The primary capital market refers to the market for shares that are being issued by the company for the first time.
If the company is yet to be listed on ASX, it issues its first shares to the public during the Initial Public Offering (IPO). Ironically, many of the offers that are described as Initial Public Offerings do not contain any offer for the public to invest. We believe that these offerings should be called Initial Institutional Offerings. OnMarket provides a fair way of giving all investors the opportunity to participate.
If the company is listed, it can issue new shares on a pro-rata basis to existing shareholders (known as a rights issue), or up to $15,000 to existing shareholders (known as a share purchase plan), or it can issue shares on a non-pro rata basis, or to new investors (known as a placement).
As new shares are normally issued at a discount, which dilute the holdings of existing shareholders, there are limits on the number of shares that can be issued each year by way of placement.
ASX Listing Rule 7.1 allows all listed companies to issue up to 15% of their issued capital to by way of a placement each year. Additionally, small and mid-cap companies can issue an additional 10% of their issued capital (at a maximum 25% discount to the market price) within 12 months of shareholder approval (Listing Rule 7.1A).
The primary capital market, in other words, is the market for shares that have never been owned by anyone else. When you are issued new shares in an IPO or placement, you are the first owner of those shares. The money that you pay for the shares is paid to the company in which you own a share.
By contrast, the secondary capital market (more commonly known as the stock market) is the market where pre-owned shares are bought and sold. When you buy, the money that you pay for the shares is paid to selling shareholder and not to the company that you just bought into.