Question Tag: Corporate Bonds

A pharmaceutical company wholly owned by the family of Chief Adedutan Jolomi has been in business for many years. The directors have decided to seek quotation on the Alternative Securities Market (ASEM).

A new drug on Ebola Virus Disease (EVD) was developed by the company. The production of the new drug will require more funding since short-term finance will not be sufficient. They believed it was time to introduce the drug into the market.

The directors of the company believed that launching the product would significantly increase the company’s share of the market because the country was anxiously looking forward to an effective EVD drug. Production and launch of this product is costly, and the company’s shareholders may not be able to raise such funds. This informed the directors’ decision to seek additional finance to be sourced partly in corporate bond and partly by the issue of shares.

They plan to issue the corporate bond in the first quarter of 2015 and the shares through an Initial Public Offer (IPO) towards the end of the year 2015. To decide on the appropriate method for the offer, the directors are interested in being educated on the issue.

Required:

(a) Compare and contrast the methods of issuing bonds through private placement and by public offer. State their advantages and advise on which method would be more appropriate in the above situation. (12 Marks)
(b) Advise the directors on the steps that need to be taken to improve the chances and success of its proposed Initial Public Offer (IPO). (4 Marks)
(c) Explain the three forms of Efficient Market Hypothesis (EMH), indicating which of them is most likely to apply in practice. (4 Marks)