The Lifecycle of an IPO: From Private to Public
When a company offers its shares to public investors for the first time through IPO, it goes through a complete lifecycle. The IPO cycle ranges from pre-IPO preparation to listing on the stock changes. All this pretty much happens on the front end, and a lot of back-end work ensures that everything runs smoothly.
Every cycle in the IPO lifecycle serves its own purpose and has a different impact on the investor. This is why every investor and trader must understand 'what is IPO cycle?', how IPOs are allotted, and the workings of the IPO lifecycle.
Topics Covered
- What is IPO Cycle?
- The Stages of an IPO
- How are IPOs Allotted?
- What is IPO Subscription?
- Conclusion
What is IPO Cycle?
An IPO or initial public offerings cycle is when a private firm goes through in order to become a publicly listed company. The decision to go public is the first step, and there are numerous more steps involved, such as engaging investment bankers, creating a draft red Herring prospectus, promoting the IPO, and more.
Through this cycle, the business can raise money from the general public, grow, and become more visible in the marketplace.
The Stages of an IPO
Here are all the stages involved in the IPO lifecycle you must know as an investor and trader:
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Pre-IPO Preparation
This is getting the house in order. It includes auditing financial statements, reviewing business plans, and bringing on board underwriters who can guide the process.
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SEBI Registration and Approval
The company sends a registration statement to the Securities and Exchange Board of India as the initial step. This statement includes details on the company's prospective commercial objectives and financial standing. After carefully examining the matter, SEBI issues an approval or rejection.
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Filing of the Red Herring Prospectus (RHP)
The company finalizes the offer document and then files its draft prospectus with SEBI, stating the prospects of the business. The document specifies all the essential features of company operations, financial statements, and associated risks.
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Roadshow for IPO to Bring in Investors
The company initiates the roadshow along with its underwriters to approach potential investors. This includes presentations, Q&As, and one-on-one meetings with institutional investors.
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Bidding
The dates for the issuance are decided upon when a figure for its size and price range is established. Investors may submit bids to buy the company's shares on the specified dates, which are usually highly exciting for many.
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Pricing and Allotment
Based on the results of the roadshow, the company, in coordination with underwriters, fixes the issue price. Thereafter, the firm allots the shares as per the applications received.
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Listing on the Stock Exchange
Finally, the shares are listed on the stock exchange for trading. By this time, the company is public, and the shares are now accessible for buying and selling to investors.
How are IPOs Allotted?
When a company goes public, its shares are available to investors and traders. However, there is usually more demand for shares than what the company actually has. That is when the IPO allotment takes place. It is how shares are distributed among the investors who applied for them.
The allotment process is really important to ensure fairness. The key is transparency to exclude the possibility of doing it based on one's choice or preference.
- Qualified Institutional Buyers (QIBs): Shares reserved for large financial institutions, such as MFs and banks, are usually at a huge ratio.
- Non-Institutional Investors (NIIs): These are investors who apply for shares worth more than ₹2 lakh. They are offered a smaller percentage than that offered to the QIBs.
- Retail Individual Investors (RIIs): Retail individual investors who apply for shares up to ₹2 lakh are normally allotted 35% of the total shares available.
What is IPO Subscription?
The procedure via which investors apply to buy shares in a company's initial public offering (IPO) is known as an IPO subscription. A company issues new shares in order to raise funds when it chooses to go public. During the IPO, investors have the option to subscribe to these shares.
Conclusion
An IPO lifecycle is a journey from a private entity to a public company. Understanding the mechanism of the allotment of IPOs, particularly what IPO subscription means, can give you a better view of the whole process and enable you to make an informed decision.
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Disclaimer: This blog is posted solely for educational purposes. The securities mentioned are examples and not recommendations. It is based on various secondary sources from the internet and is subject to change. Please consult an expert before making any related decisions.
