The capital market is that segment of the financial market that deals with the efficient channelling of medium to long-term funds, from the surplus unit to the deficit unit. This is done through instruments which are transferred through one or more of the methods listed below:
Offer For Subscription
This method involves a company or agency in need of fund (deficit unit) issuing part of its authorised share capital to the public (surplus unit). Buyers in this category automatically become part owners of the company hence share in the risks of the company. The proceeds from this mode of offering go to the company and are mainly used to expand its activities for greater profitability.
Offer For Sale
This is the sale of existing shares by owners, mainly high net worth individuals, who had hitherto invested heavily in the company to either a targeted group or the general public. This is with the intention of diversifying their risks. The security involved may be debt or equities.This mode of offer is used by private companies intending to go public or public companies seeking quotation on the exchange. The proceeds of the sale go to the owners of the shares being sold. The sale could also be by government in an attempt to divest its interest in the company.
As the name implies a private placement is a special kind of offer whereby the securities of a company are sold to specific or pre-arranged buyer(s). The company involved here could be private or public while the security may be debt or equity. The proceeds are mainly used for targeted developmental projects by the company. However, private placements by private companies are not under the regulatory purview of the Commission.
A right issue is a method through which existing shareholders are given the opportunity to acquire more shares of a company in proportion to their existing holdings. A right issue of 1 for 2 gives an existing shareholder of 100 shares, the opportunity to acquire 50 more shares at a price usually lower than market value. It is floated at a discount to attract existing shareholders to prevent further dilution of ownership of the company.