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IPOs
Initital public offerings of stock. The first sale of stock by a previously private company to public shareholders.
560 Questions
The steps in chronological order that a company goes through to make an initial public offering?
life
Generally, a company has an Initial Public Offering in order to raise a good deal of money in order to expand/grow the business. In the IPO prospectus, the company will summarize exactly how they will use the proceeds and what is expected as a result (from a financial standpoint).
What is book-built issue in issue of shares?
Bookbuilding method: It is the most common method used. Here the companies decide on the price band. The lowest price is reffered to as floor and highest price is reffered as cap. The investors then have the freedom to bid for the number of shares and the price they are willing to pay for it. The actual price is then discovered based on the bids.
What r the reasons of the failure of reliance power ipo?
Some reasons are:
- It was entirely/heavily hyped up. It was oversubscribed by over 15 times and people were crazy about that stock
- It was over priced. A company like NTPC that has an existing power production capacity of 20,000 KW is being traded at Rs. 200/- and a new company that is proposing a 25,000 KW power production after 3 years is being offered at Rs. 450/- on an IPO
- Everyone wanted to make a quick buck. People thought that Reliance power would touch Rs. 800/- on the day of listing and keep going higher and they can sell it to make a hefty profit.
- The basic logic of the stock market was missed. If everyone wants to sell their shares - a stock price always goes down
What is the meaning of Anchor investor?
Anchor investor means a qualified institutional buyer an application for a value of 10 crore rupees or more in a public issue made through the book building process in accordance with these regulations.
What entity is an IPO filed with?
An Initial Public Offering (IPO) is filed with the Securities and Exchange Commission (SEC) in the United States. The SEC is responsible for regulating the securities industry and ensuring that companies provide accurate and complete information to potential investors. In addition to the SEC, companies may also need to comply with regulations from stock exchanges where they intend to list their shares.
Why does a company go for an IPO?
An IPO stands for Initial Public Offering. It is the process in which a large company issues shares to the general public for the first time to raise cash and capital for its expansion and business usage. There are two basic ways to raise money for something like an expansion: selling part of the equity of the company through a stock sale, and creating debt by selling bonds. There are advantages and disadvantages to both. In the case of selling equity, the major disadvantage is the loss of some of your autonomy. Investors hate to lose money, and want to make sure you're doing what it takes to make money. The upside is once you've sold the stock, you don't necessarily have any further expenditures. A lot of companies, especially high-tech ones, don't pay dividends. Also, dividends are paid out of after-tax profits. If you sell bonds, you must pay interest on time or risk default. The tradeoff here is there's not much loss of autonomy, and bond interest payments come out of pre-tax income.
The procedural steps of filing an IPO consist of 4 general steps:
- Disclosure documents drawn up - The company's lawyers prepare to disclose the company's financial position.
- Paperwork is filed with the SEC - The company files its prospectus with the Securities and Exchange Commission.
- Bankers recruit brokers to sell the stock - The company conducts an advertising campaign to advertise the company to stock brokers.
- Stock is sold - The company's stock is sold to the public in a stock exchange.
How do you know when a company offers an IPO?
The company would issue advertisements in TV, Radio, Newspapers, websites etc. If you track any of the top financial magazine/paper you would definitely come to know of the IPO.
Answer:Companies usually make an announcement through ads in newspapers or television when they issue an IPO or an Initial Public Offering. Before a company can issue an IPO, it has to apply for it at SEBI and fulfill certain conditions. It also has to disclose a lot of financial and other information before it is given the permission for a new IPO issue. IPO market has its own way of functioning and though an attractive investment option, you should dabble in it only if you understand it thoroughly.Who was the lead underwriter on the Dell IPO?
The lead underwriter on the Dell IPO was Goldman Such."It is a bank holding company that does business in investment banking, trading, securities and other financial areas.
Who was the lead underwriter on the Compaq IPO?
The lead underwriter on the Compaq IPO was Morgan Stanley. It is an American multinational financial services corporation that served as lead underwriter for other large corporations.
Who was the lead underwriter on the Amgen IPO?
The company name Amgen comes from the original company name, which is Applied Molecular Genetics. Goldman Sachs was the lead underwriter on the Amgen IPO.
Who was the lead underwriter on the Microsoft IPO?
Goldman Sachs was lead and Alex. Brown & Sons was co-manager
Who was the lead underwriter on the Oracle IPO?
Bank of America and Goldman Sachs are leading underwriters in the Oracle IPO transactions. The deal involved a bit over 180 million dollars.
Steps in an IPO Process:
Let us now have a look at how an initial public offering process is initiated and reaches its conclusion. The entire process is regulated by the 'Securities and Exchange Board of India (SEBI)', to prevent the possibility of a fraud and safeguard investor interest.
Selection of Investment Bank
The first thing that company management must do when they have taken a unanimous decision to go public is to find an investment bank or a conglomerate of investment banks that will act as underwriters on behalf of the company. Underwriter's buy the shares of the company and resell them to the general public. The company must also hire lawyers that can guide them through the legal maze that an IPO setup can be. It must be ready with detailed financial records for intensive fiscal health scrutiny that SEBI would perform. Some companies may also opt to directly sell their shares through the stock market, but most prefer going through the underwriters.
Step 1: Preparation of Registration Statement
To begin an IPO process, the company involved must submit a registration statement to the SEBI, which includes a detailed report of its fiscal health and business plans. SEBI scrutinizes this report and does its own background check of the company. It must also see that registration statement fulfils all the mandatory requirements and satisfies all rules and regulations.
