issuance
Issuance is the act of a company or government creating and selling new shares or bonds to raise money from investors.
In plain English
When your neighbour bakes a fresh batch of puff puff to sell on Saturday morning, that is her creating something new to offer the market. When she instead sells you three pieces from yesterday's batch that your cousin already bought and did not finish, that is just a resale between two people, nothing new was made.
Issuance is the baking, not the reselling. It is the moment a company or government first creates shares or bonds and puts them out for investors to buy, which is different from the everyday buying and selling that happens afterwards on the stock exchange.
Say Dangote Cement wants to build a new plant and needs ₦50 billion. Instead of borrowing everything from a bank, it can do a bond issuance, creating new bonds and selling them to investors who then earn interest until the company pays back the amount. Or a company doing an IPO for the first time is doing a share issuance, creating brand new shares that never existed before and selling them to the public.
In the United Kingdom, when the government needs money for roads or hospitals, it issues gilts, which are just government bonds, and pension funds and everyday savers buy them. A Nigerian in London sending money home might not touch these directly, but the pension fund managing his workplace pension almost certainly holds some.
The important thing to remember is that issuance is where money actually flows from investors into the company or government's pocket for the first time. Every other trade you see happening on the Nigerian Exchange afterwards, one investor selling to another, does not put a single naira into the company's account. That door only opens once, at issuance.
The Federal Government of Nigeria issues ₦100,000 worth of savings bonds. An investor buys them directly from the offer, and that ₦100,000 goes straight to the government to fund its budget. If she later sells that bond to a friend on the secondary market, the government does not receive another kobo from that second sale.
Questions people ask
Is issuance the same thing as an IPO?
Not quite. An IPO, or initial public offering, is one specific type of issuance, the first time a company sells shares to the public. Companies can also do issuances later on, called follow on offerings, or issue bonds, which is also a form of issuance.
Can an ordinary person take part in an issuance?
Yes. When a company or the government announces a new share or bond offering, ordinary investors can apply through a stockbroker or, for government instruments like savings bonds, through licensed distributing agents, and get allotted units just like the big institutional investors.
Why would a company choose bond issuance over just borrowing from a bank?
Bonds often let a company borrow larger amounts, sometimes at better rates, and spread the risk across many investors instead of depending on one bank. It also builds the company's reputation in the capital market for future fundraising.
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