Initial Public Offer (IPO) refers to sale of shares of a company to the General Public for the 1st time. And if this offer to the public is not for the 1st time, it is referred to as Follow on Public Offer (FPO).
There may be 3 reasons for bringing out an IPO:-
Following an IPO, a Company has to get its shares listed on at least one of the Stock Exchanges. Once it gets listed, and permission to trade these shares is granted to the new shareholders to whom the shares have been allotted in the IPO, the profit or loss accrues to the Shareholders. The future profits also made by the company are distributed amongst the shareholders as Dividends.
IPO’s can be made through Fixed Price Method, Book building Process or a combination of both.
In case there is oversubscription of an IPO (i.e. if Applications are received for more number of shares than the company is authorised to allot), the allocations would be done proportionately amongst all the successful bidders (i.e. those bidders who did bidding at the price determined by the Company or at the price higher than that). Retail Investors also have the option of bidding at the Cut-Off Price i.e. they are willing to purchase shares at any price within the price band, determined by the Book Building Process.
An Investor can also change or revise the Quantity or Price in the bid using the form for Changing the Bid available in the application form. However, the entire process of revising the bid shall be completed within the date of closure of the issue.
Investors are broadly classified under following categories‐:
1. Retail individual Investor (RIIs)
2. Non‐Institutional Investors (NIIs)
3. Qualified Institutional Buyers (QIBs)
In case an issuer company makes an issue of 100% of the net offer to public through
100% book building process—
(a) Minimum 35% shall be offered to Retail Individual Investors
(b) Minimum 15% shall be offered to Non-Institutional Investors i.e. investors other than retail Individual Investors and Qualified Institutional Buyers;
(c)Maximum 50% shall be offered to Qualified Institutional Buyers.
The Issuing Company may also make reservations for its Employees & for shareholders of Group Companies.
The Status of Bidding in a Book Building issue is available on the website of the Stock Exchange on which it will get listed and is summarised on the basis of Category and Shares Applied for on a consolidated basis.
After the price has been determined on the basis of bidding, the public advertisement containing, inter alia, the price as well as a table showing the number of securities and the amount payable by an investor, based on the price determined, is issued.