An initial public offering (IPO) is a major step for a company that is looking to raise capital by selling its shares to the public for the first time. IPO financing is one way of doing it wherein the company gains access to a large pool of funds, but it requires a lot of preparation, including compiling the necessary documents required for IPO. In this article, we will discuss the documents required for IPO financing and other important things to keep in mind.
Documents Required for IPO
- Incorporation documents: This includes the certificate of incorporation, MOA, and AOA. These documents are required to verify the legal existence of the company.
- Financial Statements: Financial statements such as balance sheet, profit and loss statement and cash flow statement for the past three to five years. The financial statements should be audited by a professional auditor and should be in compliance with the International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP).
- Prospectus: A prospectus is a legal document that provides complete details about the company, its products and services, its financial performance, potential future prospects, and risks. It is the main marketing tool to attract potential investors and must be filed with the Securities and Exchange Commission (SEC).
- Board and management composition: A list of the names and details of the board of directors and top management.
- Shareholding pattern: A detailed report on the existing shareholding pattern of the company, which includes the number of shares held, the percentage of ownership, and the nature of holding (promoter or public).
- Legal and regulatory clearances: A certificate from the government or regulatory bodies confirming that the company has complied with all legal and regulatory requirements.
- Valuation report: An independent valuation report from a registered valuator certifying the value of the company’s assets, liabilities, and equity.
IPO Loan Interest
IPO loan is a financing option utilised by the investor to invest in IPOs. The main advantage of this option is that the investor does not need to have the entire amount upfront, and the loan amount is only required to be repaid after the allotment of shares. However, the investor needs to pay interest on the loan amount, which varies from bank to bank or financial institution. The interest rate depends on various factors such as the applicant’s credit score, the amount and duration of the loan, and the lender’s policies.
IPO loan interest rates are generally higher than regular personal loans, as IPO financing is considered a high-risk investment. However, some lenders offer attractive interest rates to attract more customers. It is important to compare the interest rates and terms of different lenders to decide on the best option.
IPO Loan Repayment
The repayment of IPO loans is generally structured in the form of equated monthly instalments (EMIs) over a fixed period. The EMI comprises a portion of the principal and interest amount. The repayment period for IPO loans varies from lender to lender and can range from a few months to several years.
It is important to note that the repayment of the IPO loan starts only after the allotment of shares. If the allotment is not made, then the loan amount does not need to be paid back. However, in case of partial allotment, the borrower needs to pay back only the amount of the shares allotted.
Conclusion
IPO financing is a critical step for a company to raise capital and expand its business. However, it requires a lot of preparation, including compiling all the necessary documents required for IPO financing. The documents required for IPO include incorporation documents, financial statements, prospectus, board and management composition, shareholding pattern, legal and regulatory clearances, and valuation report.
IPO loan is a financing option available to investors to invest in IPOs. The loan amount is only required to be repaid after the allotment of shares, and the interest rates vary from lender to lender. IPO loan repayment is structured in the form of EMIs over a fixed period.
It is important to note that while IPO is a lucrative option for the company and the investors, it also involves risk. It is essential to assess the company’s financial performance, management, competition, and future prospects before investing in an IPO. Also, it is advisable to seek professional advice from a financial planner or investment advisor before making any investment decisions.