It can be said that IPO is one of the activities that help companies increase capital very quickly, along with increasing the company's reputation. However, not everyone knows about IPO well. Like what is an IPO? Why do IPOs need to be done? Conditions to implement an IPO?… In this article Virtual currency blog will share with you all knowledge related to this IPO.
What is an IPO?
IPO is an abbreviation of the phrase "Initial Public Offering", translated into Vietnamese meaning "Initial public release". This term is an umbrella term for a company to raise capital from the public for the first time by issuing stocks or it is the process of bringing stocks to the stock exchange for the first time. part.
The public concept here is understood that a sufficient number of investors with a sufficient value of offered securities. After its initial public offering, a joint stock company will become a public company (or a public joint stock company).
Purpose of IPO activities
The IPO process aims to serve effective business purposes such as:
- Affirm the resources and position of the business in front of the public, contributing to increasing the brand value and reputation of that business.
- Mobilizing large capital from investors in the community to serve the business and expand the business scale.
- The IPO process brings much more value than the issuance of corporate bonds.
- Equitization activities contribute to attracting potential human resources, building a competent staff for the enterprise.
- The IPO process can be seen as a stepping stone for mergers and acquisitions of potential small businesses.
Conditions for companies to conduct IPO
The prerequisites for companies to be able to conduct an IPO are quite high with specific standards including:
- The company must have a charter capital in the accounting books at the time of registration of IPO procedures is from VND 10 billion or more.
- The business activities in the latest year up to the time of registration of share issuance must be profitable.
- There must be specific plans and plans for the implementation of the IPO, the use of capital raised after the IPO, approved by the Board of Directors and committed to responsibilities.
- Enterprises with 100% State capital must change the type of company into a joint stock company.
- Infrastructure enterprises must have at least 1 investment project on infrastructure construction under a socio-economic development scheme of a ministry or branch or a project approved by a competent authority. finance, securities underwriting.
- Foreign-invested enterprises must register for transformation into a joint stock company, set up an IPO registration dossier by consulting a securities company.
Methods of offering IPO
Currently, there are several main types of IPO offerings:
- Dutch auction (Dutch auction or descending auction is a form of auction that in this auction, an item is offered at a very high price. The price is usually much higher than the value of the item, after which the price is gradually reduced until one of the bidders decides to accept the current price to make a decision to pay that price and become the winner.)
- Guarantee commitment
- Service with the highest responsibility
- Buy in bulk to resell
Because of complicated legal procedures and strict and complicated sanctions, every IPO usually requires a number of different companies to support, especially in the United States; There will usually be law firms, securities firms, and audit firms.
IPO shares are often sold to institutional investors on a large scale. It may also reserve a small percentage of the shares sold to important private clients arranged by the guarantee companies.
In stock markets in developed countries, issuers often loosen a provision that allows underwriters to arbitrarily increase the size of IPO shares up to 15% compared to the planned success. The plan was agreed to flexibly respond to market demand, called the Greenshoe Option. Greenshoe is an agreement that is unanimously enforced when the demand of the market increases so high, pushing up the price, the issuance of up to 15% more helps stabilize the price. Sometimes publishers disagree because they have no plans to use the money due to an increase in the amount of shares sold.
The risks of deploying IPO
Risks of implementing an IPO include:
- The Board of Directors and the company executives must be more responsible for the law, regulations, public reporting ...
- Increasing expenses such as accounting, issuing, intermediation, consulting, investment banking ...
- Try to be as transparent as possible, but it is difficult to control all information presented to the public and the implications of the value of the information.
- Increasing pressure to maintain the company's growth in the face of investment from the market and its shareholders.
- Share and gradually lose control of the company's operations due to always voting and shareholders' approval.
Thus, it can be seen that IPO is a quite complicated financial process which requires high but also brings great benefits in many aspects. The values it brings not only to businesses but also to investors in the market. It is the start of a business's process of publicizing its financial performance. Hopefully this information will help you understand a little more about the IPO to have an effective and appropriate financial plan.
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