IPO (Initial public offer) – Commonly used terminology (All Details)
IPO (Initial public offer): It is the process of offering securities – generally common stock – of a privately owned company for sale to the general public. The first time these securities are offered is referred to as an initial public offering, or IPO.
1. Abridged prospectus
Abridged prospectus is a shorter version of the final prospectus. It contains all the salient features of a prospectus. It is issued along with the application form of securities at the time of initial public issue. Requirements for the disclosures to be made in relation to an abridged prospectus have been provided SEBI (Issue of Capital and Disclosure Requirements) Regulations, (“Disclosure Regulations”).
The purpose of abridged prospectus is to avoid the voluminous prospectus at the time of issue of applications for shares. It should disclose all the ‘information’ which is material and appropriate to enable the investors to make informed decisions.
2. Add-on Offer:
When a company which is already publicly traded offers additional shares to the market then such offer is called as add-on offer. Such offers are made when the company intends to fund its existing projects or to undertake new projects. Add-on offers result in dilution of existing share holding making the share price come down.
3. After market report:
After market report is the summary report explaining how the shares of an initial public offer (IPO) have performed soon after being introduced on to the secondary market. After the initial public is over, the investors would trade their shares on the secondary market such as NSE, BSE etc. Typically, after market report contains the issue price paid by the investors and the changes occurred therein when it moved to the secondary trading platforms.
4. IPO Grey Market:
It is an unofficial market where IPO applications or shares are bought and sold before they are made officially available for trading on the stock exchanges. It’s an over the counter market where the dealers offer the orders for preferred customers. SEBI and stock exchange do not involve themselves in IPO grey market. Grey market is also called as parallel market.
5. Grey Market premium (GMP):
It is the price at which the IPO shares are traded in the grey market. Based on the demand and supply for the shares, grey market price could be positive or negative.
Example: Issue price of VRP ltd’s share = Rs 100 & Grey market (buyers) premium = Rs 50 Which means that the buyers are willing to pay a premium of Rs 50 in addition to the Rs 100 to buy the share in grey market (i.e. at Rs 150)
6. Kostak rate:
It is the premium at which IPO applications are traded in grey market. It is the amount one would get by selling his IPO application to someone else before the allotment or listing of the shares.
7. Book building Issue:
In case of book building issue, the price of each share is not fixed at the outset. The offer document specifies a price range with lower price and upper price. Lower price is called Floor price and the upper price is termed as cap price. The final issue price of these shares is determined by the demand for the issue from prospective investors. The price so discovered is called as cut off price.