Everything you need to know about IPO (Initial Public Offerings)

History of IPO (Initial Public Offerings)

The concept of an Initial Public Offering (IPO) dates back to ancient Rome when merchants sold shares in their companies to raise funds for expansion and growth. The modern IPO, as we know it today, has its origins in the 17th and 18th centuries, when European companies began issuing shares to the public to raise funds for large-scale projects such as canals and railroads.

In 1792, the Bank of the United States issued shares to the public to raise funds for its operations, which was the first modern IPO. The IPO became more common in the United States over the next century, with companies such as the New York Stock Exchange (NYSE) and the Standard Oil Company going public through IPOs.

The IPO became increasingly popular worldwide in the twentieth century, with companies in various industries going public to raise funds for expansion and growth. The IPO market has grown significantly over the last few decades, with several high-profile companies, including Google, Facebook, and Alibaba, going public through IPOs.

Today, the IPO is a critical tool for companies seeking to raise capital and gain access to a larger pool of investors. It is also an important investment opportunity for individuals and institutions because it allows them to participate in a company’s growth by purchasing stock in the company.

History of IPO in Nepal

The history of Initial Public Offerings (IPOs) in Nepal dates back to the late 1990s when the Nepal Stock Exchange (Nepse) was established and the country’s capital market was liberalized. The first IPO in Nepal took place in 1997 when the Nepal Industrial Development Corporation (NIDC) went public through an IPO.

The history of securities in Nepal begins with the floatation of shares in the market by Biratnagar Jute Mill and Nepal Bank Limited. These two companies went public in 1937.

The first trading on Nepse took place in 1994, with the listing of Nepal Industrial Development Corporation (NIDC) and Rashtriya Beema Company Ltd. Since then, the number of listed companies on Nepse has grown significantly, with more than of 250 companies listed as of 2023.

Since then, the IPO market in Nepal has grown significantly, with a number of companies from various sectors opting to go public in order to raise funds for expansion and growth.

However, the IPO market in Nepal has also faced challenges, with a number of companies experiencing delays or cancellations of their IPOs due to a lack of investor interest or regulatory issues. Despite these challenges, the IPO market in Nepal remains an important source of capital for companies looking to expand and grow.

What is IPO?

An Initial Public Offering (IPO) is the process by which a privately-held company becomes publicly traded, allowing the company to raise funds by selling shares to the public. The IPO process involves the company issuing new shares to the public and listing them on a stock exchange, such as the Nepal Stock Exchange (NEPSE).

The main purpose of an IPO is to raise funds for the company. Companies may go public through an IPO in order to fund expansion, pay off debts, or finance acquisitions. Going public also allows the company to access a larger pool of capital, as it can sell shares to a wide range of investors, including institutional investors and retail investors.

The IPO process typically involves the company hiring an investment bank or financial institution to manage the sale of the shares. This includes setting the price of the shares, marketing the IPO to potential investors, and handling the legal and regulatory aspects of the offering.

How are IPO prices decided?

The price of shares in an Initial Public Offering (IPO) is typically determined through a process known as “book building.” Book building is a process used by companies and investment banks to set the price of the shares being offered in an IPO.

During the book-building process, the company and the investment bank will set a price range for the shares. This price range is typically based on a number of factors, such as the company’s financial performance, market conditions, and the demand for the shares.

Investors can then place bids for the shares within the price range. These bids can be for any number of shares and can be at any price within the price range. The investment bank will then review the bids and determine the final price of the shares based on the demand for the shares.

The final price of the shares is typically announced on the day the IPO opens, and investors can then submit their applications for the IPO at this price. After the IPO closes, the shares will be traded on the stock exchange at the market price, which may be higher or lower than the IPO price.

Objectives of Issuing IPOs

Some of the major objectives of issuing an IPO are explained as under:

  1. Raise capital: The primary objective of issuing an Initial Public Offering (IPO) is to raise capital for the company. Companies may go public through an IPO in order to fund expansion, pay off debts, or finance acquisitions.
  2. Access a larger pool of capital: Going public allows a company to access a larger pool of capital, as it can sell shares to a wide range of investors, including institutional investors and retail investors. This can be particularly useful for companies that are seeking to raise large amounts of capital.
  3. Enhance brand visibility: Issuing an IPO can help to enhance the visibility and recognition of a company’s brand. Going public can increase media attention and create a buzz around the company, which can help to increase awareness of the company’s products and services.
  4. Attract top talent: Going public can help to attract top talent to a company, as employees may be attracted to the potential for stock options and the prestige of working for a publicly traded company.
  5. Enhance credibility: Issuing an IPO can enhance the credibility of a company, as it demonstrates a level of financial stability and transparency. This can be particularly useful for companies seeking to secure partnerships or investments.
  6. Facilitate mergers and acquisitions: Going public can make it easier for a company to engage in mergers and acquisitions, as it allows the company to use its stock as currency for acquisitions.
  7. Provide liquidity for shareholders: Going public can provide liquidity for shareholders, as it allows them to sell their shares on the stock exchange. This can be particularly useful for shareholders who want to cash out their investments.
  8. Enhance valuation: Issuing an IPO can enhance the valuation of a company, as it allows the company to access a larger pool of capital and potentially increase its share price.
  9. Improve access to financing: Going public can improve a company’s access to financing, as it allows the company to issue new shares and raise additional capital as needed.
  10. Increase market share: Issuing an IPO can help a company to increase its market share, as it allows the company to access a larger pool of capital and potentially expand its operations.

How to invest through an IPO in Nepal?

To invest in an Initial Public Offering (IPO) in Nepal, you will need to follow the following steps:

  1. Determine the IPO you wish to invest in: You can find information about upcoming IPOs in Nepal on the Nepal Stock Exchange (Nepse) website, as well as on the websites of financial institutions and brokerages that are participating in the IPO. These websites typically provide information about the company going public, the number of shares being offered, and the price per share.
  2. Choose a broker: In order to invest in an IPO, you will need to have an account with a brokerage firm that is registered on the Nepse. You can choose a brokerage firm based on factors such as fees, reputation, and convenience.
  3. Transfer funds to your brokerage account: Once you have chosen a brokerage firm, you will need to transfer funds to your account in order to participate in the IPO. You can typically transfer funds through a bank transfer, credit card, or e-wallet.
  4. Submit an application for the IPO: Once you have transferred funds to your brokerage account, you can submit an application for the IPO through the Mero Share platform. This will typically involve selecting the number of shares you wish to purchase and placing an order.
  5. Wait for the IPO to open and close: After you have placed an order for the IPO, you will need to wait for the IPO to open and close. The IPO will typically be open for a few days and will close once all the shares have been allocated.
  6. Receive your allotment of shares: If your application for the IPO is successful, you will receive your allotment of shares through your Demat account. You can then hold onto the shares or sell them as you see fit.

It is possible for someone to become wealthy by investing in Initial Public Offerings (IPOs). An IPO is a process by which a privately-held company becomes publicly traded, allowing the company to raise funds by selling shares to the public.

Investing in an IPO can be a risky endeavor, as the value of the shares can fluctuate based on market conditions and the performance of the company. However, if an IPO is successful and the company’s share price increases significantly, investors who purchased shares in the IPO can potentially realize significant returns on their investment.

It is important to note that investing in an IPO is not a guaranteed way to become wealthy, and there are no guarantees that an IPO will be successful. As such, it is important to carefully consider the risks and conduct your own due diligence before investing in an IPO.

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