Chapter 3

Introduction to Long-term
Financing
1.1 Ordinary Shares

Description

Ordinary shares give rights to a share of the residual

profits of the company , and to the residual capital
value if the company is wound up , together with
voting rights and various other rights .
Ordinary shares are the main way in which UK companies
are financed . A company may or may not have loan capital and
/ or preference shares . However , to exist it must have ordinary
share capital ( unless it is " limited by guarantee " ) .

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Education. All rights reserved. No
reproduction or distribution without the
prior written consent of McGraw-Hill
Education. 1-2
Almost all ordinary shares :
•give an equal right to share in residual profits ( after the
preference shareholders , if any , have received their full
entitlement to dividends ) . This is the most important feature
, and is the main reason for buying shares .
•give one vote per share .

•give an equal share to any assets left over following a

winding - up after all other creditors have been paid .
•are fully paid ( partly paid issues are discouraged by the
Stock Exchange ) .
•give various other minor rights ( eg the right to receive the
annual report and accounts ) .
Copyright © 2016 McGraw-Hill
Education. All rights reserved. No
reproduction or distribution without the
prior written consent of McGraw-Hill
Education. 1-3
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 1. The right to share proportionally in dividends paid.
 2. The right to share proportionally in assets remaining after
liabilities have been paid in a liquidation.
 3. The right to vote on matters of great importance to
shareholders, such as a merger, usually decided at
 the annual meeting or a special meeting.
 4. The right to share proportionally in any new equity sold.
This is called the pre-emptive right .

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 Ordinary shares are the fundamental ownership units of the
corporation. The articles of incorporation of a new company
must state the number of ordinary shares the corporation is
authorized to issue.
 The board of directors of the corporation, after an agreement
from the shareholders (in unitary board systems) or the
supervisory board (in two-tier board systems) can amend the
articles of incorporation to increase the number of shares
authorized; there is no limit to the number of shares that can
be authorized.

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 Suppose 100 shares of equity have a par value of £2 each
and are sold to shareholders for £10 per share. The
additional paid in capital would be (£10 − £2) × 100 =
£8 × 100 = £800, and the total par value would be £2 ×
100 = £200.
 What difference does it make if the total capital
contribution is reported as par value or additional
paid-in capital?
 About the only difference is that the par value is locked
in and cannot be distributed to shareholders except upon
the liquidation of the corporation.

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 Suppose Louest Rouge plc was formed in 1910 with 10,000 shares of
equity issued with each share valued at £1 par value. Because the shares
were sold for £1, the first balance sheet showed a zero amount for capital
surplus. By 2013, the company had become very profitable and had
retained profits of £100,000. The shareholders’ equity of Louest Rouge in
2013 is as follows:

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 Suppose the company has profitable investment opportunities
and decides to sell 10,000 shares of new equity. The current
market price is £20 per share. The effect of the sale of shares
on the balance sheet at the end of the year will be:

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 优先股是指依照公司法，在一般规定的普通种类股份之外，另行规定的其他种类股份，其股份持有人优先于普通股
股东分配公司利润和剩余财产，但参与公司决策管理等权利受到限制。
 优先股股东按照约定的票面股息率，优先于普通股股东分配公司利润。公司因解散、破产等原因进行清算时，公司
财产在按照公司法和破产法有关规定进行清偿后的剩余财产，应当优先向优先股股东支付未派发的股息和公司章程
约定的清算金额，不足以支付的按照优先股股东持股比例分配。
 优先股股东的表决权受到限制。除特殊情况外，优先股股东不出席股东大会会议，所持股份没有表决权。但是公司
累计 3 个会计年度或连续 2 个会计年度未按约定支付优先股股息的，优先股股东有权出席股东大会，每股优先
股股份享有公司章程规定的表决权。
 优先股不可以上市交易，只有普通股可以上市交易

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 Policy after Apr. 2016
 You only pay tax on dividends that go above your dividend allowance in
the tax year.
 You do not pay tax on dividends from shares in an ISA.

Tax year Dividend allowance

6 April 2018 to 5 April £2,000
2019
6 April 2017 to 5 April £5,000
2018
6 April 2016 to 5 April £5,000
2017

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 The tax you pay depends on which Income Tax band you’re
in.
 Add your income from dividends to your other taxable
income to work out your tax band. You may pay tax at more
than one rate.

Tax band Tax rate on dividends over

your allowance
Basic rate 7.5%
Higher rate 32.5%
Additional rate 38.1%

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 Income Tax Band of UK

Band Taxable income Tax rate

Personal Allowance Up to £11,850 0%
Basic rate £11,851 to £46,350 20%
Higher rate £46,351 to £150,000 40%
Additional rate over £150,000 45%

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 Example
 You get £3000 in dividends in the 2018 to 2019 tax

year. The dividend allowance is £2000, so this means

you pay tax on £1000 of your dividends.
 Your other taxable income is £35,000. Add this to your

dividends of £3000 and your total taxable income is

£38,000.

How much tax do you pay?

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 Policy before Apr. 2016

 Very similar to the policy afterwards.

However, a tax credit is imposed instead of
a dividend allowance.

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 A call provision lets the company repurchase or call the entire bond issue
at a predetermined price over aspecified period.
 Generally the call price is above the bond’s face value. The difference
between the call price and the face value is the call premium. For example,
if the call price is 105 – that is, 105 per cent of, say, €1,000– the call
premium is €50.
 The amount of the call premium usually becomes smaller over time. One
typical arrangement is to set the call premium initially equal to the annual
coupon payment and then make it decline to zero over the life of the bond.
 Call provisions are not usually operative during the first few years of a
bond’s life. For example, a company may be prohibited from calling its
bonds for the first 10 years. This is referred to as a deferred call. During
this period the bond is said to be call-protected.

