NATIONAL ECONOMICS

UNIVERSITY
SHOOL OF BANKING AND FINANCE
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CHAPTER 3
SECURITIES ISSUANCE

SECURITIES MARKET DEPARTMENT

 Content

1.An overview of the

securities issuance

2.The issuance methods of

Government bond

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

Investmen
Goverment Corporates
t 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.

SECURITIES MARKET DEPARTMENT

 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

SECURITIES MARKET DEPARTMENT

• 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

Sau khi chấp nhận tất cả các giá thầu không cạnh tranh, Kho bạc
chấp nhận giá thầu cạnh tranh bắt đầu ở mức giá cạnh tranh thấp
nhất hoặc giá thầu mang lại. Kho bạc sau đó chấp nhận giá thầu ở
mỗi tỷ lệ hoặc lợi suất cao hơn liên tiếp, dừng lại ở tỷ lệ hoặc lợi
suất mà tại đó số tiền chào bán đạt được. Tất cả các nhà thầu cạnh
tranh đặt giá thầu bằng hoặc thấp hơn tỷ lệ hoặc lợi suất này, tỷ lệ
hoặc lợi tức "dừng lại", cũng như tất cả các nhà thầu không cạnh
tranh, sẽ trả cùng một mức giá cho chứng khoán của họ - giá tương
ứng với tỷ lệ "dừng" hoặc năng suất. Các giá thầu ngay tại tỷ lệ dừng
hoặc lợi suất được chia theo tỷ lệ, có nghĩa là Kho bạc chỉ chấp nhận
tỷ lệ của mỗi giá thầu cần thiết để đạt được số tiền chào bán. Kỹ
thuật trao cho tất cả những người đấu giá thành công cùng một tỷ
lệ hoặc lợi tức được gọi là kỹ thuật đấu giá "một giá" hoặc "giá đồng
nhất", mà Kho bạc đã sử dụng cho tất cả các cuộc đấu giá chứng
khoán thị trường.
 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

SECURITIES MARKET DEPARTMENT

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.

SECURITIES MARKET DEPARTMENT

 Internatonal bond issuance

• To compliance with International practices

• Rating credit

• To require transparency and in the

publicity mobilization and use of capital

SECURITIES MARKET DEPARTMENT

Process of international bond isuance

Agreement Authorization
Issuing stage
stage stage

SECURITIES MARKET DEPARTMENT

3.3. The issuance methods of Corporate
securities

• Based on objects
• Based on methods

SECURITIES MARKET DEPARTMENT

 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)

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 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

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Bảo lãnh phát hành là việc nhà bảo lãnh phát hành cam kết chuẩn bị các thủ
tục trước khi phát hành chứng khoán, giao chứng khoán cho nhà đầu tư và
giúp ổn định giá trong giai đoạn đầu sau khi phát hành.

Các phương thức bảo lãnh phát hành chứng khoán:

Cam kết vững chắc
Cam kết nỗ lực tốt nhất
Tất cả hoặc không
Bảo lãnh phát hành tối thiểu –tối đa
Bảo lãnh phát hành dự phòng
 Conclusion
• Concepts of securities issuance
• Concepts of issuing methods as well as
issuing requirements
• Advantages of public offering
• Concept of underwriting

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