📝 Topics Covered

• Share Offerings (IPO, OFS, FPO, Rights Issue)
• Where Shares Come From (Authorized vs Issued Capital)
• Merchant Bankers & Application Processes
• Fixing the IPO Price (Book Building vs Fixed)
• Important Financial Terms

📈 Offerings of Shares

When a company needs to raise capital or when promoters want to sell their stake, they offer shares through various routes:

• IPO: Initial Public Offering.
• OFS: Offer For Sale.
• FPO: Follow-on (or Further) Public Offer.
• Fresh Issue: Issuing entirely new shares.
• Rights Issue: Offering new shares specifically to existing shareholders first.

💼 Where Do Shares Come From?

To understand offerings, you need to understand the company’s capital pool:

• Authorized Capital: The maximum number of shares a company is legally allowed to issue according to its charter. (Example: Let’s say 1000 shares total limit).
  • Consists of: Un-issued capital + Issued capital
• Issued Share Capital: The total portion of authorized capital that has already been given out. (Example: 300 shares).
  • Promoters (Owners): Might hold 200 shares.
  • Other Investors (Private/Angel): Might hold 100 shares.

🚀 Initial Public Offering (IPO)

• What is it? When a private company issues shares to the general public for the very first time.
• Listing: The company gets listed on exchanges like BSE, NSE, or both.
• Composition: An IPO can be a combination of a Fresh Issue + an OFS (Offer for Sale).
  • Fresh Issue: The company generates brand new shares out of its un-issued capital pool (e.g., selling another 150 shares out of the remaining 700 un-issued shares).
• How to Apply:
  • You submit an application via your broker or bank using the ASBA process.
  • Timing: Usually 10:00 AM to 5:00 PM on applicable trading days. No extra charges are applied.
  • The whole process is spearheaded and managed by a Merchant Banker.

🏦 Merchant Banker (Investment Banker)

Also known as the Book Runner or Lead Manager.

• Role: They help the company navigate the complex IPO process.
• Pricing Strategy: They try to capture the “nerve of the market” by pitching the company to big Institutional Investors (Banks, Mutual Funds, Insurance Companies) to gauge interest and fetch a probable price (this is called Book Building).
• Other High-Level Work: Raising major funds, managing Mergers, and handling Acquisitions.

📑 Steps for an IPO Proposal

The company must successfully submit a detailed Prospectus to SEBI. This document contains 5+ years of deep financial details, future plans, and business risks.

• DRHP (Draft Red Herring Prospectus): This is the rough draft where the promoter officially asks SEBI for permission to launch the IPO.
• RHP (Red Herring Prospectus): This is the final approved version that the general public gets to read before investing.

💵 Unlocking the Price of an IPO

Companies decide the share price in one of two ways:

1. Fixed Price Issue: Only one absolute price is given. Everyone bids exactly at that price.
2. Book Building Issue: A Price-Band is given. Investors can bid anywhere within this range.
   • Example Band: ₹290 to ₹300. (₹290 = Floor Price, ₹300 = Ceiling/Cap Price).

Crucial Rule: An IPO MUST achieve a Minimum Subscription of 90% to be considered successful and officially listed.

Example of Cut-Off / Listing Price Calculation

Assume the goal is to hit that 90% subscription mark to set the listing price:

• Explanation: By clearing the bids from top-down, the 90% quota is fulfilled at ₹295 (2% + 50% + 40% = 92%). Therefore, the official IPO cut-off price becomes ₹295. Bidders at ₹300 and ₹296 will be allotted shares at ₹295 and receive the difference in their bank accounts as a refund.

💳 What is ASBA?

ASBA stands for Application Supported by the Blocked Amount. It is a safe banking facility where your application money doesn’t get instantly deducted. Instead, it gets temporarily frozen in your savings account. The money is only debited if you are successfully allotted shares.

🏷️ OFS (Offer for Sale)

• What is it? When existing Promoters or major investors decide to sell their currently held shares to the public. No new money goes to the company; it goes to the sellers.
• Pricing: The company sets a Floor Price (the absolute minimum you can bid). You place your order higher than or at this price.
• How to Apply: Directly via your broker.
  • Non-Institutional Investors (NII) usually apply on the 1st day, and Retail Individual Investors (RII) apply on the 2nd day.
  • Normal trading timings apply (9:15 AM - 3:30 PM).

🔄 FPO (Follow-on Public Offer)

• What is it? An already listed company issuing fresh new shares to the public to raise even more capital.
• Example: Issuing another 150 shares out of the pool to raise capital.

📖 Useful Financial Terms

• Issue Price: The finalized price at which the stock was formally offered to the public before listing. (Example: D-Mart’s IPO issue price was ₹295 - ₹299).
• Listed Price: The actual price at which the stock debuted/opened on the stock exchange. (Example: D-Mart listed at massive premium at ₹600).
• Book Value: Mathematically calculated as Total Assets - External Liabilities. Represents the real net worth of a company.
• RTA (Registrar and Share Transfer Agent): The entity responsible for legitimately transferring Demat shares from the company’s account to the investor’s account in the primary market.
• Clearing House: Manages the secure transfer of shares from one investor to another in the secondary market.
• Escrow Account: A specialized, temporary bank account opened with a defined purpose (like holding IPO funds), managed by the Bankers holding the issue.
• Pledge: Using Shares as collateral to get a loan.
• Mortgage: Using Property/Houses as collateral to get a loan.
• Block/Bulk Deal: When a massive number of shares change hands in a single transaction.
• Ring Trading: Illegal speculation/SattaBazi.