IPO Process

The IPO process involves various stages where the prescribed regulations must be followed closely. In this chapter, we will cover the IPO process in detail by explaining it step-by-step.

IPO Process (Step by Step Guide)

A company must follow the IPO procedures set by the exchange(s) on which the company wishes to list its shares after the IPO. The IPO procedure in India is as follows:

1. Merchant Banker (Lead Manager) Appointment

The company appoints a Merchant Banker (Lead Manager) to assist the issuer throughout the IPO process, starting from due diligence to post-listing support. They orchestrate the entire IPO process and coordinate with all parties involved in the IPO from start to end.

The Issuer Company and the merchant banker conduct due diligence and prepare the draft prospectus (DRHP) .

A merchant banker is a SEBI-registered financial institution that assists companies with financial solutions, such as raising funds, providing advisory services, acting as an underwriter, and more.

Note:

• A company can appoint one or more merchant bankers. For large IPOs, multiple lead managers are common.
• Most banks and large non-bank financial institutions are licensed as merchant bankers.

2. DRHP Approval from SEBI

The DRHP document is submitted to SEBI for review. This process takes between 2 to 4 months. SEBI reviews the information in the DRHP and issues the necessary approvals.

Note: SME IPOs don't require approval from SEBI. They must be approved by the stock exchange.

3. IPO Application to Exchanges

Merchant bankers then submit the IPO application and DRHP document to the stock exchanges for approval. The exchange gives the company in principle approval after verifying the IPO application.

4. Price determination

The issuer and the merchant bank determine the IPO pricing method: fixed-price issue or book-building issue.

In a fixed-price offering, the price at which shares are sold and allotted in the fixed-price offering is announced to investors prior to the IPO.

In Book Building Issue, the issuer decides a price range (e.g., Rs 80 to 90) or a 20% price range within which investors can bid for the shares. The final price is determined after the bidding process is completed. Within this price range, both retail and institutional buyers are invited to bid for the IPO.

5. RHP Submission

A Red Herring Prospectus (RHP) is prepared and filed with the Exchange(s).

The RHP is an updated version of the DRHP document. It contains current information about the company, i.e., the most recent financial data. It also contains additional information such as the IPO timeline and pricing details to help investors make an informed decision.

6. Road Show

Together with the PR & advertizing agency, Merchant Bankers advertise the IPO to the public. This process is called an IPO roadshow. They arrange investor meetings in different cities with the promoters of the company. The meetings are also arranged with journalists, analysts and other media representatives.

7. IPO Open for Anchor Investor

The IPO will be open to anchor investors (if any). An anchor investor is a qualified institutional buyer (QIB) who applies for an IPO under the anchor investor section and submits a bid for an amount of at least Rs 10 crore.

The company allots the shares to the anchor investor one day before the issue opens to the public.

8. IPO Open for Public

The IPO is opened to the public to place bids for the shares offered in the IPO. An offering may be open to the public for a minimum of three days and up to ten days. While the offering is open, investors place bids for the available shares. Submitting bids does not guarantee shares, as in most cases shares are allotted through a lottery.

IPO applications are submitted to the stock exchange's IPO platform by investors through a broker or bank. Investors receive a unique IPO application number.

9. IPO Shares Allotment

Once the public offering is closed, the application data is forwarded by the exchanges to the IPO registrar, which handles the allotment.

1. The exchange sends the IPO application file to the banks to confirm that the bank account and the demat account used in the IPO application belong to the same person.
2. The banks confirm whether the account numbers match or not.
3. The registrar rejects all IPO applications that are flagged as "3rd party".
4. The registrar draws a lottery or allocates shares on pro-rata basis to applicants as applicable.
5. The money is withdrawn from the investor's account.
6. The shares are transferred to the investor's account.

10. IPO Listing Date Announcement

The company submits the listing documents to the stock exchange. The company then sends a credit confirmation from the depository, i.e., the shares are transferred to the allottee's account, and the stock exchange issues a listing circular to the market the next day. The circular contains information such as the final price, ISIN, code and symbol.

11. IPO Shares Listing

Trading of IPO shares is set up on the stock exchanges in two steps:

1. Pre-open Session

   The pre-opening session is a pricing mechanism for newly listed shares. It is a special trading session for IPOs on the first day of their listing. The Pre-Open Session lasts 45 minutes (9:00 a.m. to 9:45 a.m.), during which orders can be entered, modified and canceled.

   From 9:45 a.m. to 9:55 a.m., orders placed during the first 45 minutes are matched, the opening price of the IPO is determined and a trading confirmation is sent to traders.

2. Commencement of trading

   Normal trading begins at 10 a.m. on the day of listing. At this time, anyone can buy or sell the shares of the IPO on the market.

12. Post-Listing Documents

After listing, the issuer must submit documents to the stock exchange, including invitations to board meetings, annual reports, shareholding samples, audit reports, corporate governance reports and audit reports.

Mainboard and SME IPO Process Comparison

The overall IPO process for mainboard and SME IPOs is the same except for the minor differences listed below:

• In the case of SME IPO, the IPO documents are reviewed by the stock exchange and not by SEBI, as in the case of the Mainboard IPO.
• Appointment of a Market Maker is mandatory in case of an SME IPO. The market maker is appointed by the issuer company and the merchant banker in joint consultation.
• In case of a fixed-price IPO SME IPO, an RHP document must be filed with the RoC (Registrar of Companies) prior to the opening of the issue. For mainboard IPOs ( Book building Issue ), the RHP can be filed after the closing of the issue.

IPO Process Timeline India

The duration of the IPO process in India ranges from 3 months to a year, depending on various factors such as the type of IPO, the complexity of the transaction, the size of the company, the market situation, etc.

Note: A company should complete an IPO within 12 months of receiving SEBI's comments on the initial filing.