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