An IPO or Initial Public
Offering is the process for private companies
to go public by selling and making their stocks available to the general
public. This is known as the first public
invitation in the stock markets and hence the name IPO. Buying these shares
allows the investor an ownership in the company in accordance with the value of
the shares owned.
A company can change itself from a privately-held
body to a publicly-traded entity through the process of Initial Public Offering (IPO).
Typically, companies offer IPO to raise money and get access to liquidity by
offering their stocks/shares to the public.
IPO Process steps in India
Hiring of an Underwriter or Investment
Bank :
When a company decides to go public,
it needs to hire an investment bank. These banks act as market intermediary in
the process of company listing. The Investment bank goes through the company's
financial statements and evaluates the worth and risks of the company. The
Investment bank also assumes all responsibilities and creates a prospectus for
prospective investors. It is the task of the Investment bank to generate
initial demand for an IPO.
IPO Registration process
Draft Red Herring Prospectus and the
registration statement DRHP includes key components about the company, its financials,
its strengths, and risks, why it is raising funds and where will these funds be
used. This document is prepared by the banks appointed as lead managers in coordination
with the company and to be submitted to SEBI. The DRHP contains all the
information about the business except the price or quantity of shares being
offered.
SEBI verification process
The regulator at SEBI verifies the
facts shared by the company and checks for errors. If SEBI asks for changes,
the issuer must submit that back to SEBI. After all the changes are approved in
the application, SEBI approves the draft prospectus. The issuer and underwriter
then use the approved prospectus to promote the IPO.
Submitting application to Stock Exchange
After getting SEBI’s approval, the
company files an updated prospectus called the Red Herring Prospectus (RHP).
However, the RHP does not include the price of the IPO.
Road Show process
Over a period of two weeks, the
executives and staff of the company will advertise the impending IPO across the
country. This is basically a marketing and advertising tactic to attract
potential investors. Roadshows aid in convincing investors about the company’s
potential. The company executives and underwriters can conduct Q&A sessions
and multimedia presentations for sharing details of IPO and the company.
IPO Pricing process
The company here has the option to
either go for a Fixed Price IPO or a Book Building Issue.
Fixed price IPO:
In this case, the companies offer a
fixed price of a share. If companies decide to issue their share at a fixed
price, the same is mentioned in the draft prospectus as well as the final
prospectus, which has been approved by SEBI.
Book building IPO:
When the company does not want to
offer the shares at a fixed price, it can set the upper and lower limit for the
bidding process. A Red Herring Prospectus contain this price band. It is a
document that contains details of the issuing company except for the effective
date and offer price.
IPO Allotment process
Once the IPO price is finalized, the
company along with the underwriters will determine the number of shares to be
allotted to each investor. In the case of over-subscription, partial allotments
will be made.
The IPO stocks are usually allotted to
the bidders within 10 working days of the last bidding date. If the shares are
oversubscribed then the remaining shareholders are refunded. During this step,
it is also ensured that no shares are allotted to internal or related parties.
Listing of Stock in the Stock Market
In India, the IPO process culminates
in the form of listing of the company on stock exchange. With the listing in
the secondary market, successful applicants can sell their shares on stock
exchanges and new investors can purchase. However, certain shareholders such as
anchor investors and promoters are subject to lock-in periods which mean they
cannot sell their shares immediately after listing. Anchor investors are
subject to a lock-in period of 30 days from the date of allotment. The lock-in is more stringent for promoters.
According to SEBI regulations, 20% of the company’s fully diluted post-offer
equity share capital held by promoters is locked-in for a period of three years
from the date of allotment.
Some of the Biggest IPOs of Indian Companies are listed below :
Indian fintech firm Paytm's initial
public offering of up to ₹18,300 crore ($2.47 billion) is expected to be the
country's largest stock market listing, surging past miner Coal India's massive
IPO more than a decade ago.
India's top 10 IPOs
1. Coal
India (2010) – the State-run miner raised ₹15,199
crore in what was India's biggest initial public offering of shares. Coal India
is the world's largest coal miner.
2. General
Insurance Corp of India (2017) – the
reinsurer raised ₹11,257 crore.
3. SBI
Cards & Payment Services (2020) – owned by
the State Bank of India, the country's largest lender, the company raised
₹10,341 crore.
4. Reliance
Power (2008) – helped by investors' faith in the
family's name as a result of the group of companies set up by Anil Ambani's
father, tycoon Dhirubhai Ambani, the company raised ₹10,123 crore.
5. New
India Assurance(2017) – the State-run company raised ₹9,586
crore.
6. Zomato(2021)
– the food delivery app raised ₹9,375
crore. Launched in 2008, the company collatesrestaurant reviews and offers home
delivery of food, making it acompetitor to Indian start-up Swiggy and
Amazon.com’s food delivery service.
7. DLF
(2007) – the real estate company raised ₹9,188
crore.
8. HDFC
Standard Life Insurance (2017) – now known
as HDFC Life Insurance – raised ₹8,695 crore in its IPO. It competes with
players including SBI Life Insurance.
9. SBI
Life Insurance (2017) – the company raised ₹8,389 crore.
10. Gland Pharma (2020) – based in the southerntech hub of Hyderabad, the company
raised ₹64.80 billion. Established in 1978, Gland Pharma makes injectable
generic drug sand sells its products in over 60 countries.
The Biggest IPO price gainers in the last 5 years are given below:
Finally, An IPO is a big step for a company as
it provides the company with access to raising a lot of money. This gives the
company a greater ability to grow and expand. The increased transparency and
share listing credibility can also be a factor in helping it obtain better
terms when seeking borrowed funds as well.
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