How is a stock priced at issuance?

Issue priceof stocks

There are the following types of issue prices for stocks: par issue, hourly issue, mid-price issue, and discounted issue.

1) Par Value

The shares are generally issued at par and are not subject to stock market conditions. Since the market price is often higher than the par value, the issue price is based on the par value, which enables the subscribers to get the profit due to the price difference.

Therefore, this motivates shareholders to subscribe and ensures the company can quickly raise capital.

2. Current price

That is, the issue price is determined not by the par value,but by the price of the shares on the liquid market (the current price). The difference between the current price and the par value of the shares is called the premium, which will be collected by the company.

Currently-priced issuance enables the issuer to raise relatively more capital with fewer shares, thereby reducing the burden, stabilizing the current price of shares in the liquid market, and promoting the rational allocation of capital.

If investors can grasp the timing and sell their shares at the right time, the cash recovered will be much higher than the amount purchased, based on the price of the shares in circulation at the time, but it does not have to be exactly the same. Generally, stock issued for 5-10% lower than the current price is more reasonable.

3. Mid-price issue

The issue price of a share takes the midpoint between the par value and the market price. Companies use this pricing method when the current price is higher than the par value. The company needs to increase its capital but also needs to take care of the original shareholders.

The intermediate price is generally issued to the original shareholders, implying that part of the premium goes to the original shareholders, while the rest goes to the company for the expansion purpose.

4. Discount issue

The issue of shares at a discount means the issue price is less than the face value.

There are two situations for discounted issuance: one is preferential, which allows subscribers to share their rights and interests through discounts.

Or, another situation could be that the stock market is performing welland the issuance is difficult. The issuer and the promoter jointly negotiate a discount rate to attract investors who predict that the market will rise.

As each country stipulates that the issuance price shall not be lower than the par value, the discount issuance can only be implemented after approval.

In international stock markets, four aspects of data are generally taken into account in determining the issue price of new stock.

This data accounts for 40% of the weight in determining the final stock offering price.

This data accounts for 20% of the weighting in determining the final stock issue price.

This data will account for 20% of the weighting in determining the final stock issue price.

This data also accounts for 20% of the weight in determining the final stock issue price.