination of the final stock issue price.

Two common stock issue prices
The issue price of stocks refers to the price at which a joint stock company sells its stocks to specific or non-specific investors, and is usually determined by the issuer's price, stock market conditions and other relevant factors.Affected by factors such as the issuer's income, social reputation, status and reputation, stock market conditions, and macroeconomic policies, the issue price of shares is not completely consistent with the face value of the shares.

In practice, shares are usually issued at a premium.The so-called premium issue means that the issue price of the stock exceeds the face value of the stock.Theoretically speaking, in addition to premium issuance, there are parity issuance and discount issuance.

1. Premium issuance
Yixing means that the issuer issues shares at a price higher than the par value, so that the company can raise more funds with fewer shares, and at the same time reduce the cost of financing.Premium issuance can be divided into current price issuance and intermediate price issuance.Current price issuance industry is also called market price issuance, which refers to the determination of the stock issue price based on the circulating price of the same or similar stocks, and this form is usually adopted for public stock offerings.In developed securities markets, when a company issues shares for the first time, it usually determines its own issue price based on the price performance of shares of similar companies (same industry and similar operating conditions) in the circulating market; and when a company issues new shares, The issue price will be determined according to the price level in the circulation market of the issued shares.Mid-price issuance refers to the issuance of stocks at a price between the face value and the current price.When our country's joint-stock companies distribute shares to old shareholders, they basically issue at a middle price.

2. Parity issuance
Issuance at par, also known as equal-amount issuance or par-amount issuance, means that the issuer uses the face value as the issuance price.For example, if the face value of a company's stock is 1 yuan, if the par value issuance method is adopted, then the selling price of the company's stock issuance is also 1 yuan.Since the trading price of a stock after listing is usually higher than the par value, the par value issuance can enable investors to obtain additional income generated when the transaction price is higher than the issue price, so most investors are willing to subscribe.The parity issuance method is relatively simple and easy to implement, but its main defect is that the amount of funds raised by the issuer is relatively small.At present, par value issuance is rarely used in developed securities markets, and is mostly used in countries and regions with underdeveloped securities markets.When my country initially issued shares, it had adopted face value issuance.For example, when Shenzhen Development Bank issued shares in 1987, the face value of each share was 20 yuan, and the issue price was also 20 yuan per share.

3. Issuance at a discount
Issuance at a discount refers to the sale of new shares at a price lower than the face value, that is, the issuance of stocks at a certain discount according to the face value. The size of the discount mainly depends on the performance of the issuing company and the ability of the underwriter. The discount rate agreed between the company and the underwriters is 1%, so the issue price of the stock is 5 yuan per share.Currently, joint stock companies in Western countries rarely issue shares at a discount.In my country, Article 0.95 of the "Company Law of the People's Republic of China" clearly stipulates that "the stock issue price may be based on the par amount or may exceed the par amount, but shall not be lower than the par amount. , must be approved by the securities management department of the State Council.”

(Section III): Factors Affecting the Issue Price of Shares

The determination of the stock issuance price is the most basic and important content in the stock issuance plan, which is related to the fundamental interests of the issuer and investors and the performance of the stock after listing.If the issue price is too low, it will be difficult to meet the issuer's financing needs, and even damage the interests of the original shareholders; if the issue price is too high, it will increase the risk of investors and increase the risk and difficulty of issuance for underwriters , inhibit investors' enthusiasm for subscription, and will affect the market performance after the stock is listed.Therefore, the issuing company and the underwriter must comprehensively consider the company's profit and its growth rate, industry factors, stock price levels in the secondary market and other factors, and then determine a reasonable issue price.

[-]. Profitability of the company
The level of after-tax profit is directly related to the stock issue price.Under the premise that the price-earnings ratio is fixed, the higher the after-tax profit, the higher the issue price; on the contrary, the lower. Therefore, predicting or determining the after-tax profit is an important aspect in determining the stock issue price.

[-]. Secondary market status

The state of the secondary market and its price level are directly related to the issue price of the primary market.If a stock market is in a "bear market" and the price is too high, it will make it difficult to issue stocks; if the stock market is in a "bull market",
If the price is too low, the issuing company will suffer losses, and there will be excessive speculation in stock issuance.Of course, no matter whether the stock market is in a "bear market" or a "bull market", the determination of the stock issue price must leave some room for the secondary market, otherwise, it will bring adverse effects to the secondary market.

[-]. Other important factors affecting stock prices

As a financial product, like other commodities, the price of stock is uncertain and often fluctuates up and down.In the actual operation of the stock market, changes in stock prices are affected and affected by multiple factors.There are several other factors that usually affect the stock price trend.

([-]) Macro factors

Macro factors mainly include social, political, economic, cultural and other factors that may have an impact on securities market prices.

(1) Macroeconomic factors.That is, the macroeconomic environment and its changes have an impact on securities

The impact of market prices includes regular factors such as cyclical fluctuations in macroeconomic operations and policy factors such as economic policies implemented by the government.The securities market is an important part of the entire market system, and listed companies are important subjects in the micro-foundation of macroeconomic operations. Therefore, the price of the securities market will naturally change with changes in the macroeconomic operating conditions, and will fluctuate due to the adjustment of macroeconomic policies. Adjustment.For example, generally speaking, stock prices fluctuate with the rise and fall of gross national product; stock market prices fluctuate with the expansion and contraction of macroeconomic policies and the resulting increase or decrease in market capital.

(2) Political factors.That is, political events that affect the price of securities in the market.of a country
Whether the political situation is stable has a direct impact on the securities market.Generally speaking, if the political situation is stable, the securities market will operate stably; on the contrary, if the political situation is unstable, the price of the securities market will often fall.In addition, the change of heads of state, strikes, and turmoil in major oil-producing countries also have a major impact on the securities market.

(3) Legal factors.That is, the laws of a country, especially the legal norms of the securities market.Generally speaking, a securities market with unsound laws is more speculative, with violent fluctuations, disorderly ups and downs, large elements of human manipulation, and more illicit transactions; Securities practitioners in the market have fewer opportunities for selfish fraud, and securities prices are subject to artificial manipulation.The situation is also less, so the performance is relatively stable and normal.Generally speaking, emerging securities markets are often not standardized enough, while mature securities markets have a relatively comprehensive system of laws and regulations.

(End of this chapter)