Tanuj Chandra Saxenaa
Quick Summary
The Initial Public Offering (IPO) is a very important point at which an unlisted company decides to go public for the first time by publicly listing its shares and selling its stocks to the investors. It is an offer of shares typically made to raise capital for the company. The main aim of an IPO
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FAQ :
The primary purpose of an IPO is for an unlisted company to go public by listing its shares, primarily to raise capital for growth or to clear company debts. It also serves to enhance the company's credibility and brand value.
The IPO process involves selecting an investment bank, preparing and submitting the Draft Red Herring Prospectus (DRHP) to SEBI for approval, conducting roadshows to engage investors, applying to the stock exchange, pricing the shares, and finally, the public purchase of shares.
SEBI mandates that a company should have at least Rs 3 crore in net tangible assets in each of the previous three years, with not more than 50% in cash or cash equivalents. It also requires a net worth of at least one crore rupees and an average operating profit of at least fifteen crore rupees (pre-tax) in any three of the previous five years.
After SEBI's approval of the DRHP, the company files an updated prospectus called the Red Herring Prospectus (RHP). This document contains details of the issuing company but does not include the final price or quantity of the IPO shares.
The Lock-Up period, typically 90 to 180 days, restricts major shareholders and insiders from selling their shares immediately after the IPO. This prevents overwhelming the market with excess shares, helps stabilise the stock price, and ensures insiders share the same outcome as public investors.
SEBI can reject a DRHP if the ultimate promoters are unknown, the purpose of fundraising is unclear, the business model is exaggerated or deceptive, there's an unexplained surge in business prior to filing, or if there's ongoing litigation that could impact the company's future existence.
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