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Financing through sale or Issue of Shares
Companies can finance themselves by the sale of their own shares (Sale Offer) or by issuing new shares (Subscription Offer). This form of financing allows companies to obtain the financial resources they need from investors through the capital market, in exchange for the distribution of their companies' profit in proportion to the shares held. Holders of shares are called shareholders, and the profit of their companies that is distributed to them is called dividend.
Who can sell or issue Shares?
The entities that can sell the companies' shares or issue new shares are all the entities whose share capital is represented in the form of shares, namely limited liability companies. A limited liability company that wishes to finance itself via Shares will first have to become a limited liability company.
Reasons for issue of Shares
A company chooses financing through the issuing of Shares, for:
- The company´s training and expansion projects;
- Diversifying financing alternatives;
- Shareholders reimburse the amount invested through the sale of their shares, this not being an obligation of the company;
- The income distributed to shareholders (dividends) depends on the company´s financial performance.
Conditions for issuing Shares
When deciding whether to sell or issue new shares, the following characteristics should be taken into account:
- The amount of sale or issuing of new shares should be determined – which represents the amount of financing;
- Price per share;
- The conditions for sale or issuing of new shares of the company are previously established in a document designated by Technical File of Issue, which contains: Issue Amount; Nominal value and share subscription value;
- Nature of the shares (bearer or registered);
- Fiscal Regime;
- Financial Settlement Conditions; Leading Financial Institution;
- Other relevant conditions.
Who purchase or subscribe the Shares?
A sale of shares or issue of new shares of a company may be placed with a predetermined range of investors (Private Offering modality) or with an indeterminate range of investors (Public Offering modality).
An operation of sale or issue of new shares may be placed with investors, simultaneously in the Public and Private Offering modalities, in which case the transaction as a whole is considered to be a Public Offering.
Issue of Shares by Private Placement
The sale of shares or issue of new shares of a company that is done through Private Offering is not subject to authorisation by the Bank of Mozambique, so it is a relationship between the Company and the buyers or subscribers of Shares.
Issue of Shares by Public Offering
The sale or issue of new shares of a company that is done through Public Offering is subject to prior authorisation by the Bank of Mozambique, in its capacity as the Market Supervisor of Securities. Prior to the launch of a Public Offering trading of Shares, the company must submit to the Bank of Mozambique, through a financial institution, a set of documents consisting of:
- Copy of the minutes of the decisions or resolutions of the issuer's governing bodies;
- Updated copy of the issuer's articles of association;
- Commercial registration certificate;
- Management reports, accounts, opinions of the supervisory bodies and legal certification of accounts of the issuer, referring to the last years.
If the Public Offering for Sale or Subscription of Shares is accompanied by any advertising campaign, the advertising material must also be authorised by the Bank of Mozambique before it can be disclosed to the public.
Registration of Shares in the Central Securities Depository
Until the date of the Private/Public Offering of Sale / Subscription of Shares, the company registers the issue with the Central Securities Depository, and the financial institutions register the Shareholders.
Admission to listing on the Stock Exchange
Shares may be listed on the Mozambique Stock Exchange (BVM), and companies must comply with a set of requirements:
- Financial nature (market capitalization, equity, publication of accounts);
- Legal nature (legal compliance of companies, legal compliance of securities);
- Nature of the market (dispersion by the public, obligation to provide information). The admission to listing on the stock market for issuing shares offers to the companies issuing them a set of advantages: Credibility of the companies;
- Higher visibility of the companies; Share appreciation potential; Greater confidence with investors; More favourable tax regime.
Admission to listing on the stock market of share emissions offers businesses that emit a number of advantages:
- Credibility of the company;
- Increased visibility of the company;
- Growth potential of the shares;
- Greater confidence among investors;
- More favorable tax regime.
Bonds
Financing through issuing Bonds
Bond issue is a medium / long-term loan (more than 1 year), where companies obtain the financial resources they need from investors in the capital market against the payment of an interest rate and return of the amount invested by end of the loan period.
Who Issues Bonds?
The entities that may issue Bonds are as follows: The State and Limited Liability Companies.
Reasons for issuing Bonds
Companies opt for financing through issuing Bonds for a number of reasons including training and expansion projects of the companies whereby there is a return on investment after 1 year, financial restructuring and diversifying financing alternatives.
Amount of Financing through issuing Bonds
The State may issue bonds (called Treasury Bonds) up to the amount stipulated for this purpose in the State Budget, whose conditions of issue are regulated by Ministerial Order of the Ministry of Economy and Finance. Entities that are public limited liability companies may issue bonds (called Corporate Bonds) up to the value of their share capital inscribed in the last Balance Sheet and Income Statement, and their issue is subject to the authorisation by their General Meeting, or their Board of Directors as stipulated in their Articles of Association.
Conditions for bond issue
The conditions for bond issue are previously established in its issue, in a document designated as Technical File for Issue, which contains:
- Amount and Term of Issue;
- par value and subscription value of the bond;
- Nature of the bonds (bearer or registered);
- Representation of the bonds (bearer or book-entry);
- Interest rate and periodicity of payment;
- Loan repayment modality;
- Fiscal Regime; Registration of Bonds;
- Financial Settlement Conditions;
- Responsible Financial Institution;
- Other relevant conditions.
Who buys Bonds
Bond issue can be placed for subscription to a predetermined range of investors (Private Offering modality) or to an indeterminate range of investors (Public Offering modality). Bond issue can be placed with investors, simultaneously in the Private and Public Offering modalities, in which case Bond issue as a whole is considered to be a Public Offering.
Issue of Bonds by Private Offering
Bond issue by Private Offering is subject to authorisation by the company itself (General Meeting, Board of Directors as previously mentioned).
