FAQ : Initial Public Offering (IPO)

by salman on 03/07/2011 · 1 comment

Initial Public Offering (IPO) is one term that revolves in the heads of investors new and old due to the monetary benefits that accompany an IPO offering. Bell The Bull suggests investors to be aware of the basics of IPO before they dive into the world of share market to avoid any losses that can change lives. Below we have combined a list of must read questions and answers for every investor.

What is IPO?
IPO is the acronym for Initial Public Offering. Companies that are about to release their shares in the share market start by launching their personal IPO. Initial Public Offering can be tagged as selling a section of company ownership to the general market so as to collect money for future projects of that company.

In case of buying/selling shares the money passes between the investors while in case of IPO the money goes directly to the company thus helping the company generate capital for herself.

What is going public?

When a company offers its IPO then it is said that the company is going public.

What is Primary Market?

Primary Market is where the company offers her shares to investors in order to raise required capital. An IPO is basically offered in a Primay Market.

What is Secondary Market?

After a successful initial IPO the company has the organization can offer more shares to collect extra money from the market. This second wave of offer is launched in the Secondary Market. Debt Markets and Equity Markets can be tagged as secondary market.

What is FPO?

FPO is acronym for Follow on Public Offering. It is the issuing of shares of a company that is already listed in the share market. FPO is part of the secondary offering and companies tend to make use of the same after a successful IPO.

What is RI?

RI is the acronym for Rights Issue. It is the second time offering of company shares to the existing share holders of that company. Usually the rights are offered as per the number of shares already held by share holders. The share holders are given a specific time frame and a specific price band at which they can buy the freshly available shares.

RI is the second wave of shares that is pushed by the company into the market so as to arrange for more money for herself.

What is Private Placement?

Private Placement is the exact opposite of public issues. In case of private placement shares are offered to a small section of high end investors to raise funds for the organization. These high end investors are usually large banks, pension funds, insurance companies and organizations behind mutual funds. As Private Placement is the business done between the company and large guyers so in most cases these deals aren’t made public unless they are successfully complete.

Who is Registrar of an IPO?

Registrar is the prime body that processes an IPO. These are officially registered independent financial institutions that are appointed by company going public.

Who is Lead Manager in an IPO?

Like registrars, lead managers are also independent financial institutions that are hired by companies going public. In case of very large IPO a company might hire more than one lead manager. They are then called as Book Running Lead Manager and Co-Book Running Lead Manager. Such lead managers take care of the process required for the company to go public. Lead Managers help the company initiate IPO Processing, help the organization in road shows, create a draft offer document, get approvals of draft offer document from Stock Exchanges and finally to help the organization list her shares in the stock market.

What is Letter of Offer?

Letter of Offer is the document which is prepared by the company going public for its Rights Issue. It is later on filled by Stock Exchanges. Letter of Offer contains every information about the public offering thus helping the investors understand the offering before investing.

What is Offer Document?

In case of public issues Offer Document is the prospectus that carries all the necessary information with regards to that public issue. In case of rights issue Offer Document is Letter of Offer which is duly filled by the Stock Exchange and the Registrar of Companies (RoC). These Offer Documents cover relatively every information that is required by the investor to decide about his/her investment in the organization.

What is Draft Offer Document?

The Offer Document in draft stage is called as Draft Offer Document. It is prepared by the Book Building Lead Manager of the company and submitted to SEBI for review. Draft Offer Document must be submitted 21 days before the submission of Offer Document. This document contains information about the organization, its business, its management, the amount of risk while applying for the issue, financials of the organization and the reason why company wants gain capital via IPO.

List of Draft Offer Documents filed with SEBI.

What is Red Herring Prospectus?

Once the Offer Document is approved from Stock Exchanges then the Issuer Company is allowed to add the price of Issue and the size of Issue to the document. The updated document is made available to the public and is called as Red Herring Prospectus.

Red Herring Prospectus Database.

What is Abridged Prospectus?

Abridged Prospectus contains all the features of the general prospectus and it has in it the application form for public issues. Abridged Prospectus is prescribed in form 2(A) under sub-section (3) of section 56 of the Companies Act, 1956.

What is Abridged Letter of Offer?

The Abridged form of Letter of Offer is called as Abridged Letter of Offer. Along with the application form the company must send an abridged letter of offer to every shareholder who is eligible for the upcoming Rights Issue of the company. Also, if a shareholder requests then the company must also send detailed letter of offer to that shareholder.



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