Issuer’s Guide

Who is the Issuer?

The issuer is a company or a public corporation (for instance a municipality or a state) who issues securities above all for the purposes of financial gain for development of its business activities.

Based on the type of the company or its interest, the issue can be in the form of different securities, out of which the most well-known ones are shares, bonds and participation certificates.

What are the Advantages of Acquiring Financial Resources in the Capital Market?

The capital market is one of the alternative sources of financing business development. The optimum choice of the source of financing depends on the actual entity and the specific situation.

Among the advantages of acquiring financing through securities listing are:

• The option of acquiring a large sum of money, that, for instance, one bank would not be able or willing to provide.
• The option of optimising the capital structure between debt and the net worth. By issuing the shares, the issuer increases its registered capital, or net worth, through current or new shareholders. By issuing bonds, the issuer temporarily gets access to foreign capital as well.
• When issuing certain types of securities, the issuer acquires cash without the need to pay loans or interest rates. That way, the company’s profit may be fully used for the development of the company.

The process of issuing securities is, in the eyes of the investors, the most transparent method. The listing of an issue in the regulated market is linked to certain publicity, which can significantly contribute to higher status and trustworthiness of the issuer.

In some cases, however, this type of capital may be more expensive. Introducing an issue may also represent a rather lengthy procedure and when issuing shares, it has to be accepted that new shareholders have the right to participate in managing the company.

What Steps Need to be Taken to Successfully Subscribe a Security?

The main legislative standards that stipulate the necessary steps are above all the Commercial Code, the Act on Securities, the Act on Undertakings on the Capital Market and the Act on Bonds.

The basic steps leading toward a successful issue are as follows (depending on the type of the security):

• Proposal of the relevant statutory body for a new issue and calling for the General Meeting which will decide on issuing a security.
• Selection of an experienced consultant who will help the company with the subscription. A consultant shall also carry out a specialized audit which will determine how the company operates and what are its weaknesses and strengths. Preparation of the issue prospectus.
• Approval of the prospectus by the Czech National Bank.
• Commencement of the public offering and presentation, during which those interested may compete for the offered securities. Registration of the share subscription in the Commercial Register.
• Filing the application for admission of a security in the regulated market.

The basis for the success of each issue of securities is attracting investors who will buy the issued securities. Usually, investors will be more interested in listed securities, i.e. those that are negotiable in the regulated official market. The investors give preference to those securities that are freely negotiable under transparent conditions. The prestige of the given market also matters. Prestigious market (in case of the Prague Exchange these is the main market) impose stricter criteria on the parameters of the issue, as well as information transparency of their issuers, thus increasing the issuer’s trustworthiness. The higher the trust an issuer receives from the investor public, the lower the risk premium the investors demand when purchasing its securities.

The process the issuer has to go through, i.e. from deciding on increasing the capital through the individual steps of preparing the issue to introducing the issue to regulated markets, is described in detail in the guide “How to issue bonds and shares in the public market”.

What Obligations is the Issuer Going to Have?

The issuer is above all going to be required to disclose certain information to the investor public. Information is the most important clue for investors and the legislation makes sure that information gets to the investors in a timely manner and sufficient extent. The issuers are therefore obliged to fulfil duties stipulated above all by the Commercial Code, the Act on Undertakings on the Capital Market or the Accounting Act, and the Exchange Rules if the securities of the given issuer are traded at the Exchange. These include above all submitting the economic results of the company, annual and semi-annual reports, information on conclusions of General Meetings or information on property participations of the issuer, as well as other information.

Who Supervises the Rules of the Game at the Capital Market?

By law, the Czech National Bank is charged with supervising the capital market. The law specifies its status, competence and powers and defines some rights and obligations of the entities active in the capital market. The Czech National Bank takes steps toward thorough protection of shareholders and monitors compliance with the disclosure duties of all participants in the Czech capital market.

Do you have any questions?

… please, contact the Dept of Trading and Securities of the Exchange (info@pse.cz), whose personnel will be happy to assist you.