|
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.
2003-04 to 2007-08 saw an active market for IPOs. Though the number of IPOs was small, the amounts being raised were increasing. Due to a huge downturn in the economy and the secondary market, the amount mobilised in 2008-09 nosedived to a meager Rs. 2034 crore, through just 21 small IPOs. The year 2009-10 yet again witnessed a revival in the IPO market.
|
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
|
|
2007-08
|
84
|
41323.45
|
|
2008-09
|
21
|
2033.99
|
|
2009-10
|
39
|
24948.31
|
|
2010-11
(till 30 June 2010)
|
9
|
4303.59
|
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 monies
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
|
|
2007-08
|
82
|
38634.65
|
9
|
2688.81
|
84
|
41323.45
|
|
2008-09
|
21
|
1985.08
|
3
|
48.92
|
21
|
2033.99
|
|
2009-10
|
39
|
21832.45
|
11
|
3115.86
|
39
|
24948.31
|
|
2010-11
(till 30 June 2010)
|
8
|
2621.92
|
3
|
1681.67
|
9
|
4303.59
|
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. |