Step 2: Getting the Prospectus Ready
While awaiting the approval, the company, with assistance from the underwriters, must create a preliminary 'Red Herring' prospectus. It includes detailed financial records, future plans and the specification of expected share price range. This prospectus is meant for prospective investors who would be interested in buying the stock. It also has a legal warning about the IPO pending SEBI approval.
Step 3: The Roadshow
Once the prospectus is ready, underwriters and company officials go on countrywide 'roadshows', visiting the major trade hubs and promote the company's IPO among select few private buyers (Usually corporates or HNIs). They are fed with detailed information regarding company's future plans and growth potential. They get a feel of investor response through these tours and try to woo big investors.
Step 4: SEBI Approval & Go Ahead
Once SEBI is satisfied with the registration statement, it declares the statement to be effective, giving a go ahead for the IPO to happen and a date to be fixed for the same. Sometimes it asks for amendments to be made before giving its approval. The prospectus cannot be given to the public without the amendments suggested by SEBI. The company needs to select a stock exchange where it intends to sell its shares and get listed.
Step 5: Deciding On Price Band & Share Number
After the SEBI approval, the company, with assistance from the underwriters decide on the final price band of the shares and also decide the number of shares to be sold.
There are two types of issues: Fixed Price and Book Building
Fixed Price - In a Fixed price issue - the company decides the price of the share issue and the number of shares being sold. Ex: ABC Ltd public issue of 10 lakh shares of face value Rs. 10/- each at a premium of Rs. 55/- each is available to the public thereby generating Rs. 6.5 Crores.
Book Building - A Book building issue helps the company discover the price of the issue. The company decides a price band and it gives the investor an option to choose the price at which he/she wishes to bid for the company shares. Ex: ABC Ltd issue of 10 lakh shares of face value Rs. 10/- each at a price band of Rs. 60 to 70 is available to the public thereby generating upto Rs. 7 Crores. Here the amount generated through the issue would depend on the highest amount bid by most investors.
Step 6: Available to Public for Purchase
On the dates mentioned in the prospectus, the shares are available to public. Investors can fill out the IPO form and specify the price at which they wish to make the purchase and submit the application. This open period usually lasts for 5 working days which is a SEBI requirement.
Step 7: Issue Price Determination & Share Allotment
Once the subscription period is over, members of the underwriting banks, share issuing company etc will meet and determine the price at which shares are to be allotted to the prospective investors. The price would be directly determined by the demand and the bid price quoted by investors. Once the price is finalized, shares are allotted to investors based on the bid amounts and the shares available.
Note: In case of oversubscribed issues, shares are not allotted to all applicants.
Step 8: Listing & Refund
The last step is the listing in the stock exchange. Investors to whom shares were allotted would get the shares credited to their DEMAT accounts and for the remaining the money would be refunded
A pre IPO is when a portion of an initial public offering (IPO) is placed with private investors right before the IPO is scheduled to hit the market. The private investors in a pre-IPO placement are large private equity or hedge funds.
Indian IPOs over subscription data from 2004-2008?
Some companies whose IPOs were heavily over subscribed are
* Reliance Power * DLF Limited * Rural Electrification Corporation * Indian Bank * etc...
A good-will offering is when a performing group has a concert and they do not charge for tickets. Instead, they take up a collection or put a collection plate near the exit and the audience members can put however much money they want to put in out of their "good will."
Why it is called red hearing prospectus?
Its simply because the heading of the initial prospectus of the company is printed in Red Ink.
The objective of an IPO - Initial Public Offering is to raise capital by issuing stocks to the public.
Any company that satisfies the conditions laid down by SEBI (Securities and Exchange Board of India) can issue equity shares. SEBI is the governing body for all market related instruments in India.
Let us say XYZ company wants to go public. (Going public is the word used in market terminology to refer to the event of a company issuing equity shares for the first time) It would file an application with SEBI. If it is filing a request to raise a capital of say Rs. 1 crore, it would be issuing 10 Lac equity shares of face value 10 each.
The terms Face value and Market value would be used through this article. Let us first understand what they are.
Face Value - The Face Value of the share refers to the intrinsic value of a share. This is the value at which the company issues its shares to the common public.
Market Value - Once a share is issued to the public, it would be bought and sold through recognized exchanges like the NSE or BSE. The price at which a particular share is being bought /sold is termed as Market Value.
Net capital Raised by the company = 1,00,00,000/-
No. of Shares issued through the public offering = 10,00,000 (Out of these 10 lac shares, the company would be holding at least 51% that is 5,10,000 shares with itself. The remaining 4,90,000 shares would be available for the public)
When XYZ files its application, based on the profit making capability, its revenue etc the company and SEBI would decide on the market value at which the share would be available for the public to buy. Say for e.g., the share with the face value of Rs. 10/- could be available at the price of Rs. 50/- for purchase through the public offering.
Net Amount raised by the company through the public offering = 4,90,000 * 50 = Rs. 2,45,00,000/-
Every individual who wants to buy the shares of XYZ limited would be filling in forms and paying the amount corresponding to the number of shares they want to buy. Say you want to buy 100 shares of XYZ you would be paying them Rs. 5000/- to buy those 100 shares.
Once the process of issuing shares is over the shares would be allotted to the people who had placed the purchase request. Based on the credibility of the company, the no. of people who place requests to buy its shares would vary. Sometimes the issue could be oversubscribed and sometimes it could be under subscribed. If the issue of XYZ limited was oversubscribed, then you may not get the exact 100 shares that you wanted. You may get a certain
number of shares based on the number of times the issue was oversubscribed.
Say you get 60 shares, then the remaining Rs. 2000/- would be returned to you.
