IPO stands for Initial public offerings. Initial public offerings refers to a method of offering public issues. The unlisted private companies use this method for offering public issues in the market. The Dutch East India Company started the modern IPO for the first time. For example, Zomato IPO, Indigo paints IPO, RailTel IPO etc.
IPO process
The steps involved in IPO process in India are discussed below-
Step 1
Initially, the company hires an underwriter or investment banker to act as intermediary between the issuing company and potential investor.
Step 2
Secondly, the issuing company prepares for the registration procedure. Accordingly, the company prepares Red Herring Prospectus that consist of all material information like name, business purpose, financial statement, board of directors, articles and memorandum of the issuing company etc.
Step 3
Further, the Securities and Exchange Board of India (SEBI) verifies the facts of the issuing company. On satisfaction, the SEBI allowed for IPO proceedings and announced a date for IPO.
Step 4
Further, the company submitted an application to the stock exchange seeking permission for floating its initial issue.
Step 5
Additionally, the issuing company goes for promotion and marketing of their upcoming IPOs. Hence, some of such promotional measures are Question and Answer sessions, multimedia presentations, group meetings, online virtual roadshows etc.
Step 6
In this step the issuing company takes steps for pricing of the IPOs. Hence, the price determination may be through a fixed pricing method or book building process.
Step 7
Finally the issuing company along with underwriters or investment bankers determines the number of shares to be allotted to investors. Accordingly, they issues IPOs in the market.
Terms associated with IPO
- Issuer:
It is the issuing company who is interested in public issues in the secondary market.
- Underwriter:
Underwriters act as intermediary between the issuing company and potential investors to assist the issuing company. Thus, it can be a bank, financial institution, merchant banker or broker.
- Draft Red Herring Prospectus:
It is a document that contains all material information regarding the issuing company to the public. Accordingly, t consist of the information like-
- Name of the company
- Purpose of business
- Registered office
- Name and address of board of directors
- Financial statement
- Copy of underwriting documents etc.
An IPO is typically underwritten by one or more investment banks, who also arrange for the shares to be listed on one or more stock exchanges.