Various terminologies of the world of IPOs.
1. Stock - Stock in general terms can be called the name of the listed company. For example HDFC Bank ka stock hai.
2. Shares - Shares are what we buy and sell. This is coined in number of shares. In India we can have whole numbers as number of shares. In USA there is a concept of fractional shares as well. For example - HDFC Bank ka 100 shares kharida aaj.
3. IPO - Initial Public Offering is a term used when a private company decides to issue it's shares to the public for the first time. There is a whole long procedure to it.
4. FPO - Follow-on Public Offer is the term used when an existing listed company decides to issue more shares and raise funding from the public.
5. GMP - Grey Market Premium is often used by investors to decide whether to apply for an IPO/FPO or not. This GMP is an unofficial amount that refers to the premium the IPO could list at. This may not be true for all the public issues.
6. Fixed Price IPO vs Book Built IPO - The company decides to issue the shares via fixed price method or book building method. In fixed price method the company says that we will offer you shares at X amount only. For book building method the company gives a range from which the investor could choose the amount per share to participate in the IPO.
6. Price band - For any Book Built IPO, the price band is given by the company out of which the investor could choose any amount in multiples of ₹1 to participate in the IPO. For example for a price band of ₹10 to ₹15, investor can choose to invest at ₹10, ₹11, ₹12 and so on till ₹15.
7. Cut off price - This is the upper price band of the IPO. This means that if the IPO is under subscribed, in that case the lower price band could be the allotted price. Cut off price says that whatever price is the IPO allotted, you will get that price.
8. Issue Dates - The dates between which we can bid for IPO. These are mostly 3 working days for each IPO. For example in case of 23rd April to 25th April, 23rd, 24th and 25th will be the dates between which we can apply for the IPO.
9. DRHP - Draft red herring prospectus (DRHP) is the most preliminary document that the company files with the SEBI when it proposes to come out with an IPO. It is the first step and the SEBI gives its in-principle approval based on the DRHP details filed.
10. RHP - A more complete and comprehensive version of the DRHP is the RHP, which is filed after the observations given by SEBI and the additional information sought by SEBI are also incorporated into the document. RHP comes at a later stage and closer to the IPO.
NOTE - There is no DRHP for a follow on public offer (FPO). Only RHP is needed for FPO. The DRHP is shared by the company only at the time of IPO.
11. Lot Size - Unlike the markets where we can buy single share also, the IPO is applied in lots of fixed number of shares. For example 1 lot of 100 shares could be applied and if want to invest more then it would be done in lots. Like 2 lots of 200 shares. Yiu cannot apply for 150 shares or 250 shares.
12. Total Issue Size - This is the total number of shares that the company is offering. This number of shares multiplied by price will determine how much the company is planning to raise from the public.
13. Fresh Issue - This refers to the issuance of new equity shares in the company and selling those newly issued shares to the investors. For example, let’s say a company has 20 shares and a profit of 30 rupees. Naturally, earnings per share are 1.5 rupee (30 rupees/20 shares). Now the company wants to raise capital, so it issues fresh shares (let’s say 10 shares at 2 rupees each), and the company raises 20 rupees. But because of new shares, the earnings of 30 rupees will be divided into 30 shares instead of earlier 20 shares (EPS falls to 1 rupee per share from 1.5 rupees per share). Also, earlier the company was owned 100% by a single person, now it’s just owned 75% (this is what is called Equity Dilution). The money raised by the fresh issue of shares and its subsequent sale in an IPO is received by the company and utilized as per the objects of the issue which is mentioned during its IPO.
14. Offer for Sale - Offer for sale means selling of shares by an existing promoter/investor of the company. Let us understand with an example. We have a company called ABC, out of which 70% is owned by A and 30% by B. Now B wants to decrease his stake to 15% and hence he sells 15% of his total shares via an offer for sale. Here the money raised will all be received by B as he is selling his own shares and not issuing fresh ones. The main advantage of OFS is that it does not lead to equity dilution but the main disadvantage is that the company does not receive any money which will be raised.
15. Types of investors -
(A). Anchor Investors - These investors include big players like FIIs, Mutual Funds, Banks etc. Anchor Investors have a chance to participate in ipo before it opens. The prices for anchor Investors are set seperately. The amount of investment is generally more than ₹10 Crores.
(B). QIBs - Like the Anchor Investors get chance to participate in ipo earlier, QIBs (Qualified Institutional Buyer) invests when the issue opens. Anchor Investors and QIBs are same category where a maximum of 60% of QIB quota can be offered as anchor investment.
(C). Non institutional investors - Resident Indian individuals, NRIs, HUFs, Companies, Corporate Bodies, Scientific Institutions, Societies, and Trusts who apply for more than Rs 2 lakhs of IPO shares fall under the NII category.
NII category has two subcategories:
a. sNII or sHNI (bids below Rs 10L)
The Small NII category is for NII investors who bid for shares between Rs 2 lakhs to Rs 10 lakhs. The 1/3 of NII category shares are reserved for the Small NII sub-category. This subcategory is also known as Small HNI (sHNI).
b. bNII or bHNI (bids above Rs 10L)
The Big NII category is for NII investors who bid for shares worth more than Rs 10 Lakhs. The 2/3 of NII category shares are reserved for the Big NII subcategory. This subcategory is also known as Big HNI (bHNI).
