FLOATATION OF SECURITIES - PowerPoint Presentation

1. FLOATATION OF SECURITIESSHARES:-

2. FLOATATION OF SECURITIESShare is a fixed identifiable unit of capital that represents a member’s stake in a company’s share capital. It confers rights and obligations on a holder.It is a transferable property.It is internally generated fund.

3. FLOATATION OF SECURITIESDebenture:-Debenture is an external source of capital for a company’s business. It is a legal document which states the terms on which a company had borrowed money i.e a written acknowledgement of debt. It is a

4. FLOATATION OF SECURITIES loan agreement by which the lenders provide money to a company to be repaid at a later date while bearing interest at an agreed rate. It is usually secured on the company’s property though it need not always be so as there are unsecured debentures.

5. FLOATATION OF SECURITIESBOND:-A Bond also known as Gilt is a long term promissory note.It is a loan sourced by the borrower from a number of people and/or business

6. FLOATATION OF SECURITIES /institutions for a period and at a fixed rate of interest. The interest is paid at periodic intervals while the principal sums are paid at stated maturity dates.

7. FLOATATION OF SECURITIESBonds are fixed interest securities traded on the Nigerian Stock Exchange like Debentures, Shares, etc.The government raises money to finance its spending and projects by issuing/auctioning bonds.

8. FLOATATION OF SECURITIESThere are two classification of bonds namely; Registered Bonds and Bearer or Coupon Bonds.Registered Bonds require the registration of the owner’s name in the company’s books.Bearer or Coupon Bonds are not

9. FLOATATION OF SECURITIES recorded in the name of the owner and the title to such bonds passes with delivery. The issue of bearer bonds eliminates the need for recording bond ownership changes as well as preparing and mailing periodic interest payments. It has the disadvantage of lack of

10. FLOATATION OF SECURITIES protection to the bond holder which the registered bonds provide in the event of a loss. By the provisions of S.222 of ISA, the Federal Government, Federal Government Agencies, State

11. FLOATATION OF SECURITIES Government and their Agencies, the Federal Capital Territory and its Agencies, Local Government and any company which is wholly owned by the Federal, State, Federal Capital Territory and Local Government can issue bonds.

12. FLOATATION OF SECURITIESThe Federal Government bonds are usually issued and managed by CBN on behalf of the federal government. They are the most attractive among the stocks because of ease of convertibility to cash.

13. FLOATATION OF SECURITIESBonds are traded on the capital market which involves long term debt or equity obligations. Before a bond is floated on the Stock Exchange and traded on in the capital market, approval must be given by SEC as the regulatory

14. FLOATATION OF SECURITIES Commission. S. 224 provides the conditions to be fulfilled before a bond can be issued.It must be pointed out that the fund raised through bond issue is managed by a corporate trustee registered by the Commission. See

15. FLOATATION OF SECURITIESS 224(5). Usually, when bonds are issued, a sinking fund is required to be established by SEC. Sinking fund is a provision aimed at facilitating orderly retirement of a bond. The sinking fund is fully funded from the consolidated revenue fund account

16. FLOATATION OF SECURITIES of the issuer. See S. 224(3)(a)(i) of ISA. The details of the bond shall be gazetted or published in any other official document by the issuer. Upon issuance of bond, the issuer must keep a register where the bond holders and particulars of the bond will be entered and appoint a

17. FLOATATION OF SECURITIES Registrar. See S. 227 of ISA.An issuing house is appointed by the issuer to raise the loan through bonds. S. 228. A bond holder is registered in the register and is given a bond certificate. See SS. 230-232. Bonds are transferable and

18. FLOATATION OF SECURITIES there can be lien on bonds – SS. 233 – 235. The register can be closed for 21 days to compute interest to be paid to bond holders- S. 236.

19. FLOATATION OF SECURITIES REQUIREMENTS FOR FLOATATION OF GOVERNMENT BONDS IN THE CAPITAL MARKET:The amount to be raised or outstanding loan should not be more than 50% of the capital revenue of the state in the

20. FLOATATION OF SECURITIES preceding year;The Bond must be registered with the Securities and Exchange Commission;The date of redemption of the bond shall not exceed 25 years from the date of the issuance of the bond;

21. FLOATATION OF SECURITIESA separate sinking fund shall be established for each loan;Bond certificate should be issued to the bondholders within 2 months; andA legislation/resolution of the State Assembly must be issued to the

22. FLOATATION OF SECURITIES office of the Accountant-General of the Federation. PROCEDURE FOR FLOATATION OF BONDS:Application for approval and registration of the Bond by the Securities & Exchange Commission.

