Why on earth does a giant corporation want to sell shares?

Fsp Invest, 19 Dec. 2013

Tags: shares, capital finance, debt finance, corporate bonds, why companies issue corporate bonds, how companies get funding

This is probably one of the first questions you’ll ask. And it’s fortunately quite easy to answer! Companies are forever seeking ways to obtain funding for growth and capital intensive projects. There are many ways a company might go about obtaining funds for such development. The first (and probably most obvious) is for the company concerned to go to its bank and obtain a long-term loan.

But bank loans are costly – so companies are forced to be more creative. Let’s take a closer look…

Capital is better than debt… 
Some companies will try and fund their expansion plans through the issue of corporate bonds. They can issue bonds to institutions and private investors – but ultimately these bonds are no better than a bank loan. They’re simply another form of debt finance.
And that’s when a company looks to the capital (or equity) market to find funding. They offer up the company to financial institutions and private investors. In other words, the company elects to sell shares (or part ownership in the company) to private and other investors... 
The company will use the money raised in this public offering to pursue various capital-intensive projects without incurring the burden of additional interest charges.
Remember – shares (excluding preference shares) don’t cost the company any additional amount in interest payments. 
The only costs related to raising money on the capital markets by way of a share listing are the administrative cost of setting up the initial issue, and of course the costs associated with maintaining the listing.
So now you have a better idea of why companies want to sell you shares

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