Free «Chartered Financial Analyst Considerations when Sponsoring / Promoting an IPO» Essay Sample

Chartered Financial Analyst Considerations when Sponsoring / Promoting an IPO


The shipping and transport industries entered the US marketing, which prompted them to seek alternative methods of sourcing for capital expansion through Initial Public Offer (IPO). This later improved the image of the shipping industry in the international community. As a result, more than 20 shipping companies have raised capital through IPO. However, the process of IPO is time consuming and requires the involvement of Chartered Financial Analysts (CFAs) to offer critical functions. Chartered Financial Analysts are charged with the responsibility of promoting the offering of an Initial Public Offer of a company that intends to go public in the shipping/transport industry. Such companies need to implement a mechanism that will make it easy for Chattered Financial Analyst to promptly promote their Initial Public Offer. During the process of sponsoring the Initial Public Offer of companies, CFAs make a number of considerations to safeguard both their own and investors’ interests.

A Chartered Financial Analyst

A Chartered Financial Analyst refers to a professional who has successfully passed the CFA program offered by CFA Institute based in America; CFAs are recognised internationally as individuals who can offer expert advice on investment ventures. Thus, a financial analyst is an individual with vast knowledge of management in investment, bonds, company stock valuations, analysis of financial risks; this professional also offers investment decisions in regard to derivatives and other asset issues. Therefore, a Chartered Financial Analyst is a professional who has specialized in matters of investment and related risks (Dewar, 2011).

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A Chartered Financial Analyst can offer expert advice to all kinds of investment decisions to be taken by potential investors. It is an international credential that is recognised by the CBOK. Thus, a Chartered Financial Analyst must be well versed in professional and ethical standards needed in the field of evaluation and risk management. In addition, a Chartered Financial Analyst must obtain comprehensive knowledge in all fields of economic. Thus, a financial analyst is a professional who has in-depth knowledge of economics, accounting, money management and security analysis. In addition, Chartered Financial Analyst must understand financial reporting, equity investment, derivatives and fixed income, portfolio management alternative investments and wealth planning.

An Initial Public Offer

An IPO refers to the Initial Public Offer of a private company given to the members of the public for purchase. It is the initial stake of a company that is set aside for the public subscription when a company is yet to be listed on a stock market for the first time as a public company. IPO are sold off on a pro rata basis, with the number of shares to be emitted being determined by the amount of capital the company intends to raise. In the process of issuing IPO, the company will set a certain proportion for the company share that has to be subscribed by different categories of shareholders. 20 companies in the shipping/transport industry have successfully raised their capital through the IPO process.

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In addition, it is during the Initial Public Offer that a company groups its shares into preference shares, ordinary shares and share with premium. Additionally, the Initial Public Offer marks the determination of the marked price commonly known as the offer price. Other aspects of an Initial Public Offer include the call for subscription and payment for the offers applied for. In case the numbers of subscribers who apply for the Initial Public Offer far outnumber the number of shares to be emitted, then the company has to refund those who are unsuccessful during application and allotment of the shares (Palepu, 2007).

Initial public offer is the stock market launch where the shares of a company are specifically sold to corporate investors who later transfer the ownership to the members of the public. It is usually the creation of a security exchange for the initial period. It marks the process of a private company converting to a public company and thus being listed on a securities exchange market. It is a means of raising capital for expansion purposes through equity for the first time. Along with that, it is usually practised by small companies, but the larger companies may also resort to this practice as a way of looking for more publicity. For shipping and transport industry, companies will need additional capital for the purpose of increasing their asset base and growth to realise stability. They will, therefore, issue their IPO at a higher value as compared to companies in other industries.

