The initial Public Offering (IPO) process enables a private company to raise funds by offering shares to the public for the first time. The transition from private to public ownership includes varied steps, regulatory approvals and legal requirements. To simplify it, the below-mentioned explanation of the India IPO process is given.
An IPO journey begins with the appointment of underwriters or investment banks. These experts offer,
The underwriting agreement gets signed to outline the terms of the IPO process in India. The agreement specifies the amount of capital to be raised, apart from the securities types, that is to be issued. While underwriters play the crucial role to facilitate the capital raising, it’s important to note that they do not bear all associated risks with the process.
A company, in collaboration with the underwriters, ensures the preparation of RHP and its submission to the Exchange Board of India (SEBI) along with the registration statement. An RHP is a preliminary document that details,
This document gets submitted to the Registrar of Companies (ROC) at least 3 days before the bidding's opening date. SEBI then reviews the application for compliance with guidelines and ensures proper transparency as well as investor protection.
If any feedback is received, the company is expected to address it before the final approval of SEBI.
After SEBI approves the RHP, the company can apply to be listed on the stock exchanges, like BSE or NSE, wherein the shares get traded. The application includes submitting necessary documents, including a prospectus and the registration statement. With the approval of the exchange, the company can proceed.
Generating interest, a company embarks on the roadshow that typically lasts for 2 weeks. The company executives and underwriters travel to some significant financial hubs to market IPOs to potential investors, particularly Qualified Institutional Buyers (QIBs).
The roadshows include multimedia presentations and Q&A sessions, thereby highlighting the company's growth potential. Some companies even offer pre-IPO process s in India or opportunities to major institutional investors.
An IPO can be priced via 2 methods:
On a designated date, the IPO becomes available for public bidding. The application forms can be obtained from banks or brokers. It can be submitted either offline or online. The IPO remains open for 5 working days, as SEBI mandates it. Therefore, The company must choose the optimal time for an IPO to maximize investor interest and avoid competition from the more significant IPOs.
After the closing of bidding, shares are allotted to the investors. If an IPO gets oversubscribed, the shares get distributed proportionately.
An India IPO process example is that if the shares have 5x demand, the application for 10 lakh shares may only get 2 lakh shares. Shares are credited to the investors' Demat accounts, and a refund is processed for the oversubscription. The allotment is then completed within 10 days of the closing date of the IPO.
After the shares get allotted, a company makes its debut on the stock exchange. It marks the start of public trading. Businesses must, therefore, adhere to SEBI guidelines to prevent insider trading or market manipulation.
Stable trading ensures retail and institutional investors' confidence.
The IPO process in India is a multi-step procedure that is designed to ensure fairness, transparency and compliance with the regulatory frameworks. By transitioning to public ownership, companies get access to capital for expansion, have a broader investor base, and gain increased credibility. However, it all needs meticulous planning, adherence to the SEBI norms and effective marketing. Only then will a company be able to launch a successful IPO.
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