THE RISE OF IPO

Going public is certainly a very important milestone in the life of a Company, as it happens only “once in life cycle” during corporate journey of the Company, Initial Public Offering or an IPO is a process through which a private firm makes its shares open to the public in an attempt to raise funds from investors. After bringing in an IPO, a private company becomes a publicly listed company.

Some of the advantages of going public and attaining listing include: -

Raising capital:-Companies require funds to finance its needs for expansion/growth, acquisitions & present business operations. IPO is one of the most important ways to access the capital market & raising required equity resources.

Enhancing Brand Image:- Listing a Company definitely enhances Company’s image & its profile. Listed stocks get attention of large pool of investors and other stakeholders/market participants which is helpful in creating and enhancing brand awareness. The listing compliances makes these Companies more trustworthy vis-a-vis its unlisted peers and depicts confidence of the management towards the outside community/ world.

Higher Valuations: - Companies that have their shares listed in the stock exchange have investors competing with one another to invest in them. As a result of this competition, the price of the shares is driven higher.

Various requirements for listing; -

Every Company which proposes to get its securities listed on Stock Exchange shall comply with SEBI (ICDR) Regulation, 2018 pursuant to which the Company shall obtain a due diligence certificate from the Merchant Banker which is to be submitted to SEBI where Merchant Banker shall ensure that adequate disclosure have been made to the investors and shall ensure due care and exercise independent professional judgement while exercising due diligence.

The company shall ensure that the offer document shall contain all material disclosures as specified in SEBI (IDR0 Regulation, 2018, in order to ensure that the investor takes an informed decision.

IPO IN 2021

IPO being a costly and time taking process, not much of the Company are able to come up with the IPO, however in the year 2021 there was seen a great boost in the IPO, every other Company let it be Nykaa, Paytm, Kalayan Jwellers have come up with IPO in the given year. The various reasons of spike in IPO are hereunder: -

1. Those who bore losses are bringing up their IPOs to cover up the debts and have a successful running capital. The ones who gained profits are bringing in their IPOs so that they can expand and make their businesses bigger catering to a large audience.
2. Because of the favorable policies by the Government more companies are going to bring in their IPOs. Also, post the lockdowns imposed by the pandemic, the government is now drafting favorable policies to support startups and companies from various sectors. This is done in an attempt to boost the country’s economy.
3. China’s crackdown on technology companies is prompting global investors to look for new opportunities across Asia, contributing to a record jump in initial public offerings from India to South Korea that shows few signs of slowing. Tech companies from those two countries and Southeast Asia have raised $8 billion from first-time share sales this year, already blowing past the previous annual peak.
4. The retail investor base has multiplied he onset of Covid-19 pandemic led to new investors being born. You are sitting at home, and one activity you can do, apart from your regular work, is to open a demat account and a trading account and start trading. Opening a demat account does now cost you much There is a new breed of investors in the market. The base of investable people has gone up.”
5. The number of demat accounts grew by 50 per cent since the lockdown was imposed in March 2020. What is also evident is that investors’ have not lost money in the IPOs, barring a few – a reason that explains investors confidence in the primary market, as most of the IPO’S are oversubscribed.

Various Challenges faced while coming up with IPO 

• Relevant costs related to the IPO and maintenance of Listed Company.
• Increase in recurring costs and compliance costs.
• Need to establish a structure Investor Relations
• Need for meeting specific standards regarding disclosure of information, including material facts that may affect the pricing of the action.
• Path of no return: close the capital of a public company is difficult and very costly.
• Less flexibility in decision making and performance pressure.
• Restrictions of negotiation with shareholders with privilege information.
• Vulnerability to hostile takeover attempts.

The above given challenges can be best handled under the guidance of experts, for which mostly companies avail the services of a Practicing Company Secretary, and law firms, as an advisor to the process of IPO, considering the importance of IPO in the corporate world and the change it can bring in the life of the Company we also from past few years are providing our expertise services in the given area which includes: -

• Overall compliance check of all applicable laws on Company, in order to ensure that the Company is eligible to come up with IPO
• Due Diligence
• Assisting with preparatory work to ensure that the company can meet the listing conditions
• Secretarial support during the entire process
• Advising on the listing process including the Listing Rules,
• Conversion of private to public company
• Certification of various forms to be files with ROC
• Pre-admission restructuring
• Vetting the secretarial portion in draft red herring prospectus
• Review of corporate governance policies of the Company
• Coordination for procuring the requisite approvals from the relevant ROC’s office
• Preparing the IPO announcement.

At the conclusion, it is to be stated that making an IPO is like conducting an Orchestra where all the instruments are required to run in sync with each other to get a desired result. The preparation of offer document though is a complex process. It makes Companies to realize its own potential as well as streamline their internal operations enabling and preparing them to face new investors who will consider investment in their companies.

This Article has been Compiled by Deepika Sharma (Principal Associate) 

You can direct your queries or comments to the author at deepika@factumlegal.com

Disclaimer-

The contents of this article should not be construed as legal opinion. This article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this article.