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The Responsibilities of a Chartered Financial Analyst when Conducting an Evaluation of a Security (Initial Purchase Offer)

The process of evaluating securities during an Initial Public Offer is the principle role of a Chartered Financial Analyst. During this process, the Chartered Financial Analyst expends much effort to ensure that proper advice is available for the investors to make a wise decision regarding the Initial Public Offer. To begin with, a Chartered Financial Analyst sets the price of the Initial Public Offer that is conducive to both the shipping company and the investors. This price is set with consideration of several aspects of the market and other factors that prevail in the shipping/transport industry (CFA Institute, 2005)

The Chartered Financial Analyst also analyses the risks associated with the Initial Public Offer in the shipping/transport industry and provides professional advice to the investment firms. They make the necessary forecast and estimate the expected returns from the IPO in the shipping/transport industry, and thus create a pool of information needed by the investors. In addition, they analize the trends and behaviour of various IPOs in different scenarios in the transport/shipping industry and then provide professional advice to an investor. Other functions of a Chartered Financial Analyst include evaluating economic conditions of the prevailing IPO market, as well as providing statistical and financial data that is used in making decisions regarding investment and securities. In addition, the Chartered Financial Analyst supervises the whole stock market in the shipping/transport industry where the IPO takes place. This is facilitated by teaching and monitoring of the financial market to eliminate any potential risk and economic hazard that may arise in their way. Additionally, CFA practises the analysis of financial risks and gets involved with the CBOK and other stakeholders in the shipping/transport industry.

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Chartered Financial Analysts also act as underwriters who determine the type of security to be issued by a shipping company seeking to issue IPO. It is the sole responsibility of Chartered Financial Analyst to determine whether the IPO should be preferred shares or ordinary shares. In addition, they determine the proportion of stock to be issued in each category of shares to be emitted by the shipping company. Similarly, the Chartered Financial Analyst determines the right price for each type of shares and the right time to bring the stock to the market in the shipping/transport industry. Within the shipping and transport industry, the Chartered Financial Analyst will have to thoroughly study the risky industry and give professional advice to the potential investors. In addition, the CFA must take into consideration the fact that the reward from shipping and transport industry are not guaranteed as they are prone to collapse at any given time.

The UAE Chapter of CFA versus the Model CFA when Evaluating an IPO

The model CFA offers a universal method of evaluating IPO in the shipping/transport industry all over the world. Their evaluations are considered to be of high standard and integrity in most countries. In addition, the guideline established by CFA is universally applied by all countries when evaluating the IPO of shipping/transport industry. This means that the UAE is not an exception and thus complies with the requirements of the CFA model when it comes to evaluating IPO of shipping companies. Therefore, it is impossible for the UAE to create a chapter of CFA that differs from the model of CFA, especially in evaluating IPO in the shipping/transport industry. The transport and shipping industry is a global industry that will continue to face more competition and thus more potential investors. Being applied to a global industry, the evaluation of IPO must be conducted in the universal manner irrespective of the location of trading of IPO offer.

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The Risks an Investment Firm Will Encounter when Choosing to Sponsor the IPO

There are several risks involved in choosing to sponsor an initial public offer of a shipping company. It is a risky and cautious venture that a company gets itself in, especially given the fact that these companies guarantee for the total purchase of the shares emitted for the IPO. The first risk an investment firm encounters when choosing to sponsor the IPO is the chances of making huge losses should an offer for application for IPO be rescinded by the applicants. This means that the investment firm sponsoring the IPO in the shipping/transport industry will have to guarantee the full sale of the IPOs offered for sale thus making huge losses. In addition, the investment company will face insurance risk as a way offering to undertake any risk related to the IPO process. This will mean that the investment firm will have to take all the financial risks associated with IPO offer process including the rise and fall in the prices of the shares after the initial offer.

The riskiest part of an investment firm is the responsibility of being an underwriter to the company offering its share for IPO. This puts the investment firm into a critical position of taking over the investment and buying out all the stock of the shipping company should application fall below the expected number of shares to be sold. This means that after risky investments, the investment firm may experience huge losses resulting from such ventures. In the case of a shipping/transport industry, the underwriter also known as the investment firm faces a high risk of losing the whole investment or even not getting any potential investor for the IPO. This may happen due to the nature of the business that shipping and transport involves. Thus, many investors are afraid of losing their investments wholly in case of an accident.

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The Factors to Be Considered in Minimizing Risk to a Firm when Providing the Firm's Investment Advice

In providing information for the investment of another company, it is important to ensure that the risks that the investment firm may face in the long run are minimized. This care will help the investment firm escape potential risks and liabilities that may result in creating a problem or even legal implications in future. To begin with, the investment should be within a domain that is well understood by the investment firm. This way, the investment firm will be in a position to know the market, in which the start-up company is operating. Additionally, it will be easy for the investment firm to project the future performance of the company thus settling for business, with scalable level to bring a return to the investment firm.

