What is IPO?

IPO stands for Initial Public Offering. As the name suggests it’s the process wherein a company goes to public for the first time for raising money by offering ownership in the company. In this process a private limited company becomes Public Limited Company.

The main aim of coming to IPO is to raise funds for expanding the business. The structure of a public limited company is different from that of a privately held company. Once it becomes public it must disclose its financial reports on a regular basis (In most cases, Quarterly) to public. It has to appoint share holders elected directors who take key decisions of business. But if the promoter holds major percentage he still can influence the decisions. Read more

December 27, 2008 | Filed Under Stocks | Leave a Comment

IPO – Secondary market listing

Once the IPO process is over the exchanges give the listing date of the security on secondary market. The company has to satisfy the rules to get listed on a particular exchange. The most important rule is minimum paid up equity capital that a company has to have. Paid up capital represents the number of shares for which the investors have paid as per the issue price fixed. If there are no installments in an issue Paid-up capital is generally equal to subscribed capital.

Listing day price of the share gives an idea of future of the stock. If the issue is oversubscribed in the IPO then there fairly more chances of premium to the IPO price in the secondary market. This is because the over subscription indicates that there are more buyers. Usually institutional investors don’t get the sufficient quantity of shares in IPO and try acquiring them in secondary market (mostly of the times retail investors are the net sellers on listing day). Read more

December 27, 2008 | Filed Under Stocks | Leave a Comment

IPO – Allotment of Shares

An IPO(Initial Public Offer) has an issue start date and issue end date, during which the investors can apply for the stocks. The applications forms are made available online and (or) offline with brokerage houses and offline with some agents and outlets.

Allotment of shares to the applicants depends on whether the issue is oversubscribed or undersubscribed. If the issue is undersubscribed all the applicants will get the full quantity of shares they applied for. The unsubscribed shares will have to be bought by the underwriter if the agreement is structured based on ‘firm commitment basis’.

If it is oversubscribed then the management and the investment banker decide a way to allot shares. They could randomly allot shares or proportionately allot them. If one has applied for 10 lots and the issue is oversubscribed by 5 times then on proportionate basis the applicant will get 2 lots. They can decide any other method of allotment of shares. Read more

December 27, 2008 | Filed Under Stocks | Comments Off

IPO – Methods of Pricing

Once the registration gets approved by the regulator and the completion of meetings with potential investors the company and investment bank together decide on issue date, issue price and the minimum lot quantity that an investor should subscribe to. The maximum quantity (amount) that an investor can subscribe to depends on the category (eg; retail investor, Mutual Fund etc) that the investor falls into. This limit and categorization are provided by the regulator. However the exact price is decided by one of the following methods.

Fixed Price Method
Book Building method

Fixed Price Method: In this method of pricing the investment bank in consultation with the firm fixes the price at which an investor can subscribe to. This price could be at par value or at a premium above the par value. Read more

December 21, 2008 | Filed Under Stocks | Leave a Comment

What is FPO (Follow on Public Offer)?

The basic difference between Initial Public Offer (IPO) and Follow on Public Offer (FPO) is as the names suggest IPO is for the companies which have not listed on an exchange and FPO is for the companies which have already listed on exchange but want to raise funds by issuing some more equity shares.

Companies usually go to debt market for raising their short term needs. Either they issue bonds or get loans. But if they have massive expansion plans they may not raise sufficient funds in the debt market and even if they could it costs more. Companies come with follow on offer to restructure the business or to raise funds for new business or to expand the existing business.

Similar to an IPO a price band is fixed (usually with the help of Investment banks) for the issue and interested investors can apply for it. Unlike the corporate actions (such as bonus, rights issue; they are applicable only to the existing stake holders) FPO is open to all investors. The price band for the FPO depends on the market value of the existing company shares and the reason for raising funds.

October 18, 2008 | Filed Under Stocks | 8 Comments