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Handbook of Corporate Equity Derivatives and Equity Capital Markets by Juan Ramirez

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2

Equity Capital Markets Products

The objective of this chapter is to provide a good understanding of equity capital markets products such as rights issues and accelerated book-buildings. Convertibles and mandatory convertibles are covered in Chapter 3. A second aim is to help bank professionals to understand the main products provided by the bank equity capital markets (ECM) team. The ECM team specializes in the origination and execution of equity capital markets transactions.

2.1 MAIN EQUITY CAPITAL MARKETS PRODUCTS

This section briefly describes the main equity capital markets products.

2.1.1 Capital Increase Products

In challenging economic environments even fundamentally sound companies experience capital structure pressures. Stringent covenants and operating performance challenges oblige them to raise capital. Companies are generally reluctant to issue new equity because it is notably more expensive than debt. However, from time to time companies need to raise capital to finance acquisitions, to finance further growth or to lower leverage. Capital increase products aim at placing new shares of the company with institutional and/or retail investors. There are a number of alternatives for raising equity capital, but no set rules for identifying the optimal one. The cycle in which the company is, has a large influence on the capital increase product chosen, as shown in Figure 2.1. The main capital increase products are initial public offerings, rights issues, accelerated book-buildings ...

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