An initial public offering (IPO) is when a private company converts its stock for sale to the public for the first time. The subsequent sale of shares by companies to raise funds is referred to as a “Public Offering”.
Funds raised through an IPO through an IPO are often used to fund business expansion or to repay money borrowed when the company was formed, or in some cases to exit founding shareholders of the company who wish to reduce the size of their ownership.
A company planning an IPO hires an underwriter or brokerage firm to register and pay out shares. The underwriter works with attorneys, auditors and the Securities and Exchange Commission (SEC) to create a financial profile of the company.
The company then registers its profile with the SEC and gets permission to go public. When this process is complete, the underwriter assembles several banks and brokers to sell shares in the IPO.
Lack of IPO: Market activity in IPOs has not been as brisk as it used to be in Nigeria for a number of years as some companies that would previously have gone public continued to take the market pulse after the market crash in 2008 and the volatility of the economy.
News will continue after this ad
- The IPO market experienced its greatest boom between 2007 and 2008; this was before the global market experienced a financial crisis in which Nigeria was not isolated. From 2016 to date, the primary market has seen unimpressive IPO activity.
- However, as capital market activity picks up again, investor confidence regains, and issuers start going back to the market, analysts expect renewed activity in the IPO market.
- Regulators are also developing innovations that will facilitate the market, including the launch of the electronic IPO that MTN Nigeria recently tapped, offering a total of 575 million common shares to retail investors, valued at N97.18 billion.
- Whenever a company comes up for public offering, it is always well known and on the exchange’s website.
How to subscribe to an IPO
In conversation with Nairametrics, the Vice Chairman/CEO of Capital Assets Limited, Mr. Ariyo Olushekunand the chief executive officer of Wyoming Capital and Partners, Mr. Tajudeen Olayinka listed the benefits of electronic IPOs, including expanding the reach of IPOs, promoting the culture of book-entry inventory management, speeding up the IPO process, and ease of use.
However, they have listed the following steps that must be followed to invest in an IPO:
Analyze the company when the offer opens: Conduct a fundamental analysis of the company, examine its profitability and cash management and leverage the company if it is able to pay off debts and make a profit.
News will continue after this ad
- Also, determine if you want to make a short-term gain by selling the stock as soon as possible, or if you want to hold on to the stock and see how the company performs in the future.
- Either way, knowing your approach before making any financial commitment is crucial.
Make an investment decision: Decide whether to invest or not, if the company meets your investment desire, contact your broker to open an account, which will be a CSCS account if you don’t already have one.
Fill out the application form: Complete the subscription application form with your CSCS number, pay for the number of Shares you have applied for and file with the broker. You can also collect the application from your bank, fill it out and send it back to the bank.
- If you have computer skills, you can download, fill out, and submit the application form online from the NGX website or the issuing house website.
- Computer skills are required nowadays as most of the companies around the world are now offering digital offerings that Nigeria recorded for the first time MTN Nigeria’s recent public offering, delivered via a digital platform.
Waiting for allocation: After the application is closed, the receiving agencies will make their returns, so you wait for the announcement of the allocation. The allocation is made by the issuing company, which may give you all or part of the shares you have applied for.
- Any value of Shares not allotted to you will be credited to your bank account.
Your shares booked in CSCS accounts: The shares allocated to you will be credited directly to your CSCS account. You are now a shareholder in the company.
- The CSCS statement with the shares allotted to you is prima facie evidence that you are now one of the owners of the company and are awaiting a return on your investment.
- with With the introduction of the e-dividend payment system, you will also need to complete the e-dividend mandate form after you have completed the share allocation form so that your incoming dividend can be paid directly into your bank account when due.
advice: Because trading stocks is risky, IPOs are no exception. There are inherent risks you can consider before investing in an IPO that can help you determine if it’s a good investment option for your portfolio and help you achieve your investment goals.
- Corresponding osheku, Any instrument is risky, it is up to investors to do very good research and analysis to know when and where to invest. That is why it is important to consult brokers in order to make a good investment decision.
- In the same directionOlayinka said that investing in IPOs could be challenging because the stock value can rise or fall quickly after shares are listed.
- He advised investors to do extensive research before participating in an IPO and also find the right financial advisors to help them make wise investment decisions.
Comments are closed.