All you want to know about IPO Process
Raising funds through IPO is one of the much sought-after dreams of start-ups. Bringing an IPO does not only helps in raising finance but also garners much interest in the public about the company. IPO increases the market visibility of the Issuer and also gives an opportunity to its angel investors to reap handsome returns in the form of Offer for Sale. Having said that are you looking forward to going public for your successful start-up? If yes, the companies aspiring to bring an IPO need to follow the IPO process.
Let’s understand the IPO process:
Eligibility norms for Companies to issue IPO
SEBI has laid down certain conditions for companies to fulfill before considering launching their IPO. Follow this link to know the eligibility norms for IPO. IPO Eligibility norms
Hiring an underwriter/Investment Bank
Once the company finalizes its IPO, it has to hire an investment bank (Book Running Lead Manager, BRLM) as a foremost step to start the market-related compliances. An investment banker is selected based on their reputation, successful issues, and experience in handling the issue. SBI Capital, ICICI securities are some of them. Usually, there is more than one BRLM to distribute the risk where one of them
being Lead BRLM.
Investment bankers themselves or a third party (appointed by BRLM for a fee) can become the underwriters to the Issue. BRLMs are responsible to determine the most right timing, pricing, and valuation of the company. The investment banks study the financials of the company and sign an underwriting agreement with the company. The underwriters guarantee the sale of shares and undertake to subscribe up to a certain limit if the public fails to subscribe.
Filing of DRHP with SEBI
An Investment Banker and the Issuer have to file a Draft Red Herring Prospectus (DRHP) with the SEBI. The prospectus consists of information regarding the amount to be raised, nature of offer (fresh issue or an offer for sale or both), objects of the offer, financial information about the company, and other details like the company’s business, its future plans and competitors and other disclosures mandated by SEBI. After analyzing the DRHP, SEBI may address some questions or require more disclosures. Once the SEBI is satisfied with disclosures made, IPO gets the regulatory approval.
Filing of RHP
After the receipt of SEBI comments and addressing the same, the Issuer does some premarketing to catch investor interest and frenzy. The Issuer then files RHP prior to 3-5 days of launching the IPO. The RHP is the final offer document that contains all the information regarding the Issue. The price band generally is not disclosed in the RHP. The price band and the minimum bid lot for the offer are decided by the Issuer in consultation with the BRLM’s and is published in newspapers at least two working days prior to the opening date of the Issue.
Before the IPO is launched the Issuer is engaged in marketing the upcoming IPO to the potential investors majorly, QIBs. The key business and financial highlights of the company are presented and shared with business analysts and various fund managers. Online virtual roadshows, multimedia group presentations, and meetings are some ways of conducting the marketing activities for IPO.
Pricing of the IPO
An Issuer can launch either a fixed price IPO or Book building IPO. A fixed price IPO would have a fixed price while a book building issue has a price band. The investors can submit bids at the price band range specified. However, nowadays, the range of price band is very low being Rs 3-4 per share. Hence all the bids are usually at the higher price band. The issue is typically open for 3-5 working days. Once the bidding process is completed, the company determines the cut-off price at which the issue would be sold.
The Issue opens at the predetermined date. ASBA (Application Supported by Blocked Amount) is the most convenient way to apply in IPOs. SEBI has made ASBA mandatory for IPO bidding. While applying through ASBA, only that much funds applied for are blocked. The amount is deducted from the bank account only when the shares are allotted. During the period of funds blocked, the investor continues to earn interest.
Post Issue steps
The Issuer finalizes the price and the allotment is made to the investors based on the level of subscription. A lucky draw is done in the case of oversubscription. The allotment is done within 10 days of the last bidding date of the Issue. Refunds are processed for the investors in the case of non- allotment. SEBI has recently reduced the timeline for refunds of investor’s money to 4 days in case of non-receipt of minimum subscription.
The Issue then finally lists at the listing date provided in the RHP and starts trading in the stock exchange.