IPO stands for Initial Public Offering work all companies have to start somewhere and often. It involves having the founders invest a chunk of their own money in the hopes of eventually growing the business. An IPO refers to the process of offering shares of a private corporation to the public in new stock issuance. The public share issuance allows a company to raise capital from public investors. The process by which a private company can go public by sale of its stock to the general public. It could be a new young company or an old company. Which decides to be listed on an exchange and hence goes public.
These companies can raise equity capital with the help of an IPO by issuing new shares to the public the existing shareholders can sell their shares to the public without raising any fresh capital. They will also choose an exchange in which the shares will be issued and subsequently traded publicly. The term Initial Public Offering has been a buzzword on wall street and among investors for decades. The Dutch are credited with conducting the first modern. This IPO by offering shares of the Dutch East India Company to the general public.
The years IPOs have been known for up trends and downtrends in issuance. The individual sector also experiences up trends and downtrends in issuance due to innovation and various other economic factors. These tech IPOs multiplied at the height of the dot-com boom. As startups without revenues rushed to list themselves on the stock market. The 2008 financial crisis resulted in a year with the least number of IPOs. These recently much of the IPO buzz has moved to a focus on so-called unicorns startup companies. That has reached a private valuation of more than $1 billion.
Basics of private and public IPO :
Companies fall into two broad categories
A privately held company has fewer shareholders and its owner doesn’t have to disclose much information about the company. This is the smallest business that is privately held with no exceptions. Those large companies can be private. These are shares of private companies that can be reached through the owners only and that also at their discretion. On the other hand public and thereby trade on a stock exchange.
Why go Public?
The primary benefit of going public is gaining access to a world of capital. These are money that can then be used for things such as expansion research and development. This marketing, and whatever else a company needs to grow and keep making money. These are public companies that usually get better rates when they issue debt due to increased scrutiny. As long as there is market demand, a public company can always issue more stock. But there is a flip side and it’s that once a company goes. The public it’s required to adhere to SEC reporting guidelines. Which can be rather strict. Once public a company will need to put out regular disclosure. The statements and share other such financial information with the world. Trading in open markets means liquidity. Being Public makes it possible to implement things like employee stock ownership plans.
General Terms involved in IPO:
Primary market: This is the market in which investors have the first opportunity to buy a newly issued security as in an IPO.
Prospectus: The prospectus formal legal document describing the details of the company is created for a proposed IPO in India, These are also making the investors aware of the risks of an investment.
Book building: This is the process by which an attempt is made to determine the price. At which are securities are to be offered based on the demand from investors.
Over Subscription: This is referred to as an over-allotment option. This is a provision contained in an underwriting agreement whereby the underwriter gets. The right to sell investors more shares than originally planned by the issuer in case these demand for a security issue proves higher than expected.
Price band: This price band refers to the band within which the investors can bid. These spread between the floor and the cap of the price band is not more than 20%. These caps should not be more than 120% of the floor price. It is decided by the company and its merchant bankers. There is no cap or regulatory approval needed for determining the price of an IPO.
Listing: These are shares offered in IPOs that are required to be listed on stock exchanges for trading. The listing means that the shares have been listed on the stock exchange and are available for trading in the secondary market.
Flipping: Flipping is reselling a hot IPO stock in the first few days to earn a quick profit. These reasons behind this are that companies want long term investor who holds their stocks, not traders.
Exchange: The stock exchange where the IPO shares are proposed to be listed. Mainline IPO’s are listed on BSE and NSE. The SME IPO’s are listed on the NSE EMERGE or BSE SME platform of the respective exchanges.
IPO Open Date / Issue Close Date: The opening and closing date of the IPO bidding process. Investors can apply in an IPO during this time only.
Lot Size: The minimum count of shares an investor can apply for in an IPO. A lot size of ‘400’ means that an investor needs to bid for at least 400 shares.
Issue Price: The price per equity share. There are 2 types of IPO’s- Book Building and Fixed Price IPOs. Book Building IPOs will have a price range, say Rs 120-125 and investors need to bid within the price range. A fixed price issue has a specific price to bid.
Issue Size: The total monetary value of the IPO. It is arrived by multiplying the number of shares offered by the company with the issue price per share.
Where can I find out about upcoming IPOs:
The nerd wallet has a list of upcoming IPOs and IPO calendar as do the major stock exchange website like Nasdaq and NYSE. These are often rumours published in the media about companies. That may go public in the near future. It is pure speculation until a company makes a formal announcement of its intentions. That can be several months until an IPO is finalized. To prepare an investment banker to estimate the companies valuation to decide the price per share of the stocks market and how many shares will be offered to investors.
