This article sets out the results of an exercise to establish the costs of various types of new issue method for companies coming to the equity market for the first time and for existing quoted companies making further issues of equity (secondary issues). It examines the costs in terms of the expenses and, for initial offerings, derives estimates of the degree of 'underpricing'. It also looks at how the market is likely to change in response to changes in The Stock Exchange.
- For initial offerings, placings involve significantly lower expenses than offers for sale and are the most popular method for small issues. Tenders are more accurately priced than fixed-price offers for sale, but a significant amount of 'underpricing' is still usual.
- The expenses involved in making initial offerings on the USM are lower than for the listed market.
- The lowest-cost method of making a rights issue is by deep discount, because such issues are not underwritten, but they are relatively rare.
- There are substantial economies of scale in all the new issue methods because of the number of costs which are unrelated to the size of the issue.
New issue costs and methods in the UK equity market