Public Issue in Share Market

Learn about public issues in the share market, their significance, and how they can influence a company’s growth and investors’ decisions. Discover the benefits and challenges of public issues and how they impact the financial landscape.

In the dynamic world of finance and investments, the share market plays a vital role in channeling capital to companies for growth and expansion. One significant event that captures the attention of investors, businesses, and the general public alike is a “Public Issue” in the share market. In this article, we will dive deep into the intricacies of a public issue, understanding its different forms, and exploring its impact on various stakeholders.

The Basics: What is a Public Issue?

A Public Issue is a process through which a company offers its shares to the public for the first time, aiming to raise capital for financing its business operations, expansion plans, or debt repayment. It allows the general public to become shareholders in the company and participate in its growth journey.

1. Initial Public Offering (IPO)

An Initial Public Offering (IPO) is the first time a private company offers its shares to the public. Through an IPO, the company goes from being privately held to publicly listed. IPOs are often used by young and growing companies to raise substantial funds for expansion and development.

2. Follow-On Public Offering (FPO)

A Follow-On Public Offering (FPO) occurs when an already publicly listed company offers additional shares to the public. The purpose of an FPO may vary from raising more capital for expansion to facilitating partial exit for existing shareholders.

The Significance of Public Issues

Public issues play a crucial role in the financial ecosystem, benefiting both companies and investors while shaping the overall market sentiment.

3. Capital Generation for Companies

For companies, public issues provide an opportunity to raise significant capital from a diverse investor base. These funds can be used for research and development, acquiring assets, expanding operations, and reducing debt.

4. Liquidity and Marketability for Investors

Public issues offer liquidity to investors as they can readily buy and sell shares on the stock exchange. It provides them with an opportunity to participate in the company’s growth and potentially benefit from capital appreciation.

5. Enhancing Public Image and Credibility

Going public enhances a company’s image and credibility in the market. It signals financial transparency and regulatory compliance, making it more attractive to customers, partners, and potential investors.

The Process of a Public Issue

6. Preliminary Preparations

Before initiating a public issue, the company must conduct thorough financial audits, prepare necessary legal documents, and assess market conditions to determine the optimal time for the offering.

7. Appointing Intermediaries

The company appoints underwriters, merchant bankers, legal advisors, and registrars to oversee the entire process of the public issue and ensure compliance with regulatory requirements.

8. Filing the Prospectus

The prospectus, containing detailed information about the company, its financials, risks, and terms of the issue, is filed with the regulatory authorities for approval.

9. Marketing and Roadshows

The company and its intermediaries conduct marketing activities and roadshows to create awareness and generate interest among potential investors.

10. Public Subscription

During the public subscription period, investors can apply for shares at the issue price. The demand and supply dynamics determine the final allotment of shares.

11. Listing on Stock Exchange

Once the shares are allotted, the company’s shares are listed on the stock exchange, and trading begins.

Benefits and Challenges of Going Public

12. Benefits

• Access to Capital: Going public provides companies with access to a vast pool of capital from public investors.
• Brand Visibility: It enhances the company’s brand visibility and credibility in the market.
• Liquidity for Existing Shareholders: Existing shareholders can sell their shares and realize their investments.

13. Challenges

• Regulatory Compliance: Companies must comply with various regulations and disclosure requirements, increasing administrative burdens.
• Market Volatility: Share prices may fluctuate due to market sentiment and other external factors.
• Public Scrutiny: As a publicly-listed entity, the company faces increased public scrutiny and expectations from investors.

Public Issue and the Economy

14. Economic Indicators

Public issues play a role in the overall economic indicators of a country. An increase in public offerings may signal economic growth and investor confidence.

15. Job Creation and Economic Growth

Successful public issues can lead to job creation and economic growth, as companies use the raised capital for expansion and development.

Public Issue vs. Private Placement

16. Public Issue

In a public issue, shares are offered to the general public, and the issue is widely marketed to attract a large number of retail and institutional investors.

17. Private Placement

In private placement, shares are offered to a select group of investors, such as institutional investors or accredited individuals, without public marketing.

Frequently Asked Questions (FAQs)

FAQ 1: What are the risks associated with investing in IPOs?

Investing in IPOs carries certain risks, including price volatility, limited historical data, and the possibility of not receiving the desired allotment.

FAQ 2: Can small investors participate in public issues?

Yes, small investors can participate in public issues by applying for shares during the public subscription period.

FAQ 3: What is the role of underwriters in a public issue?

Underwriters act as intermediaries between the company and investors, guaranteeing the sale of the shares and ensuring the company receives the required capital.

FAQ 4: How long does the public subscription period usually last?

The public subscription period typically lasts for a few days, during which investors can apply for shares.

FAQ 5: Can an FPO result in dilution for existing shareholders?

Yes, an FPO can result in dilution for existing shareholders as the company issues additional shares.

FAQ 6: Are all IPOs successful?

Not all IPOs are successful, and the success of an IPO depends on various factors, including market conditions and investor appetite.