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Initial public offering

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INITIAL PUBLIC OFFERING
By:- Karan Singh

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WHAT IS INITIAL PUBLIC OFFERING?
 Public offering in which shares of stock in a
company are sold to institutional investo...

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WHY IPO…??
 Funding capital requirements for organic growth
 Financing working capital requirements
 IPO’s are often us...

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Ipo Whole Process
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Initial public offering

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What is IPO, The Pros and Cons of IPO, Eligibility and Process for an IPO and the types of IPO.

What is IPO, The Pros and Cons of IPO, Eligibility and Process for an IPO and the types of IPO.

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Initial public offering

  1. 1. INITIAL PUBLIC OFFERING By:- Karan Singh
  2. 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. 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. 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. 5. DEBT VS. IPO
  6. 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. 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. 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. 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. 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. 11. Two Types Of IPO Issues Fixed Price Issues Book Building Issues
  12. 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. 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. 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. 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. 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

Editor's Notes

  • If there has been a change in company’s name then 50% of the revenue for preceding 1 year should be from new activity denoted by the new name
  • Not agreeing on the final price, the offer shall be deemed and the company remains listed

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