4. Underpricing in debt offerings [LO 15.2] Why is underpricing not a great concern with bond offerings?

Use the following information to answer the next three questions.

Highfield Resources Ltd, a potash exploration and discovery company with interests in northern Western Australia, went public in February.

Assisted by its lead managers, CPS Capital, Highfield sold 20 million shares at $0.20 each, thereby raising a total of $4 million. By the end of the first day of trading, the shares had sold for $0.30 in a day of heavy trading. Based on the end-of-day numbers, Highfield’s shares were apparently underpriced by about $0.10 each, meaning that the company missed out on an additional $2 million.