Published on Sep 16, 2019
Initial Public Offer (IPO) refers to the offering of stock in a company to the public through a public market. When a company sells stock to the public for the first time it is called an initial public offer.
Stock is sold in the primary market at an offer price determined by the IPO team. Following the financing, the shares are traded in the secondary market. Selling stock in the primary market is assisted with investment bankers or underwriters that help promote the potential offering. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains.
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company. A corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement.
For the majority of firms going public, they need additional capital to execute long-range business models, increase brand name and utilize funds for possible acquisitions. This is typical of today’s Internet and technology offerings. By converting to corporate status, a company can always dip back into the market and offer additional shares through a secondary offering.
The objective is to study the IPOs of the companies in infrastructure sector such as DLF Limited, Housing Development & Infrastructure Limited and Omaxe Limited on the basis of issue, allotment and performance.
· The study the concept of Initial Public Offer (IPO).
· To study the procedure for IPOs.
· To study the IPOs of in infrastructure sector the DLF Limited, Housing Development and Infrastructure Limited and Omaxe Limited on the basis of issue, allotment and performance.
Selection of the topic – The topic Comparison of Initial Public Offers in infrastructure sector is selected as the infrastructure sector is in boom and the stock market is performing well. Also I was allotted the responsibility of IPOs in the organization I selected this topic. These companies were selected as they came up with an IPO during the tenure of the summer project.
Data Source – The source of data is secondary. The secondary data used herein is obtained from websites.
Preparatory Work Involved by the Company for an IPO
A company that is thinking about going public should start preparing detailed financial results on a regular basis, and developing a business plan if they do not already have one, as much as two years in advance of the desired IPO. Soon thereafter, it needs to put its IPO team together, consisting of the lead investment bank, an accountant, and a law firm. The IPO process officially begins with what is typically called an "all-hands" meeting. At this meeting, which usually takes place six to eight weeks before a company officially registers with the Securities and Exchange Commission, all the members of the IPO team plan a timetable for going public and assign certain duties to each member.
The most important and time-consuming task facing the IPO team is the development of the prospectus, a business document that basically serves as a brochure for the company. The prospectus includes all financial data for a company for the past five years, information on the management team, and a description of a company's target market, competitors, and growth strategy.
The next step in the IPO process is known as the road show. The road show usually lasts a week or two, with company management meeting with prospective investors to present their business plan. Once the road show ends and the final prospectus is printed and distributed to investors, company management meets with their investment bank to choose the final offering price and size. Investment banks try to suggest an appropriate price based on expected demand for the deal and other market conditions. The pricing of 15 an IPO is a balancing act. Investment firms have two sets of clients - the company going public, which wants to raise as much money as possible, and the investors buying the shares, who expect to see some immediate appreciation in their investment. If interest in an IPO is weak, the number of shares in the offering or their price may be cut from the expected ranges. If it is strong, the offering price or size can also be raised from initial expectations. A company can also postpone an offering because of insufficient demand.
Once the offering price has been agreed on, and at least two days after potential investors receive the final prospectus, an IPO is declared effective. This is usually done after a market closes, with trading in the new stock starting the next day as the lead underwriter works to confirm its buy orders. The lead underwriter is primarily responsible for ensuring smooth trading in a company's stock during those first few crucial days. This could mean supporting the price of a newly issued stock by buying shares in the market, or by selling them short
Difference between Book Building Issue and Fixed Price Issue
· In Book Building securities are offered at prices above or equal to the floor prices, whereas securities are offered at a fixed price in case of a public issue.
· In case of Book Building, the demand can be known everyday as the book is built. But in case of the public issue the demand is known at the close of the issue.
· Price at which securities will be allotted is not known in case of offer of shares through book building while in case of offer of shares through normal public issue, price is known in advance to investor.