(D). Retail Individual Investors - Resident Indian Individuals, NRIs and HUFs who apply for less than Rs 2 lakhs in an IPO under RII category. NRI or HUF who appling in an IPO with less than Rs 2,00,000 can apply in RII category.
16. Method of Application -
(A). UPI - In your demat account application, you can apply for IPO using UPI id of your registered bank with that demat account.
please note - NEVER USE DIFFERENT BANK ACCOUNT FOR APPLYING FOR IPO. The money should be in the same bank account with the same name as demat account holder.
(B). ASBA - Application Supported by Blocked Amount is the process to apply for IPO through net banking of your bank.
17. Allotment Process -
(A). To retail investors - In case of over-subscription, allotment gets done on a lottery or pro-rata basis based on the total number of IPO applications received from retail investors.
When retail applications are higher than the maximum number of allotees, allotment will be done through a computerized lottery system. Suppose, a total of 11,000 retail investors had subscribed to the issue for 5,50,000 shares. Here as the applications received is greater than the maximum allotees of 10,000, shares will be allotted through a lottery process where winners will be allocated with 1 IPO lot irrespective of their IPO application size how big or small it is.
On the other side, if the number of IPO bids from RII is less than the maximum allotees, every bidder will get 1 lot and the remaining shares will be allotted on a pro-rata or proportionate basis.
(B) To NIIs - The allotment of shares in the NII category is based on the proportionate basis or lottery system. If a public issue in the HNI category is not subscribed for as many shares as are offered, all bidders in the NII category will receive the shares they have applied for. Guaranteed minimum allotment to all NII applicants whose bid or application is equal to or greater than the number of times an IPO is oversubscribed.
After the minimum allotment of lots to small and large NIIs, the remaining shares will be allotted on a pro-rata basis.
In case of large oversubscription in the NII category, allotment is done through lottery.
18. Basis of Allotment - At this date, the investor would know whether they have got shares allotted or not.
19. Initiation of Refunds and Shares credited to Demat account - This is mostly the next day after basis of Allotment. Those who have not got shares will get their money unblocked from account, and those who got the share allotment will receive the shares in Demat account.
20. Listing Date - This is the date when investors can start buying and selling of shares. This starts at 10 AM of the specified date.
These are all the terminologies used in IPO world. If I missed any, please do let me know.
1. Stock - Stock in general terms can be called the name of the listed company. For example HDFC Bank ka stock hai.
2. Shares - Shares are what we buy and sell. This is coined in number of shares. In India we can have whole numbers as number of shares. In USA there is a concept of fractional shares as well. For example - HDFC Bank ka 100 shares kharida aaj.
3. IPO - Initial Public Offering is a term used when a private company decides to issue it's shares to the public for the first time. There is a whole long procedure to it.
4. FPO - Follow-on Public Offer is the term used when an existing listed company decides to issue more shares and raise funding from the public.
5. GMP - Grey Market Premium is often used by investors to decide whether to apply for an IPO/FPO or not. This GMP is an unofficial amount that refers to the premium the IPO could list at. This may not be true for all the public issues.
6. Fixed Price IPO vs Book Built IPO - The company decides to issue the shares via fixed price method or book building method. In fixed price method the company says that we will offer you shares at X amount only. For book building method the company gives a range from which the investor could choose the amount per share to participate in the IPO.
6. Price band - For any Book Built IPO, the price band is given by the company out of which the investor could choose any amount in multiples of ₹1 to participate in the IPO. For example for a price band of ₹10 to ₹15, investor can choose to invest at ₹10, ₹11, ₹12 and so on till ₹15.
7. Cut off price - This is the upper price band of the IPO. This means that if the IPO is under subscribed, in that case the lower price band could be the allotted price. Cut off price says that whatever price is the IPO allotted, you will get that price.
8. Issue Dates - The dates between which we can bid for IPO. These are mostly 3 working days for each IPO. For example in case of 23rd April to 25th April, 23rd, 24th and 25th will be the dates between which we can apply for the IPO.
9. DRHP - Draft red herring prospectus (DRHP) is the most preliminary document that the company files with the SEBI when it proposes to come out with an IPO. It is the first step and the SEBI gives its in-principle approval based on the DRHP details filed.
10. RHP - A more complete and comprehensive version of the DRHP is the RHP, which is filed after the observations given by SEBI and the additional information sought by SEBI are also incorporated into the document. RHP comes at a later stage and closer to the IPO.
NOTE - There is no DRHP for a follow on public offer (FPO). Only RHP is needed for FPO. The DRHP is shared by the company only at the time of IPO.
11. Lot Size - Unlike the markets where we can buy single share also, the IPO is applied in lots of fixed number of shares. For example 1 lot of 100 shares could be applied and if want to invest more then it would be done in lots. Like 2 lots of 200 shares. Yiu cannot apply for 150 shares or 250 shares.
