Technology Insights Podcast – Part 3
Simply put, Global Capital Markets are a place where savings meet investment. In many cases, the form of capital is savings by private individuals. Similarly, capital can come from pension funds, hedge funds and other interest seeking entities. The investment opportunities come in two forms; Equity Capital and Debt Capital. Capital markets consist of the primary market, where new securities are issued and sold, and the secondary market, where already-issued securities are traded between investors. The most common capital markets are the stock market and the bond market. When a company wants to raise equity, we talk about ECM – Equity Capital Markets. When a company wants to raise debt, we talk about DCM – Debt Capital Markets.
Going public is a critical moment in the life of any company this means it has grown from a small business to a large entity – ready to get public investors onboard in the ECM. The company shares will be sold to public investors and they can determine who will run the business and who will sit on board of directors. This is a very complex processes that must be carried out at the right time. The founders of the company want it to be sold at the right price and monetise their hard work. At the same time public investors are interested in making an investment in a company with great management and a great growth potential.
The Company going public must increase its administrative and finance staff significantly. It will have to prepare several documents and financial reports not required for private firms this is a cost it will have to bear. Timing plays a critical role in the initial public offering (IPO) must be carried out at the right moment. The company must be ready in size, profitability administrative capacity, growth potential and investors must be convinced that their money is in good hands.
Debt capital markets (DCM) are a second important function of global capital markets. A company may want to issue debt securities called bonds. Bond offerings is not different from an equity offering. The players involved are the same. The main difference is that bonds can be issued by sovereign countries.
Debt in its simple form is borrowing from a commercial bank. But a company or a government can borrow money from public investors too. Pubic debt markets work efficiently. Especially when the money value is high. Investors buy a security and expect to earn an interest rate on the bond. Investment bankers’ advise loan terms, prepare company presentations find investors and price the bond.
Historically investment banker has been the trusted advisors of companies that ensure that the whole process goes smoothly it is their job to provide guidance as to when it is the right time to go public. How the company can position themselves to attract investors interest. To organise meeting between companies’ management and investors. To present to investors the investment opportunities. In addition, the investment banker builds a lists of investors intentions and determine what will be the price that a company wills sell its shares. Ultimately after the IPO the investment bankers will exercise certain instruments at their disposal to stabilise the price of the stock for the first few days of trading on the market.