Methods of Selling Securities in the Primary Capital Markets, Public, Cash offering, Direct placement, Rights offering to shareholders

When a company decides to raise capital by issuing securities, it can do so through various methods in the primary capital markets. The primary methods of selling securities in the primary capital markets include public offerings, cash offerings, direct placements, and rights offerings to shareholders. Let’s take a detailed look at each method:

Public Offering:

A public offering, also known as an initial public offering (IPO), is when a company issues securities to the general public for the first time. This method is most commonly used when a private company wants to go public and start trading on a stock exchange. In a public offering, the company hires investment banks to underwrite and manage the offering. The investment banks help to set the offering price, sell the securities to the public, and ensure regulatory compliance. The securities are sold to the public through a prospectus, which provides detailed information about the company, its business operations, financials, and risks associated with investing in its securities.

Cash Offering:

A cash offering is when a company issues securities to raise capital for a specific purpose. This type of offering can be used to fund acquisitions, expand operations, or pay down debt. Cash offerings can be made to institutional investors or retail investors, and they can be publicly traded or privately placed. In a cash offering, the company sets the offering price, and the securities are sold to investors for cash.

Direct Placement:

A direct placement is when a company sells securities to a select group of investors without going through an underwriting process. Direct placements are typically used when the company wants to raise capital quickly, and there is already an existing relationship between the company and the investors. In a direct placement, the company negotiates the terms of the offering with the investors, and the securities are sold directly to them.

Rights Offering to Shareholders:

A rights offering is when a company offers its existing shareholders the right to purchase additional securities in proportion to their current ownership. This type of offering is often used to raise capital without diluting the ownership of current shareholders. In a rights offering, the company issues rights to the shareholders, which give them the option to purchase additional securities at a discounted price. The shareholders can exercise their rights by purchasing the additional securities or selling their rights to other investors.