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| IPO FAQs |
What is IPO ?
An initial public offering, or IPO, is the first sale of stock by a company to the
public. A company can raise money by issuing either debt or equity. If the company
has never issued equity to the public, it's known as an IPO. An IPO is also sometimes
known as "going public." Technically, an IPO is the offering to sell but virtually
all IPOs result in all the stock offered being sold. IPOs are generally managed
by companies that specialize in handling IPOs and have experience in determining
what the likely IPO offering price should be. If the IPO manager determines that
the stock will not sell at an offering price that is acceptable to the company,
the application for an IPO is usually withdrawn until a better time. As soon as
all shares of an IPO have been sold, the stock is now tradable through stock exchanges
or specialists that trade in the stock and the stock price may go up or down
Basis of Allotment or Basis of Allocation is a document publishes by registrar of
an IPO to stock exchanges and IPO investors. This document provides information
about final price fixed for an IPO, issue subscription (bidding) information or
demand of an IPO and share allocation ratio. The IPO allotment information is categorized
by number of shares applied by an applicant. For each such category detail bidding
information is provided in this document including number of valid application received,
total number of share applied, ratio of the allotment and number of shares allocated
to the applicants. Ratio of the allotment is a critical field for IPO's oversubscribed
multiple times. This field tells how many applicants will receive single lot of
shares among a certain number of applicants. For example, ratio 1:8 means only one
out of eight applicant received one lot of shares; ratio value 'FIRM' means all
the applicants are eligible to receive certain amount of share.
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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
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ISSUE TYPE
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OFFER PRICE |
DEMAND |
PAYMENT |
RESERVATIONS |
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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 |
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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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More about Book Building
Book Building is essentially a process used by companies raising capital through
Public Offerings-either Initial Public Offers (IPOs) or Follow-on Public Offers
(FPOs) to aid price and demand discovery. It is a mechanism where, during the period
for which the book for the offer is open, the bids are collected from investors
at various prices, which are within the price band specified by the issuer. The
process is directed towards both the institutional as well as the retail investors.
The issue price is determined after the bid closure based on the demand generated
in the process.
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The Process:
• The Issuer who is planning an offer nominates lead merchant banker(s) as 'book
runners'.
• The Issuer specifies the number of securities to be issued and the price band
for the bids.
• The Issuer also appoints syndicate members with whom orders are to be placed by
the investors.
• The syndicate members input the orders into an 'electronic book'.This process is called 'bidding' and is similar to open auction.
• The book normally remains open for a period of 5 days.
• Bids have to be entered within the specified price band.
• Bids can be revised by the bidders before the book closes.
• On the close of the book building period, the book runners evaluate the bids on
the basis of the demand at various price levels.
• The book runners and the Issuer decide the final price at which the securities
shall be issued.
• Generally, the numbers of shares are fixed; the issue size gets frozen based on
the final price per share.
• Allocation of securities is made to the successful bidders. The rest get refund
orders.
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IPO Important Link
Committee Info. Public Issues: Draft Offer Documents filed with SEBI Public Issues:
Red Herring Documents filed with ROC Public Issues: Final Offer Documents filed
with ROC Rights Issue: Draft Letters of Offer filed with SEBI Rights Issue: Final
Letters of Offer filed with Stock Exchange
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Other Useful Links
http://www.sebi.gov.in/faq/pubissuefaq.pdf |
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