What is an IPO

An initial public offering (IPO), referred to simply as an "offering" or

"flotation", is when a company (called the issuer) issues common shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately owned companies looking to become publicly traded. In an IPO the issuer obtains the assistance of an underwriting firm, which helps determine what type of security to issue (common or preferred), best offering price and time to bring it to market.

Types of public issue

ISSUE TYPE OFFER PRICE DEMAND ADVANCE PAYMENT (at the time of application) RESERVATIONS Fixed Price Issues Price at which the securities are offered and would be allotted is made known in advance to the investors known only after the 100 % closure of the issue 50 % -applications below Rs. 1 lakh 50%- higher amount applications.

Book BuildingIssues

A 20 % price band is available on a real time 10 % - QIBs 50 % -QIBS, offered by the issuer basis on the BSE 100 % - other 35 % -small investors within which investors website during the categories of investors 15%-other investors. are allowed to bid and bidding period.. the final price is determined by the issuer only after closure of the bidding.

Listing of shares
Listing means admission of securities to dealings on a recognised stock

exchange. The securities may be of any public limited company, Central or State Government, quasi governmental and other financial institutions/corporations, municipalities, etc. The objectives of listing are mainly to : provide liquidity to securities; mobilize savings for economic development; protect interest of investors by ensuring full disclosures

Advantages of Listing of shares

Bolstering (boosting) and diversifying equity base cheaper access to capital Exposure, prestige and public image Attracting and retaining better management and employees Facilitating acquisitions Creating multiple financing opportunities: equity, convertible debt, cheaper

bank loans, etc. Increased liquidity for equity holder

Through underwriters
IPOs generally involve one or more investment banks known as "underwriters". The company offering its shares, called the "issuer", enters a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell these shares. A large IPO is usually underwritten by a "syndicate" of investment banks led by one or more major investment banks (lead underwriter). Upon selling the shares, the underwriters keep acommission based on a percentage of the value of the shares sold (called the gross spread). Usually, the lead underwriters, i.e. the underwriters selling the largest proportions of the IPO, take the highest commissionsup to 8% in some cases. Multinational IPOs may have many syndicates to deal with differing legal requirements in both the issuer's domestic market and other regions. For example, an issuer based in the E.U. may be represented by the main selling syndicate in its domestic market, Europe, in addition to separate syndicates or selling groups for US/Canada and for Asia. Usually, the lead underwriter in the main selling group is also the lead bank in the other selling groups. Because of the wide array of legal requirements and because it is an expensive process, IPOs typically involve one or more law firms with major practices in securities law, such as theMagic Circle firms of London and the white shoe firms of New York City.

 Issue price: A company that is planning an IPO appoints lead managers

to help it decide on an appropriate price at which the shares should be issued. There are two ways in which the price of an IPO can be determined: either the company, with the help of its lead managers, fixes a price or the price is arrived at through the process of book building
Stag profit: Stag profit is a stock market term used to describe a

situation before and immediately after a company's Initial public offering (or any new issue of shares). A stag is a party or individual who subscribes to the new issue expecting the price of the stock to rise immediately upon the start of trading. Thus, stag profit is the financial gain accumulated by the party or individual resulting from the value of the shares rising. For example, one might expect a certain I.T. company to do particularly well and purchase a large volume of their stock or shares before flotation on the stock market. Once the price of the shares has risen to a satisfactory level the person will choose to sell their shares and make a stag profit

Largest IPOs
Petrobras $70B in 2010 General Motors $23.1B in 2010 Agricultural Bank of China $22.1B in 2010 Industrial and Commercial Bank of China $21.9B in 2006 American International Assurance $20.5B in 2010 NTT DoCoMo $18.4B in 1998 Visa Inc. $17.9B in 2008 AT&T Wireless $10.6B in 2000 Rosneft $10.4B in 2006 Santander Brasil $8.9B in 2009