|
IPOs (Initial
Public Offerings)
What is an IPO?
An IPO is when a
company which is
presently not listed
at any stock
exchange makes
either a fresh issue
of shares or makes
an offer for sale of
its existing shares
or both for the
first time to the
public. Through a
public offering, the
issuer makes an
offer for new
investors to enter
its shareholding
family.
The shares are made
available to the
investors at the
price determined by
the promoters of the
company in
consultation with
its investment
bankers.
The successful
completion of an IPO
leads to the listing
and trading of the
company’s shares at
the designated stock
exchanges.
The past 4 years
have seen an active
market for IPOs.
Though the number of
IPOs have been
small, the amounts
being raised are
increasing.
|
IPOs |
|
YEAR |
NO.OF
IPOs |
AMOUNT
(Rs.crore) |
|
2003-04 |
19 |
3191.10 |
|
2004-05 |
23 |
14662.32 |
|
2005-06 |
76 |
10797.88 |
|
2006-07 |
76 |
23706.16 |
Why does a
company make an IPO?
Going public
provides an
opportunity to the
companies to raise
cash for setting up
a project or for
diversification/expansion
or sometimes for
working capital or
even to retire debt
or for potential
acquisitions. This
is called fresh
issue of capital
where the proceeds
of the issue go to
the company.
Companies also go
public to provide a
route for some of
the existing
shareholders
including venture
capitalists to exit
fully or partially
from the company’s
shareholding or for
promoters to
partially dilute
their holding. This
is called an offer
for sale where the
proceeds of the
issue go to the
selling shareholders
and not to the
company.
Given below is the
table of moneys
raised through issue
of fresh capital and
through offers for
sale in IPOs.
|
YEAR |
FRESH CAPITAL |
OFFERS FOR
SALE |
TOTAL |
|
NO.OF
IPOs |
AMOUNT
(Rs.crore) |
NO.OF
IPOs |
AMOUNT
(Rs.crore) |
NO.OF
IPOs |
AMOUNT
(Rs.crore) |
|
2003-04 |
16 |
1813.42 |
5 |
1377.68 |
19 |
3191.10 |
|
2004-05 |
21 |
8099.59 |
9 |
6562.73 |
23 |
14662.32 |
|
2005-06 |
76 |
9130.21 |
11 |
1667.67 |
76 |
10797.88 |
|
2006-07 |
74 |
22745.44 |
12 |
960.72 |
76 |
23706.16 |
Listing offers
several benefits.
For one, it
increases the
company’s ability to
raise debt at finer
rates. The company
also gets a
continuing window
for raising more
capital, both from
the domestic and
overseas equity
markets.
Acquisitions also
become simpler as
instead of cash
payouts, companies
can use shares as a
currency.
Listing also lends
liquidity to the
stock, which is very
critical for the
success of employee
stock ownership
plans, which help to
attract top talent.
Of course, listing
carries a
considerable degree
of prestige for the
company. |
