NATIONAL ECONOMICS UNIVERSITY

SHOOL OF BANKING AND FINANCE

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CHAPTER 3
SECURITIES ISSUANCE

SECURITIES MARKET DEPARTMENT

 Content

3.1. An overview of the

securities issuance

3.2. The issuance methods of

Government bond

3.3. The issuance methods of

Coporate securities

SECURITIES MARKET DEPARTMENT 2

 Objectives

• To understand the basic knowledgement

on securities issuance
• Issuers
• Purposes of securities issuance
• Securities issuance methods

SECURITIES MARKET DEPARTMENT 3

3.1. An overview of the securities issuance

• Concept:
Securities issuance is that issuers issue
securities to market by themselve or through
intermediary agency

SECURITIES MARKET DEPARTMENT 4

3.1. An overview of the securities issuance

Issuers

Investment
Goverment Corporates
funds

SECURITIES MARKET DEPARTMENT 5

 Purposes of securities issuance
• Government’s purposes:
– Investing in infrastructure
– Compensating for the budget deficit
– Implementing economic stabilization.
• Corporate’s purpuses of bond issuance:
– Ensuring stable funding, limiting to the
supervision of banks
– Do not make dilution the ownership of
shareholders
– The cost of debt is lower than cost of equity.

SECURITIES MARKET DEPARTMENT 6

 Purposes of securities issuance

 Corporate’s purpuses of share issuance

Advantages:
 to increase the charter capital to meet the conditions for
listing
 No pressure to pay principal and interest, no pressure
bankruptcy
Disadvantages:
 Shareholders will be diluted if they do not invest more shares
 No corporate income tax savings as in the case of debt
 Changing capital structure
 Investment fund
Helping individual investors diversify risks and reduce investment
costs.

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3.2. The issuance methods of Government bond

• Auction

• Underwriting

• Issuing agency

• Direct Issuance to public

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 AUCTION
• Auction is the choice of organizations and individuals
involved in the bid which meet requirements of the
issuer.
Principle of bond auction
• Keeping confidential information of organizations and
individuals to participate in auction.
• Ensuring equality among organizations and individuals
to participate in auction.
• Competing interest rate among organizations and
individuals to participate in.

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 AUCTION

•Interest auction
–Holland style: stop out rate will be applied to
adwarded bidders (single rate)

–American style: stop out rate will be registered rate of

adwarded bidders (multiple rate)

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 AUCTION

• Competitive interest rate auction: means

bidders offer bid rate in order to issuer or
authorized organization select a stop out rate.

• Noncompetitive interest rate auction: means

bidders don’t offer bid rate, they register to
buy bonds with stop out rate is determined as
a result of competitive interest rate auction

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• After accepting all noncompetitive bids, Treasury accepts
competitive bids beginning at the lowest competitive rates or yields
bid. Treasury then accepts bids at each successively higher rate or
yield, stopping at the rate or yield at which the offering amount is
reached. All competitive bidders bidding at or below this rate or
yield, the "stop-out" rate or yield, as well as all noncompetitive
bidders, will pay the same price for their securities – the price that
corresponds to the "stop-out" rate or yield. Bids right at the stop-out
rate or yield are prorated, which means that Treasury accepts only
the proportion of each bid needed to reach the offering amount. The
technique of awarding all successful bidders the same rate or yield
is called a "single-price“ or "uniform-price" auction technique, which
Treasury has used for all marketable securities auctions

BỘ MÔN THỊ TRƯỜNG CHỨNG KHOÁN 12

 Competitive interest rate auction
Example: there are 8 bidders take place in the tender of
government bond to mobilize VND300 bio (par value
VND1mio) as follow:
Bidder Interest rate(%) Amount (bio VND))

1 9 80
2 9 70
3 8.5 90
4 8 100
5 7 50
6 6 50
7 5.5 60
8 5 40
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UNDERWRITING AND ISUING AGENCY

• Underwriting is the commitment of the underwriter to

issuer to prepare procedures before of issuance of bond,
delivery bonds to investors or buy undelivered bonds.

• Issuing agency is the implementation of organization in

selling bonds to investors in accordance with the
authorization of the issuer.

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 Internatonal bond issuance

• To compliance with International practices

• Rating credit

• To require transparency and publicity in the

mobilization and use of capital

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Process of international bond isuance

Agreement Authorization
Issuing stage
stage stage

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3.3. The issuance methods of Corporate
securities

• Based on objects
• Based on methods

SECURITIES MARKET DEPARTMENT 17

 Based on objects

– Prive placement (or non-public offering): is a funding

round of securities which are sold not through a public
offering, but rather through a private offering, mostly
to a small number of chosen investors

• A securities offering (or funding round or investment round)

is a discrete round of investment, by which a business or other
enterprise raises money to fund operations, expansion, a
a capital project, an acquisition, or some other business purpose.

https://en.wikipedia.org/wiki/Private_placement

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 Based on objects
– Public offering: is the offering of securities of a company or a
similar corporation to the public.
 Initial public offering (IPO): is one type of public offering. Not all
public offerings are IPOs. An IPO occurs only when a company
offers its shares (not other securities) for the first time for public
ownership and trading, an act making it a public company.
 Primary offering: the issuing company itself is the offerer of
securities to the public. The offered securities are then issued
(allocated, allotted) to the new owners.
 Secondary offering: is an offering of securities by a shareholder of
the company (as opposed to the company itself, which is a primary
offering). A secondary offering is still a public offering with much the
same requirements, including a prospectus.

BỘ MÔN THỊ TRƯỜNG CHỨNG KHOÁN 19

 Securitires Public Offering

• Requirement of public offering

- In term of charted capital

- In term of profitability

- In term of management

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 Securitires Public Offering
• Advantages of Securitires Public Offering
 Increasing capital
 Improvement of advantages when borrowing
loans form
 Improvement of securities liquidity
 Diversification of investment portfolio
 Changing control right of company
 Enhancing prestige and building company’s
brand
 Receiving preferential

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 Based on methods

• Direct issue: issuer implements entire issuing process

• Indirect issue: issue through the intermediary (underwriters)

SECURITIES MARKET DEPARTMENT 22

 Securities underwriting

• Underwriting is the commitment of the underwriter to

issuer to prepare procedures before of issuance of
securities, delivery securities to investors and help
stabilize prices in the early stages after the issue.

• Securities underwriting methods:

 Firm commitment
 Best effort commitment
 All or none
 Minimum –maximum underwriting
 Standby underwriting

SECURITIES MARKET DEPARTMENT 23

 Conclusion
• Concepts of securities issuance
• Concepts of issuing methods as well as
issuing requirements
• Advantages of public offering
• Concept of underwriting

SECURITIES MARKET DEPARTMENT 24