INITIAL PUBLIC OFFERING (IPO) (Syllabus: GS Paper 3 – Economy)

News-CRUX-10     5th June 2024        
Samadhaan

Context: India, which has emerged as the second-largest PO market on the world league cable, has raised $4 billion so far this year.

Initial Public Offering (IPO)

  • About: An IPO or initial public offering is the process by which a privately held company, or a company owned by the government such as LIC, raises funds by offering shares to the public or to new investors. 
  • Following the IPO, the company is listed on the stock exchange.
  • Purpose: IPOs are generally used by new and medium-sized firms that are looking for funds to grow and expand their business.
  • Categories of IPO Investors:

o Qualified Institutional Buyers (QIBs): It is a category of investors that includes foreign portfolio investors (FPIs), mutual funds, commercial banks, insurance companies, pension funds, etc.

o Retail Investors: All individuals who invest up to Rs 2 lakh in an issue are classified as retail investors.

ü Retail investors investing above Rs 2 lakh are classified as high net worth individuals.

o Age Requirement: You have to be 18 years of age to become an investor.

  • Companies Eligible for an IPO:

o SEBI Rules for IPOs: In order to protect investors, SEBI has laid down rules that require companies to meet certain criteria before they can go to the public to raise funds.

o Net Tangible Assets Requirement: The company must have net tangible assets of at least Rs 3 crore.

o Net Worth Requirement: The company must have a net worth of Rs 1 crore in each of the preceding three full years.

o Pre-tax Profit Requirement: The company must have a minimum average pre-tax profit of Rs 15 crore in at least three of the immediately preceding five years.

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