Potential issuer

Financing through the Capital Market

The capital market is a place where supply and demand meet. A supply of free financial means and a demand for it. The capital market is a place where an issuer (a government, a company, a municipality etc.) can raise financial means for its own investment projects and development – the financial means which investors (individuals, investment groups, other companies etc.) currently do not need for direct consumption. The capital market is an alternative way of raising money; a way that is different from a simple loan or borrowing.

The issuer, that is an entity which is issuing or has decided to issue securities, can consider an issue of shares (if it is a joint-stock company), which are equity securities that establish a shareholder’s (co) ownership relation to the issuer’s property, and thus the shareholder’s right to participate in management of the company. Another option is to issue bonds, where the relation between the issuer (e.g. a government, a corporation or a municipality) and a bondholder is similar to that between a creditor and a debtor.

The choice of the most appropriate way of financing a company’s development through the capital market depends on that company’s financial situation, market conditions, and the purpose for which the raised funds are to be used. It is therefore appropriate to closely co-operate with an experienced manager of a securities issue (e.g. a securities dealer or a bank) that will provide advice on what issue of securities can be placed on the market at a given time, and under what conditions.

Financing through the capital market has the following advantages:

– the option of raising a large volume of financial means at one moment,

– diversifying the sources of funding, thus optimising the company’s capital structure (debt versus own capital),

– a longer period of return (maturity) of financial means (in the case of a bond issue) in comparison with a loan,

– the option of acquiring cash (in the event of a share issue) without the need to return it; the company’s profit can thus be

used for its development.

An issue of securities takes place on the primary market, where the issuer directly places new securities for either a known-beforehand, or an unknown, group of investors. The issuer can subsequently apply for admission of the securities subscribed and issued in this manner to the secondary market, e.g. to the regulated market of the Stock Exchange. The secondary market is a place where any securities acquired on the primary market can be traded, on the condition that the issuer applies to the Stock Exchange for admission of such securities.

An issue of securities and their admission to the Stock Exchange is a transparent process, which contributes to a higher credit and trustworthiness of every issuer.

Raising capital in this form encompasses certain cost, and can be more time-consuming in comparison with other forms of financing of a company’s needs. Nevertheless, it is definitely worth a consideration when looking for alternatives.

More information about issuing shares via IPO and about issuance of corporate bonds and their admission to trading on the regulated market of BSSE is available in following documents: