IPO: — ALL YOU NEED TO KNOW

So, you might have heard or read in the news that XYZ Company is coming up with an IPO. Here the question arises what is an IPO? This blog I am writing is all you need to know about an IPO, like what is an IPO? why a company comes up with an IPO? what is the whole process of launching the IPO? who are the intermediaries that are involved? and much more. I hope you get all the information through this blog about an IPO.

What is an IPO?

An initial public offering i.e., IPO is a type of public issue. Before talking about IPO let’s talk about the types of issues by which a company can raise money from new investors. Basically, there are four different types of issues which are: -

1. Public Issue

a. Initial Public Offer (IPO)

b. Further Public Offer (FPO)

c. Offer For sale

2. Right Issue

3. Bonus Issue

4. Private Placement

a. Preferential Issue

b. Qualified Institutional Placement (QIP)

Why a company comes up with an IPO? A company can raise equity funding from the general public through an IPO. Since there is often a share premium for present private investors, the transition from a private to a public company can be a crucial period for private investors to completely realize rewards from their investment. Additionally, it enables public investors to participate in the issue and become a shareholder of the company.

Which company can bring an IPO? The following points are the eligibility criteria for a company that wants to come up with an IPO: - (a) The company has net tangible assets of at least Rs. 3 crores in each of the preceding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets. However, if more than 50% of the net tangible assets are held in monetary assets, the issuer has utilized or made firm commitments to utilize such excess monetary assets in its business or project. This limit of 50% shall not apply if IPO is made entirely through an offer for sale. (b) The company has a minimum average operating profit of Rs. 15 crores, during the preceding 3 years, with operating profit in each of the 3 preceding years. (c) The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full years; (d) In case the company has changed its name within the previous year, at least 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name.

Who regulates the IPO market? The IPO market in India is regulated by SEBI which stands for Securities & Exchange Board of India. It is a statutory regulatory body established by the government of India in 1992. It is a corporate body with perpetual succession, a common seal, and the authority to enter into contracts, bring legal actions and be sued on its own behalf. It was established for protecting the interests of investors investing in securities along with regulating the securities market.

What is the process to launch an IPO? Before a company comes up with an IPO it is to be ensured that the issue complies with the eligibility requirements and other rules of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. If the articles so require, a general meeting of the shareholders, whether annual or extraordinary, should be called for the purpose of obtaining their assent to the proposed issue of shares. One or more merchant bankers will be appointed by the company issuing the shares to serve as the public issue managers. The company shall choose whether to employ the following additional agencies after consulting with the issue’s managers: (a) registrars; (b) collecting bankers; © advisors; (d) underwriters; (e) brokers; (f) printers; and (g) advertising agents. The next stage is to draft a prospectus in accordance with Section 26 of the 2013 Companies Act and an abbreviated prospectus in accordance with Section 33(1) of the 2013 Companies Act. The disclosures mentioned in Schedule VIII of the SEBI Regulations should be included in the prospectus. A copy of the Memorandum and Articles of Association of the company is to be sent to the Stock Exchanges where the shares are to be enlisted, for approval. The draft offer document along with the application form for the issue of shares should be got approved by the solicitors/legal advisors of the company. The Merchant Banker is required to submit the draft of the offer issue scheduled to open for subscription. Further, they are held responsible for ensuring compliance with the SEBI Rules, Regulations, Guidelines, and requirements for other laws, for the time being in force. The BOD of the company should approve the final draft before filling with the Registrar of Companies (ROC) The company should apply to the relevant stock exchange(s) for enlisting securities sold to the public before filing a prospectus with the ROC. The company should take steps to issue the number of prospectuses and application forms printed. The provisions of Section 33 of the Companies Act, 2013 should be kept in view. No one shall issue any form of application for shares in or debenture unless accompanied by a memorandum containing such salient features as may be prescribed. The issuer can mention a price in the prospectus (in case of a fixed price issue) and a floor price or price band in the red herring prospectus. The cap on the price band shall be less than or equal to one hundred and twenty percent of the floor price. If an issuer makes an IPO/FPO other than through the book-building process and desires to have the issue underwritten, it shall appoint the underwriters in accordance with the SEBI (Underwriters) Regulations, 1993. At least 75% of the net offer to the public is proposed to be compulsorily allotted to the QIBs, and such a portion cannot be underwritten. The minimum subscription to be received in an issue shall not be less than ninety percent of the offer through the offer document. A return of allotment in Form PAS-3 of the Companies (Prospectus and Allotment of Securities) should be filed with ROC within 30 days of the dare allotment along with the fees as prescribed.

• Who are the intermediaries involved in the process? Sebi-registered intermediaries, such as merchant bankers, registrars, bankers, and underwriters, carry out a variety of IPO-related tasks, from creating draft offer documents to deciding on the basis of allotment and crediting shares to successful IPO applicants. How to apply in an IPO? To conveniently apply for an IPO through a broker, follow the procedures below: a. Sign in to your D-Mat account. You must register using your email and phone number if you don’t already have an online account. b. Go to the current IPO area by finding the IPO tab. From the current IPO list, choose the IPO’s name. c. Type in the number of stocks or the lot size that you want to bid on. Choose the bid price as well. Bidding at the cut-off price or the highest price at the top of the price range will boost your chances of getting an IPO allotment. d. In the following step, enter your UPI ID and click the Submit button. Your UPI app will need to approve the transaction before the exchange will accept your bid. e. Watch for the UPI app to notify you of the mandate. Up to the IPO allocation date, the application money will still be blocked. How the shares are allotted? a. The issuer and the lead manager(s) must make sure that the SEBI-defined period is followed for the allocation of the specified securities and/or the refunding or unblocking of application funds. b. The lead manager(s) must make sure that electronic means are used for the allocation credit of dematerialized securities, refunding, or unblocking of application funds, as appropriate. c. The issuer agrees to pay investors interest at a rate of 15% per year in the event that the specified securities are not allotted and/or application funds are not returned or unblocked within the time frame outlined above, and the lead manager(s) must guarantee this happens. Recent performance of the IPO market. The return from an IPO, which is frequently closely watched by investors, can be impacted by a number of factors. Investment banks may overhype some IPOs, which can result in initial losses. However, when they are made available to the public, the bulk of IPOs are renowned for increasing short-term trading. The performance of IPOs depends on a few important factors. A few examples of the companies that got listed recently on the Bombay Stock Exchange (BSE) & the National Stock Exchange (NSE) are shared below:

Sula Vineyards Dec 22, 2022 listing price 357 Gain -7.24% Uniparts India Limited Dec 12, 2022 listing price 577 Gain -6.49% Dharmaj Crop Guard Limited Dec 8, 2022 Listing price 237 Gain 12.41% Keystone Realtors Limited Nov 24, 2022 Listing Price 541 Gain 3.11% Inox Green Energy Services Limited Nov 23, 2022 Listing price 65 Gain -9.08% Kaynes Technology India Ltd Nov 22, 2022 Listing Price 587 Gain 17.56% Five Star Business Finance Ltd Nov 21, 2022 Listing Price 474 Gain 3.27% Archean Chemical Industries Limited Nov 21, 2022 Listing Price 407 Gain 12.52% Global Health Limited Nov 16, 2022 Listing Price 336 Gain 23.71% Bikaji Foods International Limited Nov 16, 2022 Listing Price 300 Gain 5.82% Fusion Micro Finance Limited Nov 15, 2022 Listing Price 368 Gain -11.71% DCX Systems Limited Nov 11, 2022 Listing Price 207 Gain 49.18%