Primary Markets, Issuance and Corporate Actions
What this domain tests
This domain covers how new equity reaches investors and how issuers subsequently change the share capital or distribute value. You should be able to choose the right issuance method for a scenario, compute a theoretical ex-rights price, and place the dividend timetable dates in the correct order.
Core rules and concepts
- Issuance methods: initial public offer, introduction (no new money), placing/accelerated bookbuild (fast, dilutive, pre-emption disapplied), rights issue (pre-emption respected, priced at a discount), open offer, and convertible issuance.
- Mechanics: a prospectus is required for a public offer above the exemption thresholds; bookbuilding sets the offer price from investor demand; underwriting covers a shortfall for a fee; a greenshoe (over-allotment option) is typically up to 15% of the base deal; lock-ups restrict selling by existing holders.
- Corporate actions: cash dividend, scrip dividend, bonus issue, share split, consolidation, buyback, and mergers by scheme or offer.
- Dividend timetable: declaration/announcement, ex-dividend date, record date, payment date. Buyers on or after the ex-date do not receive the dividend.
Worked example
A company has 4m shares trading at £5.00 and makes a 1-for-4 rights issue at £3.00. Theoretical ex-rights price = [(4 × £5.00) + (1 × £3.00)] ÷ 5 = £23.00 ÷ 5 = £4.60. The theoretical value of the nil-paid right is £4.60 − £3.00 = £1.60. A holder of 400 shares subscribes £300 for 100 new shares and ends with 500 shares worth £2,300 - exactly the pre-announcement value of £2,000 plus £300 cash.
Traps that cost marks
A bonus issue or split changes the share count and price but not market capitalisation or the holder's proportionate stake. The ex-date falls before the record date, not after. Rights issue discount and TERP are different numbers. A placing avoids the timetable of a rights issue but dilutes non-participating holders and may breach pre-emption rights unless disapplied.