All of that information and more becomes available to the public. When the companies file a registration statement typically a form S-1 with the securities and exchange commission. This is preliminary prospectus provides a management team sources of revenue and financial health. A companies initial filing is typically a draft and maybe missing key information. IPOs Such as the final offering price and date the upcoming IPO in India 2019 are expected to lunch. The upcoming IPOs Keep checking back for amendments to the form s-1 on the SEC’s EDGAR database so you are making investment decisions with the most up to date IPO information.
Who decides the Price Band?
The company decides the Price Band Of IPO with the help of lead managers(merchant bankers or syndicate members).
SEBI, the regulatory authority in India or Stock Exchanges do not play any role in fixing the price of a public issue. It simply, check the content of the IPO prospectus.
Who decides the date of the issue?
Suppose, If any company has to list on Stock Exchange it should get the approval from SEBI then only it reaches the public called Draft Prospectus. Regarding the date, Company consults with the Lead Managers, Registrar of the issue and Stock Exchanges.
What is the role of the registrar of an IPO?
Registrar of a public issue is a prime body in processing IPO’s. They are independent financial institutions registered with SEBI and stock exchanges. They are appointed by the company going public.
Responsibility of a registrar for an IPO mainly involves the processing of IPO applications, allocate shares to applicants based on SEBI guidelines, process refunds through ECS or cheque and transfer allocated shares to investor’s Demat accounts.
What is the primary & secondary market?
The Primary market is the market where investors can buy shares directly from the issuer company to raise their capital.
Secondary Market is the market where stocks are traded after they are initially offered to the investor in the primary market. And get listed to the stock exchange. The secondary market comprises of equity markets and the debt markets. The secondary market is a platform to trade listed equities, while the Primary market is the way for companies to enter into the secondary market.
What is the life cycle of an IPO?
Follow these steps, which give a general understanding of the life cycle of an IPO. Real processing steps are more complicated and may be different. Please visit the SEBI website, stock exchange website or consult an expert for most current information about the IPO life cycle in the Indian Stock market.
- Issuer Company – IPO Process Initialization
- Appoint lead manager as a book runner.
- Registrar of the issue.
- Appoint syndicate members.
- Lead Manager’s – Pre Issue Role – Part 1
- Prepare draft offer prospectus document for IPO.
- File draft offer prospectus with SEBI.
- Roadshows for the IPO.
- SEBI – Prospectus Review
- SEBI review draft offer prospectus.
- Revert it back to Lead Manager if need clarification or changes (Step 2).
- SEBI approves the draft offer prospectus, the draft offer prospectus has now become Offer Prospectus.
- Lead Manager – Pre Issue Role – Part 2
- Submit the Offer Prospectus to Stock Exchanges, registrar of the issue and get it approved.
- Decide the issue date & issue price band with the help of Issuer Company.
- Modify Offer Prospectus with date and price band. The document is now called Red Herring Prospectus.
- Red Herring Prospectus & IPO Application Forms are printed and posted to syndicate members; through which they are distributed to investors.
- Investor – Bidding for the public issue
- Public Issue Open for investors bidding.
- Investors fill the application forms and place orders to the syndicate members (syndicate member list is published on the application form).
- Syndicate members provide the bidding information to BSE/NSE electronically and bidding status gets updated on BSE/NSE websites.
- Syndicate members send all the physically filled forms and cheques to the registrar of the issue.
- The investor can revise the bidding by filling a form and submitting it to the Syndicate member.
- Syndicate members keep updating stock exchange with the latest data.
- Public Issue Closes for investors bidding.
- Lead Manager – Price Fixing
- Based on the bids received, lead managers evaluate the final issue price.
- Lead managers update the ‘Red Herring Prospectus’ with the final issue price and send it to SEBI and Stock Exchanges.
- Registrar – Processing IPO Applications
- Registrar receives all application forms & cheques from Syndicate members.
- They feed applicant data & additional bidding information on computer systems.
- Send the cheques for clearance.
- Find all bogus applications.
- Finalize the pattern for share allotment based on all valid bid received.
- Prepare ‘Basis of Allotment’.
- Transfer shares in the Demat account of investors.
- Refund the remaining money through ECS or Cheques.
