Initial Public Offerings (IPO)

What is an IPO?

Initial Public Offering (IPO) is when the company decides to go public and list on the stock exchanges. In order to go public, the company collects funds from the retail investors, HNIs and other financial institutions. IPO is when the company issues its shares for sale for the first time in the market.

What is the process of IPO listing on stock exchanges?

Appointing an Investment Bank

All banks, public or private have an investment division which takes care of the IPO process. All one needs to do is to fix up a meeting with any of the banks and pay the required fees. Thereafter, it is the job of the bank to make your company public.

Registration Forms to SEBI

Securities Exchange Board of India (SEBI) is an autonomous body which regulates the entire finance and investment markets in India. SEBI’s sole purpose is to provide transparency and protect the investor. Every IPO has to mandatorily register with SEBI and once it gets the approval, the IPO is ready to get listed on the exchanges.

Red Herring Prospectus

The Red Herring Prospectus is a document which contains all the information about the IPO - the size of the IPO, financial statements, company history and the future plan of the company.

Advertising

Advertising includes everything from putting up hoardings to giving interviews to news channels and magazines. Basically, the more your company is talked about and known, the more demand it will attract from the investors, which in turn will help in a better listing price on the exchanges. In the past, companies like Just Dial, Twitter & Facebook have used heavy advertising as a means to promote and attract investors.

Price Band Set by Investment Bank

The investment bank goes through all the financial statements of the company and sets a price band for prospective investors to bid within the price band. However, retail investors are not the only players who participate in the bidding process. Mutual funds, institutional investors, hedge funds and insurance companies also participate in the bidding process. The process of bidding between price bands is called price discovery. The price is set on the basis of demand and supply. One important thing to note here is that, when you are bidding for the shares, you cannot bid for one share. If one lot consists of 10 shares, you have to buy the entire lot of 10 shares.

Book Bidding Process

Once the bidding is done, the banks identify if the issue is over-subscribed or under-subscribed. If the issue is over-subscribed, the banks release the shares at the highest band and the share is listed.

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