A
private company can get public awareness by selling shares in an initial public
offering (IPO), which is done through the stock exchange. Investment banks
assist private companies with the public offering of their stock. The initial
offering is often solely accessible to institutional investors, making it
difficult to purchase shares in an IPO. Regular investors can purchase shares
of a freshly public company soon after the IPO. Because the company went
public, the media focuses a lot of attention to POs, sometimes on purpose. Due
to their potential to cause dramatic price movements on the day of the IPO and
quickly thereafter, IPOs are generally well-liked by investors. This could
occasionally lead to both significant losses and gains. Investors should finally
consider their financial status, risk tolerance, and the prospectus of the firm
issuing the IPO when evaluating each IPO.
Pricing Of An IPO
When
a corporation goes public, it is required to disclose the initial value of its
new shares. This is the responsibility of the underwriting banks that will
market the deal. The company's fundamentals and growth potential are key
factors in assessing its worth. Since IPOs may originate from fledgling
companies, they may not yet have a track record of profitability. They may be
replaced with comparables. However, supply and demand for the IPO shares will
also be significant in the days leading up to the IPO.
Types Of Initial Public Offering (IPO):
1) Fixed Price Offering:
In
this IPO, the company sets a price for its shares prior to going public, and
investors are informed of the price. After problems are resolved, the market's
demand is established.
2) Book Building Offering:
Under
book building, investors can buy shares of the firm going public in a
particular price range. Investors must specify their price range, as well as
the number of shares they plan to buy. In contrast to a fixed-price offer,
there is no fixed price per share.
Purpose Of Initial Public Offering (IPO):
1)
To make it easier for people to trade its assets.
2)
To profit from the private stakeholders' investment.
3)
Fresh equity capital to be injected.
4)
To obtain funding for diverse needs.
Working Of Initial Public Offering (IPO):
1) Hiring An
Underwriter Or Investment Banker:
Investment
bank underwriters handle the complete IPO issue and act as a middleman between
the company and its top investors.
2) Incorporating an IPO:
According
to the Indian Companies Act, every company must produce and publish an IPO
registration statement that includes information on risk factors that could
influence the firm's financials.
3) Verification By SEBI:
The
company can file a formal IPO application with SEBI after submitting the DRHP
and the registration statement to the registrar. Later, SEBI checks the company's
disclosure facts. The business may reveal a date for its IPO after the
application is accepted.
4) Application Of Stock Exchange:
The
company can apply to the stock markets for the flotation of its IPO issue
following clearance from SEBI.
5) Marketing:
The
corporation can start marketing its issue after the IPO issue is complete.
6) The Cost Of The
Problem:
The
corporation consults investment bankers to determine the price of each share,
whether through a Fixed Price IPO before the company goes public.
7) The solicitation of bids:
Investors
submit their bids here following the Lot price that the company has specified.
The corporation establishes a certain price, at which the issue is sold.
8) Shares are allocated:
The
firm and the underwriters decide how many shares will be allocated to each
applicant after the IPO is closed.
Top IPO Stocks For Investment:
1)
AIA Group
2)
Enel SpA
3)
ICBC Group
4)
Saudi Aramco
6)
General Motors
7)
Meta
8)
Adani Wilmar Limited
9)
Electronics Mart India Limited
10)
Visa
One
of the largest companies in the world and Saudi Aramco's energy subsidiary went
public in December 2019 and raised USD 25.6 billion by selling 3 billion
shares.
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