1.
INITIAL PUBLIC OFFERING
By:- Karan Singh

2.
WHAT IS INITIAL PUBLIC OFFERING?
 Public offering in which shares of stock in a
company are sold to institutional investors
 Which is then sold to the general public on a
security exchange
 Through this a private company transforms into a
public company
 Is also known as Stock Market Launch

3.
WHY IPO…??
 Funding capital requirements for organic growth
 Financing working capital requirements
 IPO’s are often used to do finance acquisitions
 Repaying debt to strengthen the balance sheet
 Retention and incentive for Employees through
stock options

4.
DISADVANTAGES OF IPO
 Promoter have to give up control and answer to
shareholders with quarterly earnings report
 Public disclosure of information which can be useful
to competitors, suppliers, etc
 Time, effort and attention required of senior
management
 Always a risk that required funding might not be
raised

5.
DEBT VS. IPO

6.
WHEN IPO AND WHEN DEBT..?
 Borrow money from
someone
 Pay a fixed rate of
interest and also repay
the principle
 High risk
 Mostly bonds
 Short-term targets
 Take money and offer
partnership
 Dividends among the
shareholders
 Low risk
 Exiting of investors
 Long-term targets
 Mergers and Acquisitions
DEBT IPO

7.
ELIGIBILITY FOR IPO
 Net tangible assets of at least Rs.3 Crore of the
preceding three years
 Minimum of Rs. 15 crore as average pre-tax
operating profit in at least three years
 Net Worth of at least 1 crore in each of the
preceding three years
 The issue size should not exceed 5 times the pre-
issue net worth

8.
IPO PROCESS
 Company hires investment bank (I.B) to do the
underwriting
 Underwriters act as intercessors between the
public, who are investing and the companies
 Company and I.B negotiate the money that
company wants to raise and type of security to be
issued
 I.B sets a registration statement which will be
submitted to SEBI

9.
IPO PROCESS
 SEBI needs a cooling off period during which it will
examine all the submitted documents
 During the cooling off period underwriter publishes
an initial prospectus
 After approval a date will be fixed in which company
will offer the stock to public
 The company and underwriter decide the price of
the stock

10.
UNDERWRITER
 A company that administers the public issuance
and distribution of securities from a corporation
 Works closely with the issuing body to determine
the offering price of the securities
 Buys them from the issuer
 Sells them to investors via the his distribution
network.

11.
Two Types Of
IPO Issues
Fixed Price
Issues
Book
Building
Issues

12.
FIXED PRICE ISSUE
 Issuer company freely prices the issue
 Price is disclosed in the offer document
 Details are also mentioned justifying the issue price
 Only one price in which issue will be offered

13.
BOOK BUILDING ISSUES
 Price is discovered not fixed
 Issuing company arrives at a price band
 Lowest price is known as floor price and highest
price is known as cap price
 Applicants bid for the shares
 The final price is then discovered based on the bids

14.
REVERSE BOOK BUILDING
 The overall framework for voluntary delisting from stock
exchanges is reverse book building
 Promoter appoints a merchant banker and a trading
member for placing bids
 Public announcements and letters along with bidding
form are dispatched to shareholders
 The final price is determined at which maximum shares
are offered
 Once the promoter agrees to the final price the
shareholders tender shares to the promoter

15.
RED HERRING PROSPECTUS(RHP)
 Document submitted as a part of public offering
 A red herring prospectus contains most of the
information pertaining to the company’s operations and
prospects
 Does not include key details of the issue such as its
price and the number of shares offered
 An issuer can state the issue size and the number of
shares are determined later
 Upon registration becoming effective, the final
prospectus includes the final price and shares issued

16.
GREENSHOE OPTION
 Legally referred to as an over-allotment option
 Allows underwriters to sell investors more shares than
originally planned by the issuer
 Done if demand for a security issue proves higher than
expected
 The green shoe can not be more than 15% of the
original number of shares offered
 Greenshoe can provide additional price stability to a
security issue