IPO PROCESS


 Hello All,

In this article, I will tell you how IPO  procedure Steps.

Steps of IPO Process:

An Initial Public Offering (IPO) is the first time that the shares of a private company are offered to the public. Once a private company is convinced about the need to become a public company, it kick-starts the process of IPO. It is a significant stage in the growth of a business. One should note that the entire IPO process is regulated by the ‘Securities and Exchange Board of India (SEBI)’.  This is to check the likelihood of a scam and protect investor interest.

Below are the steps a company must undertake to go public via an IPO process:

Going through with the IPO

Step 1: Hire an investment bank

The first step in the IPO process is for the issuing company to choose an investment bank to advise the company on its IPO and to provide underwriting services. The investment bank is selected according to the following criteria:

  • Reputation
  • The quality of research
  • Industry expertise
  • Distribution
  • Prior relationship with the investment bank

 Step 2: Register with SEC

The Company and the under-writers together file the registration statement which comprises of every fiscal data and business plans of the company. It will also have to declare how the Company is going to utilize the funds it will raise from the IPO and about the securities of public investment. 
If the registration statement has compliance to the stringent guidelines set by the SEC, which ensures that the company has disclosed every detail a potential investor should know, then it gets a green signal. Else it is sent back with comments. The company should then work on the comments and file for registration again.

 

 

Step 3: Draft the Red Herring document

An initial prospectus which contains the probable price estimate per share and other details regarding the IPO is shared with the people who are involved with the IPO. It is called a red herring document because the first page of the prospectus contains a warning which states that this is not a final prospectus. This phase tests waters for the IPO among the potential investors. 

Step 4: Go on road show

Before the IPO goes public, this phase happens over an action-packed two week. The executives of the Company travel around the country marketing the upcoming IPO to the potential investors, mostly QIBs. The agenda of the marketing includes presentation of facts and figures, which will drum up the most positive interest.

5: IPO is priced

Based on whether company wants to float a fixed price IPO or Book Building Issue, the price or price band is fixed. A fixed price IPO will have a fixed price in the order document, and the book building issue will have a price band within which an investor can bid. Number of shares that will be sold is decided. The Company should also decide the stock exchange where it be going to list their shares. After the IPO is approved by the SEC, the effective date is decided.  On the day before the effective date, the issuing company and the underwriter decide the offer price (i.e. the price at which the shares will be sold by the issuing company) and the precise number of shares to be sold. Deciding the offer price is important because it is the price at which the issuing company raises capital for itself. However, after the stock starts trading on the secondary market, money raised through the sale of shares the company, not the underwriter. 

The Company asks the SEC to announce the registration statement effectual so that purchases can be made. 

Step 6: Available to public

On a planned date, the prospectus and application forms are made available to public online and offline. People can get a form from any designated banks or broker firms. Once they fill in the details, they can submit them with a cheque. Or they can submit it online as well. SEBI has fixed the period of availability of an IPO to public, which is usually 5 working days.

Step 7: Going through with the IPO

After the IPO price is finalized, the stakeholders and under-writers work together to decide how many shares will every investor receive. Investors will usually get full securities unless it is oversubscribed. The shares are credited to their demat account. The refund is given if the shares are oversubscribed. Once the securities are allotted, the stock market will start trading the Company’s IPO.

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