Kembaraxtra—Islamic Finance-Islamic Capital Market -Funds from the Primary Market

Companies raise funds from the primary market through several recognised methods, each serving different financing needs.

1. Public Issue (Initial Public Offering – IPO)

• A public issue is one of the most efficient and widely used methods of raising funds in the primary market.
• It involves issuing shares to the general public for the first time through an Initial Public Offering (IPO).
• The company transitions from a private company to a publicly listed company.
• Securities issued under a public issue are listed on a stock exchange to enable public trading.
• Investors purchase shares directly from the company.
• Funds raised are used for expansion, business growth, and long-term investment.

Examples of Public Issue (IPO)

• A private manufacturing company lists its shares on the stock exchange to raise capital for building a new factory.
• A technology startup launches an IPO to fund research, development, and market expansion.
• A Shari’ah-compliant company issues shares through an IPO in the Islamic Capital Market to finance halal business operations.

2. Rights Issue

• A rights issue is a method where a company offers additional shares only to its existing shareholders.
• Shares are offered on a pro rata basis, meaning shareholders receive rights based on their current shareholding.
• The issue price is usually lower than the prevailing market price.
• The main objective is to raise additional capital at a lower cost.
• Existing shareholders are given priority, allowing them to maintain ownership proportion.

Examples of Rights Issue

• A listed company offers 1 new share for every 5 shares held to raise funds for debt reduction.
• A company facing temporary cash flow issues raises funds through a discounted rights issue.
• A Shari’ah-compliant listed firm issues rights shares to finance expansion into new halal markets.

3. Preferential Allotment

• Preferential allotment is a method where a listed company issues shares to selected investors.
• Shares are not offered to the general public.
• The issue price is not directly determined by the current market price.
• The company has the discretion to decide the price and recipients of the shares.
• This method is often used to raise funds quickly or bring in strategic investors.

Examples of Preferential Allotment

• A listed company issues shares to a strategic business partner to strengthen collaboration.
• A financially distressed company allots shares to institutional investors for quick capital injection.
• A Shari’ah-compliant firm issues shares to an Islamic investment fund through preferential allotment.