12. Total Issue Size - This is the total number of shares that the company is offering. This number of shares multiplied by price will determine how much the company is planning to raise from the public.
13. Fresh Issue - This refers to the issuance of new equity shares in the company and selling those newly issued shares to the investors. For example, let’s say a company has 20 shares and a profit of 30 rupees. Naturally, earnings per share are 1.5 rupee (30 rupees/20 shares). Now the company wants to raise capital, so it issues fresh shares (let’s say 10 shares at 2 rupees each), and the company raises 20 rupees. But because of new shares, the earnings of 30 rupees will be divided into 30 shares instead of earlier 20 shares (EPS falls to 1 rupee per share from 1.5 rupees per share). Also, earlier the company was owned 100% by a single person, now it’s just owned 75% (this is what is called Equity Dilution). The money raised by the fresh issue of shares and its subsequent sale in an IPO is received by the company and utilized as per the objects of the issue which is mentioned during its IPO.
14. Offer for Sale - Offer for sale means selling of shares by an existing promoter/investor of the company. Let us understand with an example. We have a company called ABC, out of which 70% is owned by A and 30% by B. Now B wants to decrease his stake to 15% and hence he sells 15% of his total shares via an offer for sale. Here the money raised will all be received by B as he is selling his own shares and not issuing fresh ones. The main advantage of OFS is that it does not lead to equity dilution but the main disadvantage is that the company does not receive any money which will be raised.
15. Types of investors -
(A). Anchor Investors - These investors include big players like FIIs, Mutual Funds, Banks etc. Anchor Investors have a chance to participate in ipo before it opens. The prices for anchor Investors are set seperately. The amount of investment is generally more than ₹10 Crores.
(B). QIBs - Like the Anchor Investors get chance to participate in ipo earlier, QIBs (Qualified Institutional Buyer) invests when the issue opens. Anchor Investors and QIBs are same category where a maximum of 60% of QIB quota can be offered as anchor investment.
(C). Non institutional investors - Resident Indian individuals, NRIs, HUFs, Companies, Corporate Bodies, Scientific Institutions, Societies, and Trusts who apply for more than Rs 2 lakhs of IPO shares fall under the NII category.
NII category has two subcategories:
a. sNII or sHNI (bids below Rs 10L)
The Small NII category is for NII investors who bid for shares between Rs 2 lakhs to Rs 10 lakhs. The 1/3 of NII category shares are reserved for the Small NII sub-category. This subcategory is also known as Small HNI (sHNI).
b. bNII or bHNI (bids above Rs 10L)
The Big NII category is for NII investors who bid for shares worth more than Rs 10 Lakhs. The 2/3 of NII category shares are reserved for the Big NII subcategory. This subcategory is also known as Big HNI (bHNI).
(D). Retail Individual Investors - Resident Indian Individuals, NRIs and HUFs who apply for less than Rs 2 lakhs in an IPO under RII category. NRI or HUF who appling in an IPO with less than Rs 2,00,000 can apply in RII category.
16. Method of Application -
(A). UPI - In your demat account application, you can apply for IPO using UPI id of your registered bank with that demat account.
please note - NEVER USE DIFFERENT BANK ACCOUNT FOR APPLYING FOR IPO. The money should be in the same bank account with the same name as demat account holder.
(B). ASBA - Application Supported by Blocked Amount is the process to apply for IPO through net banking of your bank.
17. Allotment Process -
(A). To retail investors - In case of over-subscription, allotment gets done on a lottery or pro-rata basis based on the total number of IPO applications received from retail investors.
When retail applications are higher than the maximum number of allotees, allotment will be done through a computerized lottery system. Suppose, a total of 11,000 retail investors had subscribed to the issue for 5,50,000 shares. Here as the applications received is greater than the maximum allotees of 10,000, shares will be allotted through a lottery process where winners will be allocated with 1 IPO lot irrespective of their IPO application size how big or small it is.
On the other side, if the number of IPO bids from RII is less than the maximum allotees, every bidder will get 1 lot and the remaining shares will be allotted on a pro-rata or proportionate basis.
(B) To NIIs - The allotment of shares in the NII category is based on the proportionate basis or lottery system. If a public issue in the HNI category is not subscribed for as many shares as are offered, all bidders in the NII category will receive the shares they have applied for. Guaranteed minimum allotment to all NII applicants whose bid or application is equal to or greater than the number of times an IPO is oversubscribed.
After the minimum allotment of lots to small and large NIIs, the remaining shares will be allotted on a pro-rata basis.
In case of large oversubscription in the NII category, allotment is done through lottery.
18. Basis of Allotment - At this date, the investor would know whether they have got shares allotted or not.
19. Initiation of Refunds and Shares credited to Demat account - This is mostly the next day after basis of Allotment. Those who have not got shares will get their money unblocked from account, and those who got the share allotment will receive the shares in Demat account.
20. Listing Date - This is the date when investors can start buying and selling of shares. This starts at 10 AM of the specified date.
These are all the terminologies used in IPO world. If I missed any, please do let me know.
