Source: BURSA ACADEMY | Published: June 2020
An Initial Public Offering (IPO) is a private company''s first attempt to ''go public''. The actual process involves an unlisted company offering new or existing shares which may be bought or sold by members of the public, including existing shareholders.
Before an IPO, a company is private, with fewer shareholders, usually comprising accredited investors (like venture capitalists, angel investors and high net worth individuals) and early investors (like those who set up the business, their families and friends). After an IPO, the company becomes a publicly listed company on a regulated stock exchange.
An IPO is a major milestone in a corporate’s lifetime. The most common reason for a public listing is to raise more capital to grow or upscale the company''s business. Companies sometimes go public to enable existing shareholders monetise their investment, to reward its employees with equity or merely to create visibility of its name, profile and credibility.
So, should you be interested in an IPO, how do you apply for an IPO?
Interest in IPOs
Whether you are a seasoned investor or a newcomer, you might have heard ''IPO'' and ''good returns'' mentioned together on more than a few occasions. This is not surprising because, when a promising private company goes public, the chance to profit from buying its IPO shares is indeed high. If the company’s prospects for growth are viewed favourably by the