Why does a company release IPO?

The share market is one such topic that always seems to be on the highlight. Whether it’s between uncles at a party or a chatter between adults and now even among the youth. 

Among all the talks regarding the share market, exclaiming at the growth or decreasing value of shares is quite popular. There is also one popular topic always on discussion, which companies are releasing IPO? So, if you are new to the NEPSE market or even if you are not, exploring the reason behind why an IPO is released in the first place is a good idea. 

What is an IPO?

Learning what an IPO is the most important point to start from. 

An IPO stands for Initial Public Offering. This means that a company previously privately owned will be releasing its shares on the stock market. This is an opening for early investors to these kinds of exclusive new in-the-market shares. Many people believe that buying these IPOs is a big money-making opportunity. Especially when well-known popular brands release such IPO. A local example would be Chandragiri Hills, many people were very eager to invest in their IPO when released. 

But what do the companies get in return for releasing IPOs? 

Why companies release IPOs?

There are many reasons that the company benefits from releasing an IPO.

Funds

A company usually receives funds and capital from private investors like investors, venture capitalists, and own finances. However, a company may reach a state of growth or value where they require a lot more money to further expand and the current investors may not be enough. At a time like this, a bank is the first choice but they have limitations and hence companies release IPOs.

Publicity

Going public and releasing IPOs will most definitely earn a lot of publicity and exposure for a company. As soon as a new company enters the stock market they go through major scrutiny and study from brokers to newbies to traders. This helps in sharing and gaining attention to a company.

Liquidity 

Liquidity for private investors is also one of the benefits of a company releasing an IPO. IPOs can also be used as an exit strategy by founding investors. Many of them use releasing IPOs as a way to cash in on the startups or businesses they helped grow. 

Also Read: Why is the share market in Nepal gaining sudden popularity?

Disadvantages of releasing an IPO

There are surely some disadvantages to following the advantages of anything in this world.

Loss of Autonomous Control

A private company is under the autonomous control of its private investors. This means they can implement any changes they feel necessary. Although most founding investors become major shareholders of the company even after releasing the IPO this still means that the decision-making process of any major changes is under effect from the public. 

Public Scrutiny

Going public for a company means all their movements are being tracked by traders. They need to have a clean slate and good progress to attract any investors. After entering the share market, people examine companies past present and try to predict the future. Although companies wanting exposure will benefit this may not be the case for all companies. And people with long-term visions may lose investors in the present.

Expensive

There are many fees to consider when releasing an IPO. There are costs like financial services, underwriting costs, and filing fees. This brings a hard time for companies who are releasing IPOs to earn more capital in the first place. 

How to buy an IPO?

Do you think you should invest in an IPO? Well to test out your luck here are the steps to buying an IPO on Mero Share. 

  • Log into meroshare using your credentials.
  • From the menu on the left, go to My ASBA > Current Issue.
  • Click Apply next to the IPO you want to apply for.
  • Fill up Applied Quantity.
  • Enter your CRN number accurately.
  • Click on Apply.

Now you know all there is to know about an IPO and why a company decides to release one. This can help you make educated analysis on companies’ soon-to-release or already released POs helping you to become a more aware trader or investor on the NEPSE market. And if not then you are now an educated person regarding IPO.

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