WHAT

• Process by which a privately held company, or a company owned by the government Raises funds by offering shares to the public or to new investors
• Following the IPO, the company is listed on the stock exchange
• While coming with an IPO, the company has to file its offer document with the market regulator Securities and Exchange Board of India (Sebi)
• Offer document contains all relevant information about the company, its promoters, its projects, financial details, the object of raising the money, terms of the issue, etc

WHICH COMPANIES CAN COME OUT WITH AN IPO

Rules laid by  Sebi

Company

• Must have net tangible assets of at least Rs 3 crore, and net worth of Rs 1 crore in each of the preceding three full years
• Minimum average pre-tax profit of Rs 15 crore in at least three of the immediately preceding five years

WHERE DO THE PROCEEDS OF THE IPO GO

• If the issue raises fresh capital, the proceeds of the IPO go to the company, and can be utilised for future growth, expansion, debt reduction, etc
• If the issue involves offer for sale by promoters or existing investors, then the money goes to them and not to the company

WHO FIXES THE PRICE OF SECURITIES IN AN ISSUE

• Fixed by the issuer in consultation with the merchant banker
• They arrive at the total valuation of the company based on parameters such as assets, revenues, profits, and future cash flow projections, and the total value of the company is then divided by the post-offer shares outstanding to arrive at the price of each share.
• The regulator, Sebi, does not play a role in price fixation.

WHAT ARE THE ADVANTAGES OF LISTING A COMPANY

• Help a company raise capital, and diversify and broaden its shareholder base
• Provides an exit to existing investors of the company

WHO CAN INVEST IN AN IPO

• Qualified institutional buyers (QIBs) is a category of investors that includes foreign portfolio investors (FPIs), mutual funds, commercial banks, insurance companies, pension funds, etc
• All individuals who invest up to Rs 2 lakh in an issue are classified as retail investors
• Retail investors investing above Rs 2 lakh are classified as high net worth individuals
• A person must be 18 years of age to become an investor
• A brokerage account is needed to invest, and you have to be at least 18 years old to have one