WHAT IS INITIAL PUBLIC OFFERING [IPO]? | ஆரம்ப பொது வழங்கல் [ஐபிஓ] என்றால் என்ன?

 

INTRODUCTION:

                Let us consider that you run a business and you need some money to expand your business. So where will you go for money? You may use the funds which you have or you can borrow some money from your friends, you can take loans from banks.

                The same case is also applicable to a company, but the point is that, when it comes to the huge requirements of money, we can't rely on friends and relatives. We can take loans from banks but the Interest rate is high and it leads to a lot of trouble. But the company is going to see huge growth in its future prospects, so it wants the public to know about it to gain creditability in the market.

                Therefore, the best method for private companies to raise money is to sell new shares to the general public and gets listed in the stock exchange through a process called an initial public offering (IPO).

IPO PROCEDURE IN INDIA:

                It is not a simple process for a company to apply for an IPO. It has to undergo a lot of auditing and analysis made by SEBI. The company also has to go through a lot of paperwork.

IPO Procedure has been divided into 6 phases, they are:

INITIAL PHASE:

At the initial phase, the company that issues for IPO is appointed with merchant bankers who were registered with SEBI. (i.e. HSBC, HDFC, etc.. ). The Merchant Bankers help the company raise funds from financial markets. these Bankers will determine the following in the initial phase of IPO.

1. Determining IPO Share price.
2. Appointing IPO Registrars and Bank partners.
3. Assistance in filing the legal papers.
4. Marketing the IPO.

APPROVAL PHASE:

Once the initial phase is done, the next step is registering with SEBI. The SEBI will go through the company's IPO details, their need to apply for IPO, etc. They analyze all the business plans of the company, whether they are meeting its standards, and approve the IPO.

DISCLOSURE PHASE:

In this phase, the details of the company are disclosed to the public. Once the SEBI's initial approval is done, the company will prepare a document called Draft Red Herring Prospectus [DRHP] which contains all the information the public has to know about the company and the need for IPO. So it is easy for the investors to decide whether they can invest in this company or not. Basically, this DRHP will be released a few days before the subscription opens.

ISSUE PHASE:

Before issuing the share to the public, there is a price band fixed for the company's share price. Let us consider that, the company is expecting its share price to be in the range of Rs.200 to Rs.250. Hence the price band will be the same. Rs. 200 is the lower limit and Rs. 250 will be the upper limit. suppose if the issue is listed at Rs. 220. it is called the cut-off price.

After deciding the price band, the company will open the subscription for the public.

It can be done in two ways:

1. Book Building Issue: The public can bid for the price of their choice within the price range. the price which receives the highest bid will become the issue price.
2. Fixed Price Issue: Issue price is fixed and the public can bid only on that determined price.

SUBSCRIPTION PHASE:

This is the phase where finally the subscription is open to the public for bidding. Usually, the subscription is open for 4 to 5 days. The public can apply for IPO through ASBA. we will see about ASBA in a separate post.

LISTING PHASE:

After the subscription has closed, those selected individuals and institutions will receive their company shares, based on whether the issue was oversubscribed or fully subscribed. After the allotment of the shares is done, the company gets listed on the stock exchange for secondary market transactions.

OTHER TYPES OF PUBLIC OFFERING:

1. Follow on Public Offer [FPO]: New set of shares are issued by an already listed company, these shares may be available at a discounted price and can be subscribed by either existing shareholders or the general public.
2. Offer For Sale [OFS]: The promoters of the company sell their shares, there are new shares in this case. it's just like changing hands or transferring the ownership of shares.

DIFFERENT INVESTORS FOR IPO:

There are 3 categories of investors they are:-

1. RIIs [Retail Individual Investors]: People who are bidding share not more than 2lakhs.
2. NIIs [Non-Instituitional Investors]: Insurance Companies, Banks, etc.
3. QIBs [Qualified Institutional Buyers]: Mutual Funds and Venture capital funds.

Now the allotment of shares varies depending on the type of issue (i.e. book built or fixed price issue).

BASIS OF ALLOTMENT IN IPO:

Once the IPO subscription is over, the determination is made to know whether the IPO of the company is 

1. Fully subscribed [No. of bids = No of shares issued]
2. Over subscribed [No. of bids > No of shares issued]
3. Under subscribed [No. of bids < No of shares issued]

If IPO is fully subscribed or under subscribed, shares are allocated as per the bids. 

If IPO is Oversubscribed by a small margin, Each applicant is given at least 1 lot of shares, Investors who have purchased multiple lots will receive proportionate shares of the remaining shares. But if IPO is Oversubscribed by a huge margin, then the allocation is done on a Pro-rata basis or by a lottery system.

Hope you all have got an Idea about the IPO and the procedure for applying IPO in detail.  See you soon with other related and amazing posts.

DISCLAIMER:-

The content of this site is only for educational purpose. I am not SEBI Registered. The motive of this site is to share my knowledge on share market to new budding investors and others who are learning about stock market

My Kind request to my site viewers, Before taking any decision please do self analysis, consult or discuss with Your financial Advisor .

மறுப்பு:-

இந்த தளத்தின் உள்ளடக்கம் கல்வி நோக்கத்திற்காக மட்டுமே. நான் செபியில் பதிவு செய்யப்படவில்லை. இந்த தளத்தின் நோக்கம், பங்குச் சந்தையைப் பற்றிய எனது அறிவை புதிய வளரும் முதலீட்டாளர்கள் மற்றும் பங்குச் சந்தையைப் பற்றி அறிந்துகொள்ளும் மற்றவர்களுக்குப் பகிர்வதாகும்

எனது தள பார்வையாளர்களுக்கு எனது அன்பான வேண்டுகோள், எந்தவொரு முடிவையும் எடுப்பதற்கு முன், சுய பகுப்பாய்வு செய்யுங்கள், ஆலோசனை செய்யுங்கள் அல்லது உங்கள் நிதி ஆலோசகருடன் விவாதிக்கவும்.