New Issue
A new issue describes where a company is making its debut on the stockmarket.
The business will issue a prospectus. Such an issue may be raising new money which can be used for the expansion of the business or it may simply be looking to find new investors so as to allow the existing shareholder(s) to sell some (or all) of their holding.
A new issue on the stockmarket will usually be launched in one of three ways. It can be via:
- an introduction
- placing (with institutional investors), or
- offer for sale.
The term 'new issue' can also be used to describe the process of fund raising by a company already listed on the stockmarket. Where a company decides it would be useful to have extra cash from investors, it announces there's to be a 'new issue' of shares. In such circumstances, existing shareholders are usually offered the first opportunity to buy these new shares - this will typically be via a rights issue. If existing shareholders don't want to stump up fresh cash for new shares, they simply say so - and the company's advisers try to sell the shares elsewhere.
If a company wants to raise money from investors it may buy an insurance policy from its financial advisers, meaning that for an underwriting fee the adviser guarantees the company will receive the money it's looking to raise come what may. In other words, the City advisers will earn an underwriting fee for taking the responsibility of buying any unwanted shares.