Explain Steps in an IPO Process?

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An Initial Public Offering (IPO) is the first time that the shares of a private company are offered to the public. It is a significant stage in the growth of a business. In an IPO, the Issuer obtains the assistance of an underwriting firm to determine the type of security to be issued, the best offering price, the amount of shares to be issued and the time to bring it to market.

Selection of Investment Bank

The first thing that company management must do when they have taken a unanimous decision to go public is to find an investment bank or a conglomerate of investment banks that will act as underwriters on behalf of the company. Underwriter's buy the shares of the company and resell them to the general public. The company must also hire lawyers that can guide them through the legal maze that an IPO setup can be.

It must be ready with detailed financial records for intensive fiscal health scrutiny that SEBI would perform. Some companies may also opt to directly sell their shares through the stock market, but most prefer going through the underwriters.

Following are the high level steps in an IPO Process in India:

  1. Preparation of Registration Statement
  2. Getting the Draft Red Herring Prospectus (DRHP) Prepared
  3. The Roadshow (Marketing the IPO)
  4. Get approval from SEBI and Stock Exchanges
  5. Deciding On Issue Size and Issue Price
  6. IPO Opens for Public for bidding
  7. Issue Price Determination & Share Allotment
  8. Listing & Unblocking of funds

Below is the detail of each of the steps:

Step 1: Preparation of Registration Statement

To begin an IPO process, the company involved must submit a registration statement to the SEBI, which includes a detailed report of its fiscal health and business plans. SEBI scrutinizes this report and does its own background check of the company. It must also see that registration statement fulfils all the mandatory requirements and satisfies all rules and regulations.

Step 2: Getting the Prospectus Ready

While awaiting the approval, the company, with assistance from the underwriters, must create a preliminary 'Red Herring' prospectus. It includes detailed financial records, future plans and the specification of expected share price range. This prospectus is meant for prospective investors who would be interested in buying the stock. It also has a legal warning about the IPO pending SEBI approval.

Step 3: The Roadshow

Once the prospectus is ready, underwriters and company officials go on countrywide 'roadshows', visiting the major trade hubs and promote the company's IPO among select few private buyers (Usually corporates or HNIs).

They are fed with detailed information regarding company's future plans and growth potential. They get a feel of investor response through these tours and try to woo big investors.

Step 4: SEBI Approval & Go ahead

Once SEBI is satisfied with the registration statement, it declares the statement to be effective, giving a go ahead for the IPO to happen and a date to be fixed for the same. Sometimes it asks for amendments to be made before giving its approval. The prospectus cannot be given to the public without the amendments suggested by SEBI. The company needs to select a stock exchange where it intends to sell its shares and get listed.

Step 5: Deciding On Price Band & Share Number

After the SEBI approval, the company, with assistance from the underwriters decides on the price band of the shares and also decides the number of shares to be sold.

There are two types of issues: Fixed Price IPO and Book Building IPO

  • Fixed Price IPO – In a Fixed price issue – the company decides the price of the share issue and the number of shares being sold. Ex: ABC Ltd public issue of 10 lakh shares of face value ₹10/- each at a premium of ₹55/- each is available to the public thereby generating ₹5 Crores.
  • Book Building IPO – A Book building issue helps the company discover the price of the issue. The company decides a price band and it gives the investor an option to choose the price at which he/she wishes to bid for the company shares. Ex: ABC Ltd issue of 10 lakh shares of face value ₹10/- each at a price band of ₹60 to ₹70 is available to the public thereby generating upto ₹7 Crores. Here the amount generated through the issue would depend on the highest amount bid by most investors.

Step 6: Available to Public for Purchase

On the dates mentioned in the prospectus, the shares are available to public. Investors can fill out the IPO form and specify the price at which they wish to make the purchase and submit the application.

Step 7: Issue Price Determination & Share Allotment

Once the subscription period is over, members of the underwriting banks, share issuing company etc. will meet and determine the price at which shares are to be allotted to the prospective investors. The price would be directly determined by the demand and the bid price quoted by investors. Once the price is finalized, shares are allotted to investors based on the bid amounts and the shares available.

Note: In case of oversubscribed issues, shares are not allotted to all applicants.

Step 8: Listing & Unblocking of funds

The last step is the listing in the Stock Exchanges. Investors who have applied through ASBA & to whom shares were allotted would get the shares credited to their DEMAT accounts & their funds getting debited from their bank account or else for those investors to whom the shares were not allotted, funds would get unblocked in their bank account.

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More IPO Basics Questions...

