Issuing securities

Issuing methods

I. Private placement

1. Definition

Private placement (non-public offering) is the sale of securities to a relatively small

number of select investors as a way of raising capital. The non-public offering
securities are not listed as well as trading.

2. Investors: Insurance companies, Pension funds, Investment banks, Mutual funds, etc

3. Reasons

A company chooses this issuing method because of some following reasons

- Below standard of public placement

- Small mobilized capital

- Relationships maintenance

- Staff motivation

II. Public issue

1. Definition: Opposite of a private placement, the sales of securities is sold to the

general public for both big and small investors. They are listed and traded widely in
the exchange market.

2. Reasons

A company chooses this issuing method because of some following reasons

- Large mobilized capital

- Company promotion
- Copartner finding

3. Types:

There are two types of security issues such as IPO and SPO

3.1. Initial Public Offering (IPO)

It is the first sale of stock by a company to the public. Companies offering an IPO are
sometimes new, young companies, or sometimes companies which have been around for
many years but are finally deciding to go public. IPOs are often risky investments, but
often have the potential for significant gains.

a. IPO standard

A company has to meet following standards before IPO:

- The companys charter capital is greater than 5 billions VND

- Its business continues

- Total value of issuing is curtained scope

- It must have experienced managers

- Companys structure is reasonable

- It must have underwriters help

b. IPO process

Mainly the small private companies issue IPO to grow and trade publicly. The process of
initial public offering consists of five steps.

Step 1: Choosing underwriters

 When a company is aiming to go public, at first it hires an underwriter, the way of raising
money through equity or debt, functions associated with the issue. Underwriters act as
intercessors between the public, who are investing, and the companies.

Step 2: Preparing a registration statement

The underwriter and the company will first initiate the process of deal negotiation. The
main discussing issues are the money amount that the company is going to raise, security
type to be issued and all the other details involved with the Underwriting Agreement.

Step 3: Submit statement to Securities and Exchange Commission (SEC)

Once the deal gets finalized, the underwriter sets a registration statement up which will
be submitted to the SEC. That registration statement consists of information regarding the
offering and also other company information like, background of the management,
financial statements, legal issues etc.

Step 4: Declare issuance

After getting the SEC's approval, a date is going to be fixed on which the company will
offer the stock to the public.

Step 5: Set price and sell out securities

Then the company and the underwriter meet to decide the price of the stock. This
decision depends highly on the current market condition. The stocks are sold in the
market and money is raised from the investors.

c. Issuing approaches
i. Underwriting issue

- Definition: Underwriting refers to the process that a large financial service provider
(bank, insurer, investment house) uses to assess the eligibility of a customer to receive
their products (equity capital, insurance, mortgage, or credit).
 - Underwriting methods

When a company wishes to make a public offering, its first step is to select an investment bank
to advise it and to perform underwriting functions in connection with the issue.

- Firm commitment underwriting is the most common type of underwriting arrangement

that involved with large issues. The underwriter purchases the entire issue of securities
from the issuer and then attempts to resell the securities to the public.

- Best-efforts offering, the underwriters and the firms fix a price and the min and max
number of shares to be sold. The underwriters then make the best effort to sell the
issue.

- Standby underwriting, a type of underwriting in which the underwriter agrees to purchase

the portion of the new securities issue that remains after a public offering.

- All-or-none underwriting: The offering of a security in which the entire issue must be
sold or the offering is void. The lead underwriter has the ability to cancel the offering if
the entire issue is not sold. Best effort deals involve all-or-none underwriting.

- Min-max underwriting: the company whose shares are being offered establishes the
minimum dollar amount necessary to achieve the purposes of the offering. If this amount
is not met, then the entire offering is cancelled and all of the investors funds are
returned.

ii. Auction

- Definition: A process of buying or selling goods or services by offering them up for bid,
taking bids, and then selling the item to the highest bidder. In economy theory, an auction
may refer to any mechanism or set of trading rules for exchange.

- Auction process at Securities Exchange Commission

Step 1: Registering into the auctions

Step 2: Announcing information

 Step 3: Depositing to shares in advance (generally 10% of shares value)

Step 4: Voting to auction

Step 5: Auctioning

Step 6: Announcing auctions result

Step 7: Paying money and distributing shares

Step 8: Processing some special cases

- Auction approaches.
Non-Competitive Auction

Under this method, investors apply for quantity or dollar amount of the bonds they want to
purchase. The price is assigned based on the outcome of the competitive bids.

Competitive Auction

Under this method, investors specify both the quantity of the bonds demanded and the price they
are willing to pay.

Dual Auction

Here both competitive (price and quantity) and non-competitive (quantity only) bids are allowed.

3.2. Seasoned Public Offering (SPO)

It describes a company publishes share after carrying out IPO. In other way, IPO is the first time
enterprise issue stock, while SPO is the follow times.