Monday, April 12, 2010

IPO - Different Types of Issues

In one of my previous articles we had seen about the various intermediaries who are involved in an IPO process. In this article let us take a look at the different types of issues that a promoter can do in order to raise capital for his business. They are:
1. Initial Public Offer
2. Offer for Sale
3. Follow on Offer
4. Rights Issue
5. Preferential Issue

Initial Public Offer (IPO)

When an unlisted company (A company that does not already have shares in the stock market) invites the public to buy its fresh issue of shares, which will then be listed on a stock exchange like NSE or BSE, the issue is called an IPO

Offer for Sale

When existing shareholders of an unlisted company invite the public to buy their shares which will then be listed on the stock exchange is called an Offer for Sale

Follow on Public Offer (FPO)

When an already listed company makes either a fresh issue of shares to the public or an offer for sale of existing shares to the public, it is referred to as a follow on public offer

Rights Issue

When a listed company proposes to issue fresh shares to its existing shareholders, it is called as a rights issue. Rights shares are normally offered to existing investors in a particular ratio corresponding to the number of shares they already hold with the company. For Example if a company issues a 1:2 rights issue @ Rs. 20/- per share, every investor who holds 2 shares of the company already can buy 1 new share at Rs. 20/- per share. This route is best suited for companies who would like to raise capital without diluting the % stake of existing shareholders.

Preferential Issue

A Preferential issue is when a listed company decides to issue shares to a select group of persons who are not current share holders of the company. This type of an issue will dilute the % holding of current shareholders and will require their permission. These issues are normally done when a company desires to issue a block of shares to a select/particular group of people. The issuing company has to comply with the provisions of the Companies Act and also all SEBI guidelines apart from getting approval from existing shareholders to go ahead with the issue.

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