The IPO process or initial public offering process involves the selling of new or existing securities. This is sold by a previously unlisted company, thereby offering them to the public platform for the very first time.
The IPO process is an imperative process for a much more efficient financial market. We often notice press releases in daily newspapers that a private company going public through the process of IPO. One example is eGeneration IPO, published in a renowned daily Daily Sun. eGeneration Ltd. is going to be the first IT company in Bangladesh going for IPO.
Before the process of IPO, the respective company recognizes itself as a private company. Here, the company involves a limited number of shareholders that are restricted to accredited investors.
These investors may be venture capitalists or angel investors. On the other hand, they can also be early investors like your family and friends or the founder.
The process of IPO is quite complex, and understanding it is indispensable. Given below are meticulous insights into how the IPO process in Bangladesh takes place.
A Brief Into The Process Of IPO
Here is a complete breakdown of the step-by-step process of IPO. In a nutshell, this process goes on for about six months to a year.
Step 1: Choosing An Bank For Investment
Firstly, to complete the IPO process, the issuing company must choose an investment bank. This is solely for guiding the company on its respective IPO, along with offering underwriting services.
Choosing this investment bank involves a wide range of factors. These include reputation, industry experience, research quality, distribution, and the previous relationship with the respective investment bank.
Step 2: Regulatory Filings
The next step of this process involves regulatory filings and due diligence. Underwriting is the complete process by which the investment bank adheres to the role of a broker.
In this circumstance, the underwriter acts as a broker among the investing public and the issuing company. This way, the underwriter accesses the issuing company to sell the previous set of shares.
You can choose from a wide range of underwriting arrangements. These include best efforts agreements, firm commitment, syndicate of underwriters, and all or none agreements.
Every underwriter is required to draft a set of documents starting from letter of intent, registration statement, underwriting agreement, and red herring document.
Step 3: Cost
On the approval of the IPO by the SEC, the accountable date is chosen. One day before this date, both parties, i.e., the underwriter and the issuing company, agree on an offer price.
This process is subject to the price wherein the shares are sold by the issuing company.
Step 4: Stabilisation
On bringing the issue to the market, the underwriter offers analyst consultations. Thus, the underwriter also offers after-market stabilization, thereby designing a market for the respective stock issued.
The underwriter also persons after-market stabilization on ordering imbalances by buying shares. The underwriter purchases these shares at the offered price or a lowered price.
Stabilization ventures are only carried out for a limited amount of time. Nonetheless, within this duration, the underwriter has the complete opportunity of influencing the price of the issue. This is because of prohibitions in opposition to price manipulation suspension.
Step 5: Transformation To The Marketplace Competition
The last stage of the IPO process involves the transformation of the industry competition. This process starts after about 25 days of the initial public offering.
To be precise, it starts after the SEC approves the quiet period. In addition, the process only takes place after this quiet period finishes.
Throughout this duration, investors transform from depending on different mandates, prospects, and disclosures to the market forces for all the details concerning their shares. After this duration lapses, underwriters offer an approximate estimate concerning the valuation and earnings of the issuing company.