Investing in an APO can be a good financial strategy, says research analyst
NOT to be confused with an initial public offering (IPO), where a company offers its stocks to the public for the first time, an additional public offering (APO) is an additional opportunity provided to the public to purchase shares and invest in the company. This occurs when an already publicly listed entity offers more (additional) shares to the public on the secondary market. Indeed, an APO can be a crucial step in the growth of a business as it provides the company access to equity funds through the public capital market.
Highlighting some of the financial benefits of investing in an APO, Dania Palmer, who is also research manager at JN Fund Managers, a member company of the Jamaica National Group, said companies coming to the market to raise funds through an APO are usually targeting growth opportunities. If these opportunities prove successful, it can ultimately benefit investors.
“Contrary to popular belief, even companies targeting the capital market to pay down debt may prove beneficial for investors as the repayment of debt could lead to significant interest cost savings,” he explained.
He also mentioned that while debt capital is usually cheaper than equity capital, retiring debt with equity may be a powerful strategy for a company’s growth and for seizing opportunities, especially in a rising-interest-rate environment. He further indicated that the burden of navigating high levels of debt, especially in the early stages of a company’s life, is one of the reasons many companies fail.
He added that by using IPOs and even APOs as an investment strategy, investors can diversify their portfolios and expose themselves to new investment opportunities, as they can provide access to industries or markets that were previously inaccessible to individual investors.
The research manager further points out that publicly traded stocks are generally more liquid than private investments, but in many cases, up to 80 per cent of the shares in publicly listed entities are closely held. Therefore, investors may find that an APO is the only avenue for them to access a larger stake in a closely held public entity. This is particularly important for asset managers who typically trade in larger volumes than retail clients, he intimated.
In recent times, companies have been leveraging technology to allow investors ease of participating in IPOs and APOs. JN Fund Managers Limited has become one of the latest Jamaica Stock Exchange (JSE) brokers to launch their own electronic subscription platform as demand grows for digital solutions to participate in raising capital.
Known as JNFM’s Bloom, the platform allows for JN Fund Managers’ clients to sign up with his or her e-mail and apply for and purchase shares floated through IPOs, APOs, or rights issues. Investors may use a Jamaica Central Securities Depository account number from any broker and would be able to complete the entire application process online.
He further noted that whether raising capital through an IPO or APO, a company going public is required to disclose extensive financial and operational information in their prospectus or disclosure documents, which the company must issue at the time of offering investment securities to the public.
“While the transparency is good and this can help investors make informed decisions and conduct thorough due diligence, the average person may not be in a position to do so and therefore should seek the help of a licensed financial advisor,” he said.
He warned that while there are numerous possible benefits, there are also potential drawbacks and risks to consider when investing in IPOs or APOs.
“New companies are inherently risky. Some start-ups fail, and APOs of established companies may not always perform well in the short term. There’s also a significant risk of losing your investment,” he informed.
Palmer noted that in recent times there have been APOs launched on the market that are worth exploring. Real estate company 138 Student Living Jamaica Limited (138SL) recently launched an additional public offering of shares.
The APO, which opened on September 8, closes on October 6. The company intends to raise up to $3.2 billion through the APO. The shares will be priced at $4.40 for the public and $4.05 for the reserve pool.
Details of the share offerings are laid out in the prospectus, which can be viewed on the Jamaica Stock Exchange website (https://www.jamstockex.com) and on the 138 Student Living Jamaica website (https://www.138studentliving.com). The lead broker and arranger is GK Capital Management Limited with JN Fund Managers as selling agent.
Investors can stay informed about APOs by reading the latest financial news and consulting with their financial advisors.