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 In just the last few years, a new type of call provision, a ‘make-whole’
call, has become widespread in the corporate bond market. With such a
feature, bondholders receive approximately what the bonds are worth if
they are called. Because bondholders do not suffer a loss in the event of a
call, they are ‘made whole’.
 To determine the make-whole call price, we calculate the present value of
the remaining interest and principal payments at a rate specified in the
indenture. For example, assume that the Axa Bank Europe SCF issue was
callable and that the discount rate is ‘Treasury rate plus 0.20 per cent’.
What this means is that we determine the discount rate by first finding a
French Treasury issue with the same maturity. We calculate the yield to
maturity on the Treasury issue and then add on an additional 0.20 per cent
to get the discount rate we use.

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 A sinking fund is an account managed by the bond trustee for the purpose
of repaying the bonds. Typically, the company makes yearly payments to
the trustee. The trustee can purchase bonds in the market or can select
bonds randomly using a lottery and purchase them, generally at face value.
 Sinking funds have two opposing effects on bondholders:

 1. Sinking funds provide extra protection to bondholders.

A firm experiencing financial difficulties would have trouble making sinking

fund payments. Thus, sinking fund payments provide an early warning
system to bondholders.
 2. Sinking funds give the firm an attractive option.

If bond prices fall below the face value, the firm will satisfy the sinking fund
by buying bonds at the lower market prices. If bond prices rise above the
face value, the firm will buy the bonds back at the lower face value (or
other fixed price, depending on the specific terms).

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 偿债基金是债券发行者为保证所发各类债券的到期或不到期偿还而设置的专项基金。
在通常情况下，债券的偿还从发行者未来收益中支付，但为了保证债券到期或特殊情
况下持有人要求提前支付，一些国家的政府或公司还设置了专项偿债基金。国家偿债
基金一般是从国家预算中安排，公司偿债基金的形成主要有两种方式： 一是按固定
金额或已发债券的一定比例提取 ; 二是按税后利润或销售收入的一定比例提取。有
些偿债基金是根据有关法律规定在债券发行时必须设立的，还有些公司把设立偿债基
金作为其中一个发行条件载入债券发行契约，以增强所发债券对投资者的吸引力

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Foreclosure: 丧失抵押品赎回权。

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Question to think about:

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 Sometimes it is not clear whether a particular security is debt
or equity. For example, suppose a 50-year bond is issued with
interest payable solely from corporate income if and only if
earned, and repayment is subordinate to all other debts of the
business.
 Corporations are very adept at creating hybrid or compound
securities that look like equity but are called debt. Obviously
the distinction between debt and equity is important for tax
purposes. When corporations try to create a debt security that
is really equity, they are trying to obtain the tax benefits of
debt while eliminating its bankruptcy costs.

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 Debenture Stocks
 Unsecured Loan Stocks
 Eurobond
 Subordinated Debt
 Preference Shares
 Ordinary Shares

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 招商公路 (001965)3 月 19 日晚间发布公开发行 A 股可转债募集说明书。公告显示，公司公开发行可
转债已获证监会核准。本次发行的可转债简称为“招路转债”，债券代码为“ 127012” ，发行规模为 50
亿元，每张面值为 100 元，按面值发行。网下和网上预设的发行数量比例为 9:1 。本次发行原股东优先配
售日与网上申购日同为 2019 年 3 月 22 日 (T 日 ) 。
 公告显示，本次发行的可转债分为三个部分。第一，向在股权登记日 (2019 年 3 月 21 日， T-1 日 )
收市后登记在册的原 A 股股东实行优先配售。原股东的优先认购通过深交所交易系统进行，配售简称为“招路配
债”，配售代码为“ 081965” ；第二，社会公众投资者通过深交所交易系统参加发行人原股东优先配售后
余额的申购，申购简称为“招路发债”，申购代码为“ 071965” ；第三，机构投资者可参与本次可转债网
下申购。

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 其中，原股东在 2019 年 3 月 22 日 (T 日 ) 参与优先配售时需在其优配额度之内根
据优先配售的可转债数量足额缴付资金。原股东及社会公众投资者在 2019 年 3 月 22
日 (T 日 ) 参与优先配售后余额部分的网上申购时无需缴付申购资金。
 公司将于 2019 年 3 月 25 日 (T+1 日 ) 披露获得配售的机构投资者名单，每户
获得配售的可转债数量及扣除申购保证金后应缴纳的认购款金额或应退还的多余申购资金等信息
。当网上有效申购总量大于本次最终确定的网上发行数量时，采取摇号抽签方式确定发售结果。

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认股权证是由股份有限公司发行的可认购其股票的一种买入期权。它赋予持有者在一定期限内以事先约定的价格购买发行公
司一定股份的权利。对于筹资公司而言，发行认股权证是一种特殊的筹资手段。认股权证本身含有期权条款，其持有者在认
购股份之前，对发行公司既不拥有债权也不拥有股权，而只是拥有股票认购权。尽管如此，发行公司可以通过发行认股权证
筹得现金，还可用于公司成立时对承销商的一种补偿。

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 根据《民事诉讼法》第 204 条的规定，破产财产须优先拨付破产费用，破产费用包括
 (1) 破产财产的管理、变卖和分配所需要的费用，以及聘用工作人员的费用 ;
 (2) 破产案件的诉讼费用 ;
 (3) 为债权人的共同利益而在破产程序中支付的其他费用。
 破产财产在优先拨付破产费用后，按下列顺序清偿：
 ( 一 ) 破产企业所欠职工工资和劳动保险费用 ;
 ( 二 ) 破产企业所欠税款 ;
 ( 三 ) 破产债权。
 破产财产不足以清偿同一顺序的清偿要求的，按照比例进行分配。

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