Shelf registration of securities is a provision that allows an issuer to register for an issue without having to sell all at once.
Shelf registration is a kind of raising capital by issuing bonds with a lower flotation cost. Financially instable businesses don’t have access to shelf registration, because of high liquidity and credit risk associated. Qualified Institutional Placement is the route taken often to fulfil portions of the issue.
In a shelf registration the aggregate issue is registered with the exchange with the demanded master prospectus from basic financial statements to the indenture for the current issue. Since the registration has been done with the exchange, the bond (or equity) issuance takes place in a step by step basis. Apart from the initial registration, the further issues require less disclosure.
A shelf registration lasts for three years and expires after that, without a re-registration or fine. Not to confuse shelf registration with IPO, Initial public offering is hiving part of the ownership which has to be sold in full of the desired stake to raise capital.
Shelf registration for bonds are raised in an intermittent manner, the initial cost of debt is a fraction of the total issue. Consider a project that needs additional funding at various stages of its development. The cost of a frequent separate issues cost more than a shelf registered issue. Timing and certainty of funding are considered imperative filing for a shelf registration.
Self registration issue requires less disclosure on upcoming issues. Cheapest way of accessing the market with too little paperwork. Only reputed and financially sound companies are granted with this option. The time period between adjacent issuance will differ according to the project that is being funded. In that period, financial strength, liquidity, acquisition, restructuring, other physical investments tend to affect the credit quality of the company. A financially sound business would never step on a swamp and deteriorate it’s credibility.