What is IPO ?


CA. Dashrath Maheshwari (TaXpert)     22 September 2008

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About Public Issues

Corporates may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. This Initial Public Offering can be made through the fixed price method, book building method or a combination of both.

There are two types of Public Issues:

ISSUE TYPE

OFFER PRICE

DEMAND

PAYMENT

RESERVATIONS

Fixed Price Issues

Price at which the securities are offered and would be allotted is made known in advance to the investors

Demand for the securities offered is known only after the closure of the issue

100 % advance payment is required to be made by the investors at the time of application.

50 % of the shares offered are reserved for applications below Rs. 1 lakh and the balance for higher amount applications.

Book Building Issues

A 20 % price band is offered by the issuer within which investors are allowed to bid and the final price is determined by the issuer only after closure of the bidding.

Demand for the securities offered , and at various prices, is available on a real time basis on the BSE website during the bidding period..

10 % advance payment is required to be made by the QIBs along with the application, while other categories of investors have to pay 100 % advance along with the application.

50 % of shares offered are reserved for QIBS, 35 % for small investors and the balance for all other investors.

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sagar (CA FINAL)     22 September 2008

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vry nice

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CA CS CIMA* Prakash Somani (Landmark Group)     23 September 2008

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Very good article... i would say "short and sweet"

shirin bhatt (Company Secretary in Practice)     05 October 2008

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An IPO means Initial Public Offer. When a company comes out with a public offer of its shares for the first time it is referred to as IPO. For an IPO the company has to follow various regulations and guidelines of Securities and Exchange Board of India.

gemini (developer)     23 January 2009

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Hi Friends,

Its a good article to easily understand the IPO concept.

Still i have some doubts. Kindly clarify this.

1. What is QIBs type of investors and their specialities.

2.What is primary and secondary market?

 

Thanks.

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Bijoy N.Momaya (www.RupeeResearch.com (Eqty Advisory & Stock Broker))     23 January 2009

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Initial public offering (IPO), also referred to simply as a "public offering", is when a company issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded. In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value. Reasons for listing: When a company lists its shares on a public exchange, it will almost invariably look to issue additional new shares in order to raise extra capital at the same time. The money paid by investors for the newly-issued shares goes directly to the company (in contrast to a later trade of shares on the exchange, where the money passes between investors). An IPO, therefore, allows a company to tap a wide pool of stock market investors to provide it with large volumes of capital for future growth. The company is never required to repay the capital, but instead the new shareholders have a right to future profits distributed by the company and the right to a capital distribution in case of a dissolution. The existing shareholders will see their shareholdings diluted as a proportion of the company's shares. However, they hope that the capital investment will make their shareholdings more valuable in absolute terms. In addition, once a company is listed, it will be able to issue further shares via a rights issue, thereby again providing itself with capital for expansion without incurring any debt. This regular ability to raise large amounts of capital from the general market, rather than having to seek and negotiate with individual investors, is a key incentive for many companies seeking to list.

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Bijoy N.Momaya (www.RupeeResearch.com (Eqty Advisory & Stock Broker))     23 January 2009

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I m glad that we CA's the finance guys.. are discussing all such things... plz visit www.bijoyrulzz.blogspot.com n click the "SCHOOL" button to get more knowledge... thnk U

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CA CS CIMA* Prakash Somani (Landmark Group)     23 January 2009

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Nice answered by Mr DM ,Mr Shirin bhatt and Mr bijoy. The way Mr DM has provided the info is very nice.

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prashant bhardwaj (coaching to ca cs classes.b.com pass/hons stock market course NCFM module capital/derivetive)     11 March 2009

prashant bhardwaj
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IPO IT MEANS WHEN A COMPANY RAISES SHARE CAPITAL FROM PRIMARY MARKET .

ALSO TO BE ADDED IT SHOULD BE FIRST TIME

OTHERWISE SECOND TIME OR LATER ON IT IS CALLED FPO- FOLLO ON PUBLIC OFFER

BIJOY KUNDU (STUDENT)     07 July 2009

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hi..............................


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