Issue by Tender

Issue by tender, also known as sale by tender, is a method where an issuing house invites investors to submit bids for a new issue of shares or other securities. The securities are subsequently allocated to the highest bidders, with a specified minimum price.
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Definition

“Issue by tender” (or sale by tender) is a financial mechanism employed by companies or issuing houses where they request potential investors to tender, or submit bids, for a newly issued batch of shares or other securities. The shares are then distributed to the highest bidders, as long as their bids meet or exceed a predefined minimum price outlined in the tender documents. This method is less commonly used compared to other methods, such as a public issue.

Examples

  1. Company IPO: A corporation planning to go public might use an issue by tender rather than a traditional Initial Public Offering (IPO). Qualified bidders submit their bids, and those who bid the highest receive the shares, thereby ensuring that the company maximizes the capital raised per share.

  2. Government Bonds: A government looking to raise funds may opt for an issue by tender methodology, requiring financial institutions or high net-worth individuals to place bids. The highest bidders receive the bonds, provided their bids meet the minimum stipulated amount.

  3. Real Estate Shares: A real estate company launching a Real Estate Investment Trust (REIT) might use the issue by tender method, asking institutional investors to tender bids. The allocation would thus prioritize the highest bids, potentially increasing initial funding.

Frequently Asked Questions (FAQs)

What is the main advantage of using an issue by tender?

The main advantage is that it can potentially yield the highest possible price for the new issue of shares or securities, thereby maximizing the issuer’s proceeds.

Are there any disadvantages to issue by tender?

Yes, the method may deter smaller investors due to the potentially high bids required, and it involves complexities in managing and assessing numerous bids.

How does issue by tender compare to a public issue?

In an issue by tender, the allocation is based on bid prices, often leading to an expedited sale and potentially higher prices. Public issues typically involve selling shares at a fixed price, accessible to a broader range of investors, including small retail investors.

When is issue by tender used?

This method is used in scenarios where the issuer aims to capitalize on market conditions that suggest high demand, thereby potentially securing better prices through competitive bids.

Is there a regulatory oversight for issue by tender?

Yes, issuers must comply with regulatory frameworks and securities laws of their jurisdictions to ensure a fair and transparent tender process.

  • Public Issue: The process of selling shares or securities to the general public at a fixed price.
  • IPO (Initial Public Offering): The first sale of stock by a private company to the public.
  • Underwriting: The process where an underwriter evaluates and undertakes the risk of issuing shares and guarantees that all shares will be sold.
  • Book Building: A process to determine the optimal price at which an IPO should be offered based on investor demand.

Online Resources

  1. Investopedia: Public Offering
  2. SEC: Initial Public Offerings (IPOs)
  3. Nasdaq: What is an IPO?

Suggested Books

  1. “Initial Public Offerings: An International Perspective” by Greg N. Gregoriou and Luc Renneboog
  2. “The New IPO Market: A Guidebook for Executives and Boards Considering an IPO” by Dennis C. Carey and Michael S. Kearney
  3. “Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions” by Joshua Rosenbaum and Joshua Pearl

Accounting Basics: “Issue by Tender” Fundamentals Quiz

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