IPO terms, IPO faq, IPO Terminology, frequently asked questions on IPO, Initial Public Offering faqs

- Learn more about Initial Public Offering - IPO.
- What are the different types of issues?
  
  Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public.
  
  Further public offering (FPO) is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document.
  
  Rights Issue (RI) is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue.
  
  Private Placement is an issue of shares or of convertible securities by a company to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue.
  
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  What is an Offer document?
  
  Offer document means Prospectus in case of a public issue or offer for sale and Letter of Offer in case of a rights issue which is filed Registrar of companies (ROC) and Stock Exchanges. An offer document covers all the relevant information to help an investor to make his/her investment decision.
  
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  What is a Draft Offer document?
  
  Draft Offer document means the offer document in draft stage. The draft offer documents are filed with SEBI, atleast 21 days prior to the filing of the Offer Document with ROC/SEs. SEBI may specifies changes, if any, in the draft Offer Document and the issuer or the Lead Merchant banker shall carry out such changes in the draft offer document before filing the Offer Document with ROC/SEs.
  
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  What is a Red Herring Prospectus?
  
  Red Herring Prospectus is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares are determined later.
  
  An RHP for an FPO can be filed with the RoC without the price band and the issuer, in such a case will notify the floor price or a price band by way of an advertisement one day prior to the opening of the issue. In the case of book-built issues, it is a process of price discovery and the price cannot be determined until the bidding process is completed.
  
  Hence, such details are not shown in the Red Herring prospectus filed with ROC in terms of the provisions of the Companies Act. Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with ROC is called a prospectus.
  
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  What is an Abridged Prospectus?
  
  Abridged Prospectus means the memorandum as prescribed in Form 2A under sub-section (3) of section 56 of the Companies Act, 1956. It contains all the salient features of a prospectus. It accompanies the application form of public issues.
  
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  What is a Letter of offer?
  
  Letter of offer means the offer document prepared by company for its rights issue and which is filed with the Stock Exchanges. The letter of offer contains all the disclosures as required in term of SEBI(DIP) guidelines and enable shareholder in making an informed decision.
  
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  What is an Abridged Letter of offer?
  
  Abridged Letter of offer means the abridged version of the letter of offer. Listed company is required to send the abridged letter of offer to each and every shareholder who is eligible for participating in the rights issue along with the application form. A company is also required to send detailed letter of offer upon request by any Shareholder.
  
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  What is a Placement Document?
  
  Placement Document means document prepared by Merchant Banker for the purpose of Qualified Institutions placement and contains all the relevant and material disclosures to enable QIBs to make an informed decision.
  
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  What does one mean by Lock-in?
  
  Lock-in indicates a freeze on the shares. SEBI (DIP) Guidelines have stipulated lock-in requirements on shares of promoters mainly to ensure that the promoters or main persons who are controlling the company, shall continue to hold some minimum percentage in the company after the public issue. The requirements are detailed in Chapter IV of DIP guidelines. There is lock-in on the shares held before IPO and also on shares acquired through preferential allotment route. However there is no lock- in on shares/securities allotted through QIP route.
  
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  How the word Promoter has been defined?
  
  Promoter has been defined as a person or persons who are in over-all control of the company, who are instrumental in the formulation of a plan or programme pursuant to which the securities are offered to the public and those named in the prospectus as promoters(s).
  
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  Who decides the price of an issue?
  
  The guidelines have been provided that the issuer in consultation with Merchant Banker shall decide the price. There is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The company and merchant banker are however required to give full disclosures of the parameters which they had considered while deciding the issue price
  
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  What are Fixed Price offers?
  
  An issuer company is allowed to freely price the issue. The basis of issue price is disclosed in the offer document where the issuer discloses in detail about the qualitative and quantitative factors justifying the issue price.
  
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  What does price discovery through book building process mean?
  
  Book Building means a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for the securities is assessed on the basis of the bids obtained for the quantum of securities offered for subscription by the issuer. This method provides an opportunity to the market to discover price for securities
  
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  Who is eligible for reservation and how much (QIBs, NIIs, etc.,)?
  
  In a book built issue allocation to Retail Individual Investors (RIIs), Non Institutional Investors (NIIs) and Qualified Institutional Buyers (QIBs) is in the ratio of 35:15: 50 respectively.
  
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  How is the Retail Investor defined as?
  
  Retail individual investor means an investor who applies or bids for securities of or for a value of not more than Rs.2,00,000. Any bid made in excess of this will be considered in the HNI category.
  
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  Is it compulsory for me to have a Demat Account?
  
  As per the requirement, all the public issues of size in excess of Rs.10 crore, are to made compulsorily in the demat more. Thus, if an investor chooses to apply for an issue that is being made in a compulsory demat mode, he has to have a demat account and has the responsibility to put the correct DP ID and Client ID details in the bid/application forms.
  
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  How many days is the issue open?
  
  Subscription list for public issues shall be kept open for at least 3 working days and not more than 10 working days. In case of Book built issues, the minimum and maximum period for which bidding will be open is 3 – 7 working days extendable by 3 days in case of a revision in the price band The public issue made by an infrastructure company, may be kept open for a maximum period of 21 working days. Rights issues shall be kept open for at least 30 days and not more than 60 days.
  
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  Can I change bid or revise my bid?
  
  Yes. The investor can change or revise the quantity or price in the bid using the form for changing/revising the bid that is available along with the application form. However, the entire process of changing of revising the bids shall be completed within the date of closure of the issue.
  
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  Can I know the number of shares that would be allotted to me?
  
  In case of fixed price issues, the investor is intimated about the CAN/Refund order within 30 days of the closure of the issue. In case of book built issues, the basis of allotment is finalized by the Book Running lead Managers within 2 weeks from the date of closure of the issue. The registrar then ensures that the demat credit or refund as applicable is completed within 15 days of the closure of the issue. The listing on the stock exchanges is done within 7 days from the finalization of the issue.
  
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  How long will it take after the issue for the shares to get listed?
  
  The listing on the stock exchanges is done within 7 days from the finalization of the issue. Ideally, it would be around 3 weeks after the closure of the book built issue. In case of fixed price issue, it would be around 37 days after closure of the issue. In case of fixed it would be around 37 days after closure of the issue.
  
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