  1. What is an IPO?
  2. Who decides the Price Band?
  3. Who decides the date of the issue?
  4. What is the role of registrar of an IPO?
  5. What is the role of Lead Managers in an IPO?
  6. What is Follow on public offering or FPO?
  7. What is primary & secondary market?
  8. What is the life cycle of an IPO prospectus?
  9. What is the life cycle of an IPO?
  10. What is the difference between Book Building Issue and Fixed Price Issue?
  11. What is the difference between Floor Price and Cut-Off Price for a Book Building Issue?
  12. What is the difference between RII, NII, QIB and Anchor Investor?
  13. As a retail investor I want to apply more then Rs 1 lakhs in an IPO. Can I invest in Non-institutional bidder's category? If yes then what are advantages or disadvantages of this?
  14. Is it mandatory to have PAN number to apply in an IPO?
  15. How many days an IPO remain open for public?
  16. What information should I keep after I submit the IPO application form?
  17. What is 'Market Lot Size' and 'Minimum Order Quantity' for an IPO?
  18. Does applying in an IPO guarantee me to get certain amount of shares?
  19. Investing in IPO's is much less riskier then directly investing in stock market. Is that true?
  20. Can I apply in an IPO through multiple applications on same name?
  21. How many days is the issue open?
  22. What is Basis of Allocation or Basis of Allotment?
  23. Can I revise or cancel my IPO application?
  24. Where do I get an IPO application form?
  25. Can a minor apply in IPO?
  26. Tips to choose right IPO for investment.
  27. Can a person apply in the non-institutional bidder category of an IPO?
  28. What is the minimum & maximum investment one could do in HNI category?
  29. Can I place a buy order during after hour session before the listing date of an IPO?
  30. How one can apply in IPO's online?
  31. How is IPO listing price decided?
  32. What is right issue or RI?
  33. Why does the retail Individual Investor RII bidding status is not getting updated every hour?
  34. What are the risk factors involve in applying in an IPO?
  35. Can both the joint demat account holders individually apply for an IPO?
  36. Why does maximum subscription Amount for Retail Investor is limited to Rs 2 lakh?
  37. What are the determining factors for the selection of an ipo to invest?
  38. How much tax I have to pay on returns (capital gains) for a particular IPO?
  39. What is the procedure to withdraw from an IPO?
  40. How a Company gets listed on stock exchange without an IPO?
  41. For how many days an issue is required to be kept open?
  42. Can minors apply to an ipo ?
  43. What is over the counter trading ?
  44. Can we sell the stock allotted to us in a ipo before the stock gets listed ?
  45. How to fill IPO online ?
  46. What will be the category of 'private family trust' for applying in IPO ?
  47. What will be the category of 'private family trust' for applying in IPO ? Retail Bidder or Non-Institutional Bidder ?
  48. Can private limited company eligible to subscribe in non institutional category?
  49. What do you mean by pre IPO placement? Is it worth to buy any script at the time of pre IPO placement and how will it benefit the customers ?
  50. Who can apply for QIBs in IPO? WHAT is the rules and regulatin for QIBs ?
  51. How many days issue takes to list in the market ?
  52. What is call option and put option?
  53. What is the listing of ipo and how the listing done ?
  54. How many days does it take for a cheque to be cleared for an application of an IPO?
  55. How cut off price of IPO decided?
  56. What is meaning of BID QUANTITY & BID PRICE ?
  57. What is the full form of IPO ?
  58. What do you mean by IPO funding ?
  59. What is the role of 'Syndicate Members' in IPO Processing?
  60. What are the timelines for Book Building IPOs in India?
  61. When maximum number of days for which IPO bid should remain open is 7 (and minimum is 3), why companies go for less than 7 days bidding (i.e. 3, 4 days generally)?
  62. How to apply more than one application in an IPO?
  63. How many IPO applications can be made from one bank account using ASBA?
  64. What are different ways of filing IPO application?
  65. How many IPO applications can submit through online net banking from one bank account?
  66. Can I apply in an IPO from my current bank account?
  67. Can one apply an IPO from sweep in/out saving bank account?
  68. Can I apply IPO in the name of family members & friends from my saving bank account?
  69. Can I apply more than one IPO application in my name from different saving bank accounts in the same bank or different banks?
  70. What fields make an IPO application unique?
  71. If I have joint DP account whom I should consider for applicant in an IPO application form?
  72. Can I apply an IPO application in the name of Minor or HUF?
  73. How many lots in an IPO should I apply to get maximum allocation in retail category?
  74. Does changing the broker, bank account or applying 1st-day 1st-hour change my chance for IPO allotment?
  75. When should I expect allotment of IPO shares?
  76. When should I expect credit of IPO Shares in my Demat Account?