- Lead manager – Stock Listing
- Once all allocated shares are transferred in investors up accounts, Lead Manager with the help of Stock Exchange decides Issue Listing Date.
- Finally, the share of the issuer company gets listed in the Stock Market.
Upcoming IPO List | Live Current IPO at BSE, NSE :
|Issuer Company||Exchange||Open||Close||Lot Size||Issue Price
|Issue Size (Rs Cr)|
|Novator Research Laboratories Ltd IPO||BSE SME||Aug 30, 2019||Sep 4, 2019||6000||24||4.49|
|Salasar Exteriors and Contour Ltd IPO||NSE Emerge||Aug 28, 2019||Sep 3, 2019||3000||36||8.50|
|Transpact Enterprises Ltd IPO||BSE SME||Aug 26, 2019||Aug 28, 2019||1000||130||1.35|
|Alphalogic Techsys Ltd IPO||BSE SME||Aug 26, 2019||Aug 28, 2019||1600||84||6.18|
|Sterling and Wilson Solar Ltd IPO||BSE, NSE||Aug 6, 2019||Aug 8, 2019||19||780||3,145.16|
|Spandana Sphoorty Financial Ltd IPO||BSE, NSE||Aug 5, 2019||Aug 7, 2019||17||856||1,202.34|
|Affle (India) Limited IPO||BSE, NSE||Jul 29, 2019||Jul 31, 2019||20||745||459.00|
|Wonder Fibromats Limited IPO||NSE Emerge||Jul 22, 2019||Jul 29, 2019||1600||89||19.79|
Advantages and Disadvantages of IPOs:
- Raise a lot of money :
This is the main reason why small companies file for an IPO is the ability to raise massive amounts of capital fast. This money can be used to invest in R & D acquire new physical assets and even pay off the debt to raise a lot of money in. They improved infrastructure and many such reasons which help in their future development.
- Higher valuation :
Companies that have their shares listed on the stock exchange. They have investors competing with one another to invest in them. As a result of this competition, the price of the shares is driven higher. This price goes abnormally high and a bubble is formed.
- Your stock is now literally currency :
You can use your company stock to finance future acquisitions. By paying for part of the purchase price in stock. How cool is that? Furthermore, stock options and grants can serve as a major incentive to both employees and contractors and are usually considered an invaluable recruiting asset.
- Increases Liquidity:
The employees the stakeholders and the venture capitalists would have put their sweat and blood for the company to achieve considerable success. These are the company would have paid them in the form of equities.
- Loss of control:
The biggest disadvantages of taking your company public are that the promoters tend to lose control over the workings of the corporation. Whereas earlier the promoters could make their decisions unilaterally but know they need to have a certain. The number of shareholders approving the decision.
- Reporting cost will go High:
The public company information will have rolling costs for periodic reports and proxy statements that are filed with the regulatory agencies and distributed to the shareholders.
- Loss of privacy:
Privacy can be an extremely important asset when it comes to conducting business. The more information a company gives out about itself. The more competitors can find out about the inner working and the strategy being followed.
- There are absolutely no guarantees:
Everyone’s favorite confection themed video game candy crush had its day at the New York stock exchange back in 2014. the game’s developer king digital entertainment issued an IPO at $22.050 per stock, valuing the brand at over $7 billion.
How does an IPOs work :
Stocks and shares of a company are offered to the general public for the time in the form of IPOs. Those companies will raise capital for the first time and it will be listed in the stock exchange. It changes many things about the way that management runs the firm and can present opportunities and dangers for retail investors. IPO ate more common during bull markets and the recent rally in stocks. Its May provide another fertile environment for these corporate events. To complete the process of converting a private company into a successful public company it will need a team of external expert advisors like auditors, lawyers underwriters and accountants to deal with the unique challenges which come their way. The Securities Exchange Commission is a company and the public investors get a fair and level ground to play.
If a private company needs capital that beyond its own ability to self-finance through operating cash flow there are a few alternatives management and the firm’s ownership can utilize to provide that capital. It is authorized to conduct civil and criminal trials against. Those who breach established procedures and to prosecute them if found guilty. These may include debt private investment or a public investment through an IPO. Each of these alternatives is evaluated based on the current and projected need for cash. In an IPO a company owner sells a portion of the firm to public investors. This is usually done through an underwriting process that looks and acts a bit like a pyramid. The company then files the preliminary red herring prospectus. Which is again checked if it has the potential to inform the investors sufficiently.
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