Several private companies want to raise money. One way is to get listed on the stock market. In an initial public offer (IPO), a company issues shares to the public for the first time. Companies conduct their IPO in the primary market.
Through the IPO, the company raises the funds it needs. These funds are used for growth and expansion, new projects, diversification, up-gradation, or to pay off heavy debts.
Once the company is listed in the market, they are held responsible by the shareholders. The shareholders expect the company to be efficient and effective and provide adequate returns.
How To Process An IPO?
As an investor, once you receive shares from the IPO, you are a company shareholder. You own a certain percentage of that company.
Let us now see the process a company needs to follow for its IPO
1. Hire A Merchant Manager:
The first step a company needs to do is to hire a merchant banker or a lead manager. The lead merchant banker is employed to ensure that the company follows all the rules for the IPO.
The company can have more than one merchant banker for its IPO. They prepare the company's draft red herring prospectus (DRHP).
The document has information about its business activities, promoters, financials, etc. Underwriting promises to buy the company's shares in case of a shortfall in the public subscription.
They sign an agreement with the company that spells out the mutual rights, liabilities, and obligations relating to the IPO.
2. File For IPO Process:
The next step is to file for the IPO with India'sSecuritiesand Exchange Board (SEBI). They need to submit the DRHPto SEBI, the stock exchanges, and the registrar of companies.
Once they do, SEBI will provide them with observations regarding the document. Once the company complies with all these observations, it will receive approval from all the regulators to go ahead with the IPO.
They can now invite the general public to invest in the IPO. The company can now go on a "roadshow" to advertise its IPO. Prospective investors are allowed to question the company's management about the DRHP.
The company can also judge the demand for its IPO based on this roadshow. Based on this demand, they can decide the price of their shares.
3. Decide The Price Band:
The next step for the merchant banker is to decide the price band of the share based on the demand. The merchant banker and the company can fix a price for the shares. That is called the offering or the issue price.
Or, they can decide on a price range and then let market forces determine the final price. This act of letting the market decide the final price of the share is called book building.
The lead merchant banker plays the role of "book runner" in this process. Investors provide bids for the shares, and the book runner evaluates the bid based on demand at various price levels. Based on these bids, the company and the book runner decide the share price.
4. Allotment Of Shares:
The basis of allotment of shares is decided by the lead managers, the company, registrar to the issue, and stock exchanges. They let the investor know the category-wise demand for shares and allotment.
If the demand for shares is more than the shares available for subscription, the shares are allotted either by lottery or proportional basis.
Upon completion of the offer of the company's shares, the shares are listed and traded on the stock exchanges. The listing price depends on the investor's demand and supply.
Investing in an IPO is now easy and hassle-free. With ICICI direct, you can place a maximum of 10 IPO applications through a single login.
You can invest in all the upcoming and current IPOs.You can view, among other details, an analysis of the top-performing IPOs, the closed IPOs, and the delisted IPOs.
As an investor, never look at an IPO as a means of making a quick profit on the day of listing. View it as a long-term investment. Make sure you conduct a thorough research about the company before you decide to invest in it.
Understand all the risks involved. Also, make sure the company's growth strategy matches your risk appetite and your investment objectives. Do not go only by rumors or demand for the shares.
ICICI Securities Ltd. ( I-Sec). The official registered headquarters of ICICI is in I-Sec ICICI Securities Ltd. - ICICI Venture House in the Appasaheb Prabhadevi Marathe Marg, Mumbai - 400 025, India, Tel No: 022 - 6807 7100.
Please note IPO-related services are not Exchange-traded products, and I-Sec is acting as a distributor to solicit these products. All investments conflicts which are related to the distribution activity do not have access to the investor exchange and redressal the forum or Arbitration mechanism.
The contents herein are not above the shall not be considered as an invitation or any persuasion for trading or investing. I-Sec and affiliates accept any liabilities for any loss or damage. Or any kind of actions for any actions taken in reliance thereon.
Investments in money market securities are all subject associated with the money market. Read all the investment-related documents carefully before the policy signing.