Stock Markets: What is a primary issuance?

Stock Markets: What is a primary issuance?

If you are new to the business world, it is surely not a bad idea to recognize, understand, and plan what might happen. Normally, new and starting businesses are opened using private capital and as they grow and expand, they can offer more products and stocks to the public. This method is called an issuance. Alternatively, they may occasionally return to the market in order to offer more stocks and products.

In this article, you will learn about what primary issuance is (as well as other types of issuances) and its importance and limitations in the business world.

What is primary issuance?

Also called as “ primary offering ”, primary issuance refers to the first release or publication of a company’s stock for sale. This is mainly done to expand the business’ operation by reaching a wider audience for its products. As such, it is one way through which a company can increase its equity capital , or its invested money through the purchase of common stocks.

• Primary issuance is also sometimes called as “initial public offering”.

• Examples of primary issuance include common and preferred stocks, warrants, stock options, as well as convertible securities. On one hand, common and preferred stocks are examples of direct equity grants. On the other hand, warrants, stock options, and convertible securities are called derivative grants from which future equity can be obtained.

• As alluded to earlier, a primary issuance is organized in order to help in the business expansion of a new and growing company. However, such operation can also be performed by big companies.

Can primary issuance be followed?

Consequently, a primary issuance could be followed by secondary issuance in order to increase the business’ equity capital and spread market capitalization. In general, issuances done after the accomplishment of the first issuance are called seasoned equity offering . The profit raised from such operation serves as fund for the company’s business investments. Examples of secondary issuance include sales, exercises, transfers, equity conversions, cancellations, and repayment of debts.

• Secondary issuance can control the transactions that occurred after the operation of primary issuance and therefore can overall change the amounts of equity and even ownership status.

• However, it is important to note that a company can only get the most money during primary issuance. While future issuances are done after the initial one, offering of trades during secondary issuance rarely get enough funds to fulfil its various requirements.

Importance of issuances

Aside from increasing capital and funds, the publication of issuances could say something about the company’s current business status. One of the most important manifestations is that it could signify that the company is running short on finance.

• While issuances are performed when stock trades are low, companies should evaluate such move very carefully because one wrong move can apply great pressure on the price of the company’s stocks. Aside from that, issuances can weaken existing shares if they are offered by companies where new shares come from.

• On the other hand, such reduction of existing shares do not happen (or will not happen) id the issuances come from existing shareholders. Because of this, it is important to always know who you are dealing with.