Issue of Bonds by Public Offering
With the exception of the State, public offerings by companies or other entities are subject to prior authorisation by the Bank of Mozambique, in its capacity as the Market Supervisor of Securities.
Prior to the launch of a Public Offering of bond issue, the companies must submit to the Bank of Mozambique, through a financial institution, a set of documents consisting of:
- Copy of the minutes of the decisions or resolutions of the issuer's governing bodies;
- Updated copy of the issuer's articles of association;
- Commercial registration certificate;
- Management reports, accounts, opinions of the supervisory bodies and legal certification of accounts of the issuer, referring to the last years.
If the Public Offering for bond issue is accompanied by any advertising campaign, the advertising material must also be authorised by the Bank of Mozambique before it can be disclosed to the public. Once the Bank of Mozambique grants the authorisation to launch the Public Offering, companies may place bond issue to subscription by the general public, through a financial institution or syndicate of financial institutions.
Registration of Bonds in the Central Securities Depository
On the date of bond issue, companies register the issue with the Central Securities Depository, and the financial institutions register the bondholders.
Admission to listing on the Stock Exchange
Bond issue may be admitted to listing on the Mozambique Stock Exchange (BVM), and companies must comply with a set of requirements:
- Financial nature (market capitalization, equity, publication of accounts);
- Legal nature (legal compliance of companies, legal compliance of securities);
- Nature of the market (dispersion by the public, obligation to provide information). The admission to listing on the stock market for issuing bonds offers to the companies issuing them a set of advantages: Credibility of the companies;
Higher visibility of the companies; Share appreciation potential; Greater confidence with investors; More favourable tax regime.
Companies promote the listing on the stock market of its bonds, the advantages that are inherent:
- Credibility of the company;
- Increased visibility of the company;
- Greater confidence among investors;
- More favorable tax regime.
Commercial paper
Financing by issuing Commercial Paper
Commercial paper issue is a short-term loan (up to 1 year), where companies obtain the financial resources they need from investors in the capital market against the payment of an interest rate and return of the amount invested by end of the loan period.
Who can issue commercial paper?
The entities that can issue Commercial Paper are as follows:
- Limited Liability Companies;
- Commercial companies;
- Civil Societies in the commercial form;
- Cooperatives;
- State-owned Companies.
Reasons for issuing commercial paper
Companies opt for financing through issuing Commercial Paper for a number of reasons including deficit coverage of companies' cash flow; diversifying financing alternatives and as an easy financing tool for Small and Medium Enterprises.
Financing value through Commercial Paper
Companies may issue Commercial Paper up to the value of their share capital inscribed in the last Balance Sheet and Profit and Loss Statement, and its issue is subject to the authorisation by their General Meeting, or Board of Directors as stipulated in their Articles of Association. If the amount of the intended financing exceeds the limit above, companies must obtain an additional guarantee from a financial institution for the amount of financing that exceeds the authorised limit.
Terms of issue of Commercial Paper
The conditions for issuing Commercial Paper are previously established in a document designated as Technical File for Issue, which contains:
- Amount and Term of Issue;
- Par value and subscription value of the Commercial Paper;
- Nature of the Commercial Paper (bearer or registered);
- Interest rate and periodicity of payment;
- Loan repayment modality;
- Fiscal Regime;
- Financial Settlement Conditions;
- Responsible Financial Institution;
- Other relevant conditions.
Who buys Commercial Paper
Commercial paper issue can be placed for subscription to a predetermined range of investors (Private Offering modality) or to an indeterminate range of investors (Public Offering modality).
A Commercial Paper issue can be placed with investors, simultaneously in the Private and Public Offering modalities, in which case Commercial Paper issue as a whole is considered to be a Public Offering.
Issue of Commercial Paper by Private Offering
Commercial Paper issue through Private Offering is not subject to authorisation by the Bank of Mozambique, so it is a relationship between the Entity and the Holders of Issue.
Issue of Commercial Paper by Public Offering
Public offerings by companies or other entities are subject to prior authorisation by the Bank of Mozambique, in its capacity as the Market Supervisor of Securities.
Prior to the launch of a Public Offering of Commercial Paper issue, companies must submit to the Bank of Mozambique, through a financial institution, a set of documents consisting of:
- Copy of the minutes of the decisions or resolutions of the issuer's governing bodies;
- Updated copy of the issuer's articles of association;
- Commercial registration certificate;
- Management reports, accounts, opinions of the supervisory bodies and legal certification of accounts of the issuer, referring to the last years.
If the Public Offering for Commercial Paper issue is accompanied by any advertising campaign, the advertising material must also be authorised by the Bank of Mozambique before it can be disclosed to the public.
Once the Bank of Mozambique grants the authorisation to launch the Public Offering, companies may place Commercial Paper issue to subscription by the general public, through a financial institution or syndicate of financial institutions.
Commercial Paper registration in in the Central Securities Depository
On the date of Commercial Paper issue, companies register the issue with the Central Securities Depository, and the financial institutions register the Commercial Paper holders.
Admission to Listing on the Stock Exchange
Commercial paper issue is compulsorily admitted to listing on the Mozambique Stock Exchange (BVM), and companies must comply with a set of requirements:
- Financial nature (market capitalization, equity, publication of accounts);
- Legal nature (legal compliance of companies, legal compliance of securities);
- Nature of the market (dispersion by the public, obligation to provide information).
The admission to listing on the stock market for issuing Commercial Paper offers to the companies issuing them a set of advantages:
- Credibility of the companies;
- Higher visibility of the companies;
- Share appreciation potential;
- Greater confidence with investors;
- More favourable tax regime.