  77. When should I expect release of funds blocked for IPO in my bank?
  78. When should I expect listing of IPO shares?
  79. Till what time I can apply in an IPO on last day of an IPO?
  80. Should I submit three bids of one lot each at three different bid prices in one IPO application?
  81. If there is a discount to retail investors in an IPO, at what price should I subscribe?
  82. I have not marked cut-off but has given bid price at upper band in an IPO application. Does it make any difference?
  83. Why should I bid at cut-off in a book building IPO?
  84. I applied in an IPO whose price band is now reduced. I have already applied in original band & amount stands blocked already. What should I do?
  85. Where can I find the subscription figure of an IPO?
  86. How IPO shares price is discovered in early price discovery session?
  87. How one can apply in IPO's offline?
  88. How i can apply for an IPO online while my broker is not offering IPO facility but i have a demat account.
  89. Is it possible for individual to apply for both retail (below 2 lakh) and HNI (above 2 lakhs) for a IPO?
  90. Is there any eligibility criteria for NII or just minimum investment of Rs 2 lakh is required?
  91. Can I apply for an IPO for my friend’s PAN details in my Demat account?
  92. Is there different application form for NII and retail investor?
  93. If an individual wants to apply in NII quota the procedure is same or different while applying in physical mode and online mode?
  94. Is there any circuits at the time of IPO listing?
  95. How to sell IPO shares on listing day during special pre-open time between 9:00AM to 9:45 AM?
  96. Can we apply for an IPO online on Sunday?
  97. How to sell IPO?
  98. I want to invest for short time so please let me know which IPO will give positive gain?
  99. How to find the old IPO offer document?
  100. I want updates on every upcoming IPO? Where can I get it?
  101. Is there any benefit or disadvantage of applying for more than one lot in an IPO ?
  102. Where can we get the listing date of an IPO?
  103. Can IPO application be made through FD in the bank account?
  104. Can I apply for above 2 lakh in an IPO as a retailer?
  105. How much returns can expect from an IPO?
  106. Can I apply for sme IPO through online banking?
  107. I am an individual and want to invest in IPO what category should I choose?
  108. What does 'DP name' means in an IPO online form?
  109. How to get my lien amount back after IPO?
  110. I would like to invest in an IPO? I am doing it for first time? Could you please guide me in which IPO should I invest ?
  111. How to get information on number of applications of an IPO?
  112. What is the minimum reserve portion for retail category in an IPO. Sometimes i find 35% but sometimes even i find 10%. please clarify.
  113. Can I apply for an ipo through ASBA facility of my bank without having trading account?
  114. What is the difference between IPO issue price and listing price?
  115. How many days are required to launch an IPO after getting SEBI's nod?
  116. How can I know the exact date of an IPO?
  117. What is the difference between Upper Price and Cut-Off Price for a Book Building Issue?
  118. I have marked cut-off but has taken bid price at lower band in the IPO application. Does it make any difference?
  119. Where can I get the list of all Registered Main Syndicate member list with contact number for an IPO?
  120. Can I make payment for an IPO from my father's or someone else's account by registering through ASBA?
  121. I have mistakenly filled incorrect DP Id in my application. The IPO is closed now. What should I do?
  122. Can I apply for an IPO by taking a loan?
  123. How do I apply in an IPO?
  124. What is the difference between Public Issue, Right Issue, Bonus Issue and Private Placement?
  125. Explain Steps in an IPO Process?
  126. Can I cancel my Bid for online IPO order?
  127. What is the difference between Fixed Price Issue and Book Built Issue?
  128. What are the different types of investor categories?
  129. Will I get the acknowledgement of receipt for applications submitted through ASBA from the SCSB?
  130. Can one person apply an IPO in the retail category as well as NII category at the same time?
  131. Can a retail investor (meaning not super rich) apply under NII quota, or is there a certain eligibility?
  132. Can a person apply in the NII and retail investor category in two separate bids?
  133. What are the pros and cons of applying in NII quota? Are there more chances of allotment?
  134. How different is QIB from anchor investor?
  135. Are HNIs allotted from the NII reserved allocation quota of 15%?
  136. When applying in an IPO, do we apply in lots or can apply as per the money that we want to invest?
  137. I and my wife have a joint demat account. Can we apply for an IPO using the same demat account with a joint bank account or from different Bank accounts?
  138. How to select HNI as a category while applying online?
  139. Is it possible to Apply IPO using BHIM application?
  140. What is the time for After Market Orders (AMO) in Sharekhan and how to place it?

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