Benefits of Going Public
- Funds raised via an Initial Public Offering (IPO) can be used to increase working capital or to finance growth and expansion.
- A public company can use equity financing as an alternative to funding from existing owners or borrowing from banks and other financial institutions. Equity financing relieves a company of the commitment to make the principal and interest payments associated with debt financing, which can be burdensome in a high interest rate environment.
- Going public establishes the structure to facilitate raising additional capital via future offerings.
- The credibility of a company among banks is enhanced when it lists on an Exchange and generally enables more favorable borrowing terms.
- Going public could improve a company’s debt/equity ratio and net worth. The company has the opportunity to use funds raised via an IPO to pay back debt or convert the debt into equity, which could reduce the company’s future financing costs.
- Existing shareholders have the opportunity to liquidate some of their shareholdings.
- The cost of transferring shares in companies listed on the TTSE is lower when compared to paying Stamp Duty for the transfer of shares of companies that are not listed on the TTSE.
- The TTCD, a subsidiary of the TTSE can provide transfer agent and registrar services to listed companies.
- Going public could improve a company’s image and provide brand recognition. It demonstrates the company’s openness to the outside world and its desire to expand. This new status makes the company more attractive in a number of respects, such as broadening its choice of suppliers and clients, and recognition within its business sector. It also constitutes an advantage on the regional and international stage in the search for foreign business partners since these companies may feel more comfortable doing business with a listed company that has a public history and track record as opposed to a company without one.
- Shares in a listed company represent a valuable currency for acquisitions. A listed company is able to finance acquisitions wholly or partially in shares. This avoids the need to take on excessive debt or the need to use cash resources. This method of financing acquisitions was used by the Royal Bank of Canada in its acquisition of Royal Bank of Trinidad and Tobago and by Neal and Massy Holdings Limited in its acquisition of Barbados Shipping and Trading Company Limited.
- Making a public offering can lead to a better valuation of the company than a private placement.
- Going public has a positive impact on employee morale and commitment to the company. By establishing Employee Share Ownership Plans, a company can provide an incentive for employees to work towards the long-term success of the company as they would become part owners of the company. These plans are useful for compensation purposes as bonuses and/or salaries can be paid in the company’s shares as opposed to cash and can also be used to recruit and retain highly qualified staff.
- Plans to develop Trinidad and Tobago into the regional financial hub will make Trinidad and Tobago the premier destination for foreign investors, thereby providing access to regional and international investors.
Obligations of Going Public
There are consequences of going public that must be considered before making a public issue of shares. Some of these are:
- Public Disclosure
Once a company goes public it is obligated to provide timely and continuous reporting of material corporate information as required by regulatory bodies. Quarterly financial results must be submitted to the TTSE and published in the local media within forty-five (45) days of the end of the quarter, while audited annual financial results must be submitted to the TTSE within ninety (90) days of the end of the financial year. Trading by persons connected to the company and any significant corporate activity must be reported in accordance with the TTSE Rules. Disclosure of such information is usually beneficial because it focuses attention on companies’ successes as well as deficiencies, and encourages efficient and effective management. - Directorship
There are key differences in the responsibilities of Directors of a public company and those of a private company. In a public company, the responsibility to the shareholders takes precedence. The Directors are entrusted with managing the affairs of the company in the best interest of the shareholders and are therefore accountable to them. Independent and Non-Executive Directors can give advice, provide objectivity and balance to management and lend credibility to the company’s reputation. - Management
The managers of a public company must be aware of the obligations and constraints of running the company and thereby adopt a suitable management style. Corporate business decisions can no longer be self-serving, as managers must always be reminded of their fiduciary duties to shareholders. In some cases, managers may need to seek shareholder’s approval prior to certain material transactions.
