3.10 How Will People Apply For An IPO?

IPO APPLICATION

There would be great news coverage about the impending big public offer. You can track it through specific journals like Dalal Street Investment Journal, newspapers or television and other media. Once you are convinced that you want to buy an IPO then there are two ways to apply. Though the paperwork has now been considerably reduced, applying for an IPO is a question mark for people who are not familiar with such investments. When a company fl oats a public issue or IPO, it prints forms for application to be filled by the investors. Public issues are open for a few days only. As per the law, any public issue should be kept open for a minimum of three days and a maximum of 21 days. For issues which are underwritten by financial institutions, the offer should be kept open for a similar period of time.

Here are two simple steps to start investing in the stock market and IPOs (primary market):

  • Online mode
  • Offline mode

Investing In IPOs Online:

This is done through the internet. In investing in IPOs you will need to open a demat-cum-trading account (to do this you will need a bank account and a PAN number). After opening your demat and trading accounts you will need to login through your trading account and select the IPO you wish to invest in. Transfer funds from your bank account to your trading account. Select the number of shares you want to apply for and the price at which you want to bid for (or use the cut-off option). If you get the shares’ allotment, they will be credited to your demat account. The IPO refund will be sent by cheque to your postal address or through ECS (electronic clearing service) to your bank account.

Investing In IPOs Offline:

In offline investment you require a demat account but not a trading account. A trading account is necessary when you decide to sell your allotted shares. You will have to visit your nearest broker and get the IPO application form, fill it up and give the filled form along with the cheque to the broker. You will be given an acknowledgment form. If you apply for more than Rs 50,000 worth of shares you will need to attach a photocopy of your PAN card.

Sequence Of Activities In Public Issue:

  1. Pre-Issue
    • Draft prospectus or offer document with SEBI.
    • File prospectus or offer document with ROC and stock exchange.
    • Acceptance of offer document
    • Offer document or prospectus or red herring prospectus (without price details).
    • Appointment of issue manager, underwriter, banks, registrars.
    • Method of pricing.
    • Distribution of forms (abridged prospectus).
    • Issue opening and closing.
  2. Post-Issue
    • Allotment.
    • Listing.
    • Trading.

Contribution of Promoters in IPO and Lock In period

Can the promoters issue total shares for the public?
Promoters shareholding in case of ‘offers for sale’ in unlisted companies should not be less than 20% of the post issue capital and in case of listed companies, should contribute to the extent of 20% of the proposed issue. The promoters should bring in the full amount of the promoters contribution including premium at least one day prior to the issue opening date (which shall be kept in an escrow account with a bank and should be released by the company along with the public issue proceeds).

The requirement of promoters contribution is not applicable in case of-

  1. Public issue of securities which has been listed on a stock exchange for at least 3 years and has a track record of dividend payment for at least 3 immediate preceding years.
  2. Companies where no identifiable promoter or promoter group exists.
  3. Rights issues :For any issue of capital to the public, the minimum promoter’s contribution is locked in for a period of 3 years. If the promoters contribution exceeds the required minimum contribution, such excess is locked in for a period of one year.
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DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION