What is an IPO and how much does it cost to the issuer

IPO - this is the first public issue of shares of the company, which is carried out, as a rule, through exchange platforms. This rather fashionable abbreviation came to us from Western practice. However, the process itself is regulated by Russian law, in particular, the law "On the securities market." It establishes procedures such as issuing a decision on the issue of equity securities , requirements for forms certifying rights, procedures for issuing, state registration, requirements for a prospectus, etc. All stages of the release must comply with this law and other normative acts (including Approved by the Federal Service for Financial Markets).

What is an IPO in its essence? It can be said that basically this is a program of presenting the company's shares to potential investors in such a way that the securities of the latter are interested - and they bought them. The parties in this process are the issuing company, underwriters, lead managers (usually banks), exchange sites and other persons. A key role is played by underwriters who, for a certain reward, guarantee that such an IPO will take place.

Before issuing a public release, the company should definitely recommend itself economically. To do this, it must have attractive financial statements for several years and good prospects for development, because every investor is interested in reliable and profitable investments. If the enterprise is widely known for its products, has implemented promissory notes programs, issued bonds, then the probability of a successful placement of shares increases. In addition, "fame" allows you to conduct the first public issue with minimal costs for the organization. Initial public offering involves placing shares on the stock exchange, so the issuer also needs to know how much it meets the requirements of a particular site - from the Russian MICEX-RTS to the foreign NYSE or LSE.

Financial and other information is transmitted to the lead manager, who prepares an information memorandum and organizes a so-called road show for the company. In its course, meetings are held with potential buyers of shares, the company is presented and information is spread that such an IPO will be made on certain dates. Also, the lead-manager is selected by the aggregate of underwriters, based on the fact that the latter have investor bases, how good a reputation is, what the cost of services is.

Securities within the IPO can be placed by the following methods:

1. The fixed price method. This method provides the most equal access for all investors who need only choose how many securities to buy.

2. Auction. In this situation, shares are sold primarily to those who can pay more.

3. The book method, which is the most common. The meaning of the procedure is that the road-show gathers information about investor preferences. Then the underwriters draw up a book of orders, set a price and distribute shares. At the same time, in some cases, the risk of non-placement completely falls on the intermediary, because He buys a certain stake in himself.

What is an IPO - in terms of costs for the company? Experts say that this is quite an expensive process, because The services of intermediaries can cost 3% of the amount of emission, and the additional costs for lawyers, auditors, advertising agencies can be about 1.5 million dollars for Russia and more than 2.5 million for foreign placements.