Initial Public Offering (IPO)

  • IASbaba
  • February 16, 2022
  • 0
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Initial Public Offering (IPO)

Part of: Prelims and GS-III Economy 

Context: In order to replenish the public money box that has been drained out by the Covid-19 pandemic, India is planning one of the biggest initial public offering (IPO) listings ever.

  • On 13 February, the state-run Life Insurance Corporation of India (LIC) filed its draft red herring prospectus with capital markets regulator SEBI. 
  • According to the filing, the government, which owns 100 percent stake in the company, is offering 31.62 crore equity shares or a 5 percent stake in the IPO.

About IPO

  • An initial public offering or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also retail investors. 
  • An IPO is typically underwritten by one or more investment banks, who also arrange for the shares to be listed on one or more stock exchanges

Which companies can come out with an IPO?

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

What are the advantages of listing a company?

  • It may help a company raise capital, diversify and broaden its shareholder base.
  • Listing provides an exit to existing investors of the company. 
  • A listed company can raise share capital for growth and expansion in the future through a follow-on public offering or FPO.

News Source: IE

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