LIC’s MEGA IPO

LIC’s MEGA IPO

Topic: Economy

Context: LIC’s IPO, which is likely to run from March 10-14, can raise as much as 25 percent of the total capital raised in India last year.

Concept:

• In 2021, India saw a record total capital-raise of $34 billion, of which IPOs accounted for $16 billion.

What is an IPO?

• An IPO or initial public offering is the process by which a privately held company, or a company owned by the government such as LIC, raises funds by offering shares to the public or to new investors.
• Following the IPO, the company is listed on the stock exchange.
• Offer for Sale is a type of IPO. In both cases, new shares are put on the market for the public to buy.

Which companies can come out with an IPO?

• Sebi has laid down rules that require companies to meet certain criteria before they can go to the public to raise funds.
• The company must have net tangible assets of at least Rs 3 crore, and net worth of Rs 1 crore in each of the preceding three full years, and it must have a minimum average pre-tax profit of Rs 15 crore in at least three of the immediately preceding five years.

Where do the proceeds of the IPO go?

• If the issue raises fresh capital, the proceeds of the IPO go to the company, and can be utilised for future growth, expansion, debt reduction, etc.
• If the issue involves an offer for sale by promoters or existing investors, then the money goes to them and not to the company.
• In the case of LIC, the issue is an offer for sale by the government, and the IPO proceeds will go to the Government of India.

Who fixes the price of securities in an issue?

• The per-share price of the public issue is fixed by the issuer in consultation with the merchant banker based on assets, revenues, profits, and future cash flow projections, and the total value of the company.
• The regulator, SEBI, does not play a role in price fixation.

What are the advantages of listing a company?

• Listing on the stock exchange helps a company raise capital, and diversify and broaden its shareholder base.
• A listed company can raise share capital for growth and expansion in the future through a follow-on public offering or FPO.

Who can invest in an IPO?

• Qualified institutional buyers (QIBs) is a category of investors that includes foreign portfolio investors (FPIs), mutual funds, commercial banks, insurance companies, pension funds, etc.
• All individuals who invest up to Rs 2 lakh in an issue are classified as retail investors.
• Retail investors investing above Rs 2 lakh are classified as high net worth individuals.

IPO vs OFS: