Placings

There are three main sources of equity finance  :

• internally-generated funds - retained earnings
• rights issues
• new external share issues - placings, offers for sale, etc.

Placings

Definition

A placing is a method of raising equity finance in which there is no public issue of shares, the shares being issued in large blocks to persons or institutions who have previously agreed to buy them at a predetermined price.

Amounts

A placing may be used for smaller issues of shares (up to $15 million in value). The bank advising the company selects institutional investors to whom the shares are 'placed' or sold. If the general public wish to acquire shares, they must buy them from the institutions.

Importance for unquoted companies

Unquoted companies may find it difficult to raise finance because:

• shares are not easily realisable
• it is cheaper to invest in large parcels of shares rather than in many companies
• small firms are regarded as more risky.

However, unquoted companies can arrange for a placing of shares with an institution. However, there must usually be at least a prospect of eventually obtaining a quotation on the stock exchange in order for the placing to be successful.

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Tags:	placings;equity finance;equity