Unit-2 IPO Process

The IPO Process.
An initial public offering (IPO), a route for raising funds from the market, is the
first sale of shares by a company to the public and institutional investors. After
the initial share sale, the company is no longer privately held. It becomes a
public listed company with shares that are traded on a stock exchange.
A company can choose to remain private and raise funds from angel investors
and venture capitalists. Approaching private equity (PE) is also an option that
companies frequently consider.
For listing on the National Stock Exchange (NSE) or the Bombay Stock
Exchange (BSE), a company has to have a minimum paid-up capital of Rs 10
crore. Also, the post-issue market capitalisation should not be less than Rs 25
crore. Among other requirements, there has to be at least three years track
record of either - applicant seeking listing; or the promoters/promoting company
Price Band and Fixed Price IPO: A price band is the range of the price at
which the stock can be issued for the first time. The price band is often decided
by the book building process. Some companies decide to fix the issue price for
their initial share sale, making it a fixed price IPO.
Draft Red Herring Prospectus (DRHP): This is the document that gets
circulated to the public after SEBI gives an IPO the green signal. The document
contains details of the initial share offer and crucial details about the company
such as financial information and risks associated with the business.
Under subscription and Oversubscription: An IPO is undersubscribed if the

bids received are less than the number of shares offered. Oversubscription
happens when the bids exceed the number of shares on offer.
Green Shoe Option: This is an option for over-allotment, included in the

underwriting agreement. This allows the issuer to release additional shares in
the event of oversubscription.
What is the process of filing for an IPO?
Step 1: Hire an investment bank
A company seeks guidance from a team of under-writers or investment banks to

start the process of IPO. More often than not, they take services from more than
one bank. The team will study the company’s current financial situation, work with
their assets and liabilities, and then they plan to cater to the financial needs. An
underwriting agreement will be signed, which will have all the details of the deal,
the amount that will be raised, and the securities that will be issued. Though the
under-writers assure on the capital they will raise, they won’t make promises. Even
the investment banks will not shoulder all the risks involved in the money
movement.
Step 2: Register with the SEBI
The Company and the under-writers, together, file the registration statement, which
comprises of all the fiscal data and business plans of the company. It will also have
to declare how the Company is going to utilise the funds it will raise from the IPO
and about the securities of public investment. If the registration statement is
compliant with the stringent guidelines set by the SEBI, which ensures that the
company has disclosed every detail a potential investor should know, then it gets a
green signal. Or else it is sent back with comments. The company should then
work on the comments and file for registration again.
Step 3: Draft the Red Herring document
An initial prospectus, which contains the probable price estimate per share and
other details regarding the IPO, is shared with the people who are involved with
the IPO. It is called a red herring document because the first page of the prospectus
contains a warning which states that this is not a final prospectus. This phase tests
the waters for the IPO among the potential investors.
Step 4: Go on a road show
Before the IPO goes public, this phase happens over an action-packed two weeks.
The executives of the Company travel around the country marketing the upcoming
IPO to the potential investors, mostly QIBs (Qualified Institutional Bankers). The
agenda of the marketing includes presentation of facts and figures, which will
drum up the most positive interest.
5: IPO is priced
Based on whether Company wants to float a Fixed Price IPO or Book Building
Issue, the price or price band is fixed. A fixed price IPO will have a fixed price in
the order document, and the book building issue will have a price band within
which an investor can bid. The number of shares that will be sold is decided. The
Company should also decide the stock exchange where it be going to list their
shares. The Company asks the SEBI to announce the registration statement as
effectual, so that purchases can be made.
Step 6: Available to the public
On a planned date, the prospectus and application forms are made available to
public, online and offline. People can get a form, from any designated banks or
broker firms. Once they fill in the details, they can submit them with a cheque, or
online, as well. SEBI has fixed the period of availability of an IPO to the public,
which is usually 5 working days.
Step 7: Going through with the IPO

After the IPO price is finalized, the stakeholders and under-writers work together
to decide how many shares will every investor will receive. Investors will usually
get full securities unless it is oversubscribed. The shares are credited to their demat
account. The refund is given if the shares are oversubscribed. Once the securities
are allotted, the stock market will start trading the Company’s IPO.

Unit-2 IPO Process

Uploaded by

Copyright:

Available Formats

Unit-2 IPO Process

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Unit-2 IPO Process

Uploaded by

Copyright:

Available Formats

The IPO Process.

Under subscription and Oversubscription: An IPO is undersubscribed if the

Green Shoe Option: This is an option for over-allotment, included in the

Step 1: Hire an investment bank

A company seeks guidance from a team of under-writers or investment banks to

Step 2: Register with the SEBI

Step 3: Draft the Red Herring document

Step 4: Go on a road show

Step 6: Available to the public

Step 7: Going through with the IPO

You might also like