What are IPOs? :
Intial Public Offering (IPO) is when an unlisted company makes either a
fresh issue of securities or an offer for sale of its exisitng securities or
both for the first time to the public.
Some of the reasons why companies go for an IPO is as follows :
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Additional Capital resources for funding of projects/expansion plans.
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Dilution of existing promoters share holding.
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Value Hedging PMS
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Listing enhances corporate image thus providing visibility.
What are the two types of IPO?
There are two types of IPO
“Book Building” means a process undertaken by which a demand for the securities
proposed to be issued by a body corporate is elecitied and built up and the
price of the security is assessed on the basis of the bids obtained for the
quantum of securties offerred for subscription by the issuer.This method
provides an opportunity to the market to discover the price for securities.
In case of a fixed price issue the issue price is fixed.
I want to apply to an IPO how can I apply?
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To apply in a IPO one needs to have a demat account.
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PAN copy is required in case the application amount is equivalent or more then
Rupees 50 thousand.
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Basic details such as name of the investor, address,bank details and the
contact details needs to be provided.
General Facts :
Price Band: Price band indicates the different price levels within a
given range in which the investor can enter his bid.
Floor Price: It is the lower end of the price band.
Cap Price: It is the upper end of the price band.
Offer Document:
offer document means prospectus in case of a public issue, which is file with
Registrar of companies (ROC) and stock exchanges. The offer document contains
all relevant details pertaining to the issue upon which the investors can make
his/her decision.
Draft Offer Document:
means the offer document in the draft stage, which is filed with SEBI for its
observations. The draft offer documents are filed with SEBI atelast 21 days
prior to filing the offer document with ROC and Exchange.
SEBI ROLE:
Any company making a public issue or a listed company making a rights issue of
value more then Rs 50 Lakhs is required to file a draft offer document with
SEBI for its observations. The company can proceed further only after receiving
observations from SEBI. The validity of SEBI observation is 3 months only i.e
the company has to open its issue within 3 months period.
Cut off Price:
In case of public issues the actual discovered price/ issue price can be
anything between a given price band. The discovered issue price is called the
cut off price.
Basis of Allotment:
The allotment in case of QIB category is on a discretionary basis while in case
of Retail and Non-QIB(HNI) category the allotment is on proportionate basis.
Is it compulsory to have a demat account?
As per the regulation any public issue of size in excess of Rs 10 crore are to
be made compulsory in demat mode.
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