23. FLOATATION OF SECURITIESThe application to SEC will be accompanied by the following documents;Copy of the law or resolution authorising the bond;Copy of the rating report by an accredited rating agency registered

24. FLOATATION OF SECURITIESby SEC; andIrrevocable letter of authority issued by the State Accountant-General to the federal Accountant-General to deduct from source the state statutory allocation to redeem the bond.

25. FLOATATION OF SECURITIESAppointment of Corporate Trustee registered by SEC.Appointment of Issuing House.Appointment of Registrar that is registered with SEC.Publication of the bond in the gazette or other official documents.

26. FLOATATION OF SECURITIESRegistration of bond holders in the bond register.Issuance of bond certificate to bond holders.GLOBAL DEPOSITORY RECEIPT (GDR):-

27. FLOATATION OF SECURITIESGlobal Depository Receipt (GDR) otherwise known as Depository Receipt (DR) is a type of direct investment by a foreigner whereby, the foreigner buys the shares of a foreign company in his home country and in his country’s currency and dividend when paid is

28. FLOATATION OF SECURITIES also paid in his local currency. In the case of direct investment as envisaged here, local investors will augment the capital of the bank with funds from foreign investors. The foreign investors may not be in controlling position and may

29. FLOATATION OF SECURITIES therefore just rely on the competence of local managers. A good example is investment in the equities of UBA PLC sometime ago through GDR. This is made possible as a result of globalisation and liberalisation.

30. FLOATATION OF SECURITIESShares and debentures of a listed public company are floated on the Stock Exchange and are traded on the floor of the Market. Bonds approved by SEC are also traded on the capital market.

31. FLOATATION OF SECURITIESShares and debentures are offered to the public through Direct offer, Offer for Sale and Public Placing. DIRECT OFFER TO THE PUBLIC/PROSPECTUS ISSUE. In this type of issue, the company offers its securities to the general

32. FLOATATION OF SECURITIES public through an issuing house by means of a prospectus.The issuing house acts as an agent and not an Underwriter.Underwriting is a financial means of removing the risk of under subscription so that, the whole

33. FLOATATION OF SECURITIES of the finance to be raised, will be underwritten by an underwriter to the extent that he will buy at the issue price any securities which are not subscribed for by the investing public. OFFER FOR SALE

34. FLOATATION OF SECURITIESBy this method, the issuing company sells the whole shares or debentures to an issuing house which will invite the public to buy from it usually at a higher price.The risk of under subscription or

35. FLOATATION OF SECURITIES failure of the issue is borne by the issuing house which usually will underwrite the issue. PLACINGIt is an arrangement whereby the shares are not offered to the

36. FLOATATION OF SECURITIES public but instead, the sponsoring market maker (issuing house) arranges for most of the issue to be bought by a small number of investors usually institutional investors like Pension Funds and Insurance Companies.

37. FLOATATION OF SECURITIESROLE OF SOLICITOR IN CAPITAL MARKET:Advice an investor who wants to invest in the capital market the best securities to invest on.Also ensure that the issuer complies with the legal requirement before

38. FLOATATION OF SECURITIES offering the securities to the public.If the security to be traded on is a Bond, advice the trustees on steps to take.DISTINCTION BETWEEN INVESTING IN SHARE AND COLLECTIVE INVESTMENT SCHEME

39. FLOATATION OF SECURITIESShares are transferable while Units must be bought by the manager upon request by a holder.Share holders take part in the management of the company while unit holders do not.

40. FLOATATION OF SECURITIESA share holders shares are identifiable while the units are not as they are in a pool.The company is managed by the board of directors while the unit trust is managed by the Managers.

41. FLOATATION OF SECURITIESUpon revocation of a Unit Scheme, the manager must buy all the units. This is not so with the directors of a company when a company wound up.A share holder upon dissolution of the company can share in the

42. FLOATATION OF SECURITIES residual assets of the company while a unit holder cannot.Memorandum and Articles bind shareholders while a Trust Deed binds Unit holders.