An Initial Public Offering (IPO), is when shares of a private company are first offered to the public. This is an important step in the business' growth. An IPO is where the Issuer seeks out the help of an underwriting company to determine the type and price of the security, the maximum offering price, the number of shares, and the time it will be brought to market.
Selection of Investment Bank
When the company's management has made the unanimous decision to go public, they must first find an investment bank or conglomerate investment banks that will underwrite the company. The underwriters purchase shares from the company and then resell them to public. A company should also employ lawyers to help them navigate the legal maze of an IPO setup.
For the SEBI to perform intensive financial health checks, it must have detailed financial records. While some companies might choose to sell shares directly through the stock exchange, most prefer the process through the underwriters.
These are the top steps in India's IPO Process:
Here are the details of each step:
The company must file a registration statement with the SEBI to begin the IPO process. This includes a detailed report on its financial health and business plans. The SEBI reviews the report and conducts its own background checks. SEBI must verify that the registration statement meets all requirements and conforms to all regulations.
The company must prepare a preliminary Red Herring prospectus while it waits for approval. This prospectus includes financial information, future plans, and the expected price range. Prospective investors interested in purchasing the stock should consult this prospectus. The prospectus also contains a warning regarding the IPO pending approval by SEBI.
After the prospectus has been approved, the underwriters and company representatives travel to the country's major trade hubs. They promote the company's IPO to select buyers (usually corporates or HNIs).
They receive detailed information about the company's future plans, growth potential, and other pertinent details. These tours give them a sense of the investor response and help them to attract big investors.
After SEBI has reviewed the registration statement, it declares it to be effective. This gives the go-ahead for the IPO and a date. It may ask for amendments before it approves. Without the SEBI amendments, the prospectus can't be made available to the public. The company must choose a stock exchange to which it plans to sell shares, and then get listed.
With the assistance of the underwriters, the company decides on the price range and the number of shares that will be sold after approval by SEBI.
There's two types of issues: Fixed-Price IPO and Book Building IPO
The shares will be made available to the public on the dates stated in the prospectus. Investors can complete the IPO application and indicate the price they would like to purchase the shares. Then, submit the application.
After the subscription period has ended, members of the underwriting bank, share issuing firm, etc. The price at which shares are to be allotted will determine when meet. The prospective investors will be able to determine the share price and meet with the underwriting banks. The demand for shares and the price offered by investors would determine the price. After the price has been finalized, investors will be allocated shares based on the available shares and the bid amounts.
Not all applicants will be granted shares in the event of an oversubscribed issue.
The final step is to be listed on the Stock Exchanges. Investors who applied through ASBA and to whom shares were allotted will see their shares credited to DEMAT accounts. Funds would also be debited from their bank accounts. For those investors who were not allotted shares, the funds would remain unblocked in their account.