Initial Public Offering

What is an IPO?

In financial terms, IPO or initial public offering is the first issuance of a company's shares to the general public. It is called as primary market. These shares are allowed to be transacted in the stock market where they can be bought and sold. It is called secondary market. In other words, An IPO is defined as an exercise when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. One thing to note is the shares allocated to the public do not constitute 100% of the company's shares. Only a certain percentage is allocated to the public. Usually the company owner or the board of directors will still hold the majority of the shares.

What is the need of IPO?

Organization offer IPO is to raise capital for their organization. The main reason is because companies plan to use the money gathered from IPO to further expand their business or to increase their business operations. Legal compliance and financial regulations that needs to be followed during IPO process.

Procedure for issue of IPO

Step :1(Assigning Underwriter)

Company needs to set up underwriters. Underwriters are nothing but investment banks. The purpose of underwriters is to assess the business. Underwriters are used to analyze operational and financial background of the company in order to determine the value of the company's shares to be sold to the public. The company will sign an agreement with the lead underwriter to sell shares on the market and the underwriters can proceed to sell these shares to any interested investors. For large corporations dealing with billions of dollars of shares, several large investment banks may act as underwriters. These banks are paid commissions for shares that they sell. The underwriters will also help the company deal with the legal and financial regulations imposed by the country.

Step :2 (Performing Legal procedures)

While launching IPO, they reserve some percentage shares for various categories such as Retail investors, Institutional Investors and Employees. As soon as the IPO is successfully launched, companies will need to submit their annual business earnings reports to the financial securities board since the company's shares will be listed in the stock market. It changes based on the country. In India, it is SEBI.

Step : 3(Grading)

IPO-grading is nothing but Grade which assigned by a Credit Rating Agency registered with Financial securities. Shortly, it is called as CRISIL . The grade represents a relative assessment of the fundamentals of that issue in relation to the other listed equity securities in India. These grading is generally assigned on a five-point benchmark

grade 1 : Poor fundamentals

grade 2 : Below-average fundamentals

grade 3 : Average fundamentals

grade 4 : Above-average fundamentals

grade 5 : Strong fundamentals