Securities underwriting ensures that the organization’s securities issuance is successful. The securities underwriting process includes 6 steps as follows:

Step 1: Evaluate the possibility of issuing securities

Companies that are issued securities will consider the issuer’s ability to issue, before the time of entering into the contract. The factors that the underwriter will consider during the issuer evaluation are:

• The situation of the financial activities of the company.
• Consider the changes of the financial market at the present time, both at home and abroad.
• Have a clear grasp of the company’s product situation in the market.
• Learn about the issuer’s legal status.

After reviewing and evaluating the issuer, discovering any inadequacies, the guarantor company will advise on remedy. If the issuer has a need for capital mobilization, it will sign a contract with the guarantor.

Step 2 of securities underwriting process: Prepare documents for issuance permission and select members

After signing a guarantee contract with the issuer, the guarantor company will prepare documents to apply for permission to be issued. Also in this step, the guarantor will conduct a valuation for the offering.

∙        The guarantor organization shall create contracts including:

• Contracts of guarantor organizations.
• Contracts with distribution agents.
• Underwriting contract.

These contracts contain full information about the regulation, terms and financial position of the issuer. In addition, there are clauses in the contract to protect the guarantor organization in some cases where they cannot fulfill their obligations.

∙        A dossier of application for a guarantee permit includes the following documents:

• A copy of the application for an operating permit.
• Contracts of guarantors have been created.
• Documents related to proving that the sponsoring organization is eligible for the guarantee.

Step 3 of securities underwriting process: Proceed to distribute securities

When the guarantor company submits an application for permission and is accepted to establish a guarantee complex. At this time, the securities guarantee company will distribute to members.

Step 4 of securities underwriting process: End the underwriting and closing

Upon entering the closing period, the guarantor will pay the proceeds from the sale of securities to the issuer. Note that whether the distribution has been completed or not, the guarantor is still responsible for payment.

Step 5 of securities underwriting process: Reconcile the stock market

In some cases, the price of the stock market may be reduced by more than the offer price before the issuance ends. This poses a difficult problem for the guarantor organization. After the underwriting period has ended, the guarantor may take a number of measures aimed at stabilizing the market.

Step 6 of securities underwriting process: Dissolution of the guarantee complex

At the time when the guarantor has paid the issuer in full, the guarantee commission will be paid to the members of the consortium. From there, the dissolution of the guarantee complex will take place. This means that the operation of the guarantee complex has completely ceased.

Meaning of securities underwriting process

Securities underwriting ensures the successful issuance of securities by the organization. There are companies that when they first register to list on the exchange, they always want to value their securities high to raise a large amount of capital. But investors are quite apprehensive about wanting to own securities at a lower price. 

Thus, without underwriting activities, it is difficult for investors and securities of the issuer to meet to trade. Underwriting can adjust the price more reasonably, access investors more easily so that the amount of securities is circulated with high liquidity. 

Besides, it helps to increase the likelihood of successful issuance with new companies appearing on the market.This activity helps securities issuers increase their credibility and attract more investors. In the next issuance, good market capital can be accessed easily.

Above is the content of KALF’s advice on The securities underwriting process and some related legal issues. All of our above advice opinions are based on applicable legal provisions. If you have any questions or requests about legal issues, please contact us for timely answers.