The investment firm must also consider knowing the real people behind the shipping/transport company issuing the IPO to allow the investment firm have enough time to set the pace for the products in the shipping/transport industry. Additionally, this will help the investment firm ascertain the fact that it is the right people and the right place for the success of the company. Another important factor to be considered by the investment firm is the diversity of the investments to be undertaken. Making multiple investments will help the investment firm spread the risks that come with IPO thus increasing the chances of success.

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For fast and good returns in investment, the investment firm should consider joining equity that crowd funds a platform to get accessibility to a flow of deals in the shipping company. This will help the investment firm grasp several deals thus having a proper understanding of the market. In addition, the investment company should consider monitoring the strategy of the monetary as far as the first return is concerned. Thus, the graph that the IPO will create in the first instance is imperative. Exploring the performance of the shipping/transport industry is equally significant in considering the investment option in IPO. The investment firm should always consider operating in the whole shipping/transport industry and always consider the views of the customer in the shipping/transport industry.

The investment firm should also consider the roadmap of the shipping company by investigating the financial performance of the company for the last five years. This should be followed by a thorough investigation into the use of funds by the shipping company to ascertain the vision of the company. Making a review of the document that provides the legal status of the shipping company is also an important factor that the investment firm must consider. Such legal documents include by-laws, agreement by investors, and agreement for subscriptions, as well as term sheets and articles of incorporation. This will help the investment firm familiarize with the officers of the shipping company that include advisors, bankers, investors and directors (Crawford & Di, 2008).

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The UAE Laws that the Investment Firm Must Be Aware of and the Consequences not Complying

The UAE prescribes specific regulations that must be met by any shipping company that wants to undertake any IPO investment. These provisions are contained in the laws that stipulate the minimum amount of shares to be listed on the stock exchange for the initial public offer. In addition, the investment firm must be aware that the UAE require all shipping/transport companies issuing IPO to publish their accounts for the past five years and also release their audited financial statements for public scrutiny. Along with that, the investment firm must ascertain that the shipping company issues the IPO comply with all the UAE laws that require them to disclose publicly their intention of going public and the investments, in which the capital being raised will be invested.

The UAE laws also require that the directors of the shipping company issuing the IPO declare their interest and reveal all stakes that they own in the company. In addition, the bankers and other financial partners of the shipping company issuing the IPO must be disclosed to ensure that all matters relating to the company are made clear to the potential investors. These are the primary laws of the UAE that the investment firm must be aware of and follow; as the consequences of not following these laws, the whole process of IPO may result in delisting and illegalising. In addition, the investment company may be held personally liable for criminal acts. Also, the investment firm will be forced to pay for all the damages that the investors who prefer buying the Initial Public Offers may suffer.











The industry chosen is the shipping and transportation industry that is globally present all over the world. Shipping/transport companies in this industry require huge capital for investment in the vessels and equipment required for shipment and transportation. In addition, a great number of resources are required for the initial start-up of the most critical part of the shipment and transport industry. Whenever a shipping/transport company in the shipping and transport industry is issuing its IPO, the company must ensure that legal procedures are properly followed including appointing an underwriter to take over the process of issuing the IPO to the public (Pompian, 2012).


The process of issuing IPO creates room for shipping/transport companies to forgo repayment of capital to those who chose to invest in its shares. Money will now circulate between the hands of public investors thus creating a free circulation of income. However, the process of IPO creates some challenges for the investment firms, such as the requirement to disclosure and other related costs. Disclosure of this legal information may be a good recipe for a competitor strategizing to out-compete the company from the industry. Sometimes, this information may weaken the relationship between the companies with investors in the market.

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A prospectus is usually issued revealing all the financial aspects of the shipping/transport company offering its shares for IPO. In most cases, banks act as underwriters who will correctly assess the share and provide public participation. In addition, an IPO is a risky investment that makes the individual investor speculate on the performance of the IPO and its future returns. Similarly, it is an issue that is undertaken by companies that are under transition thus complicating the future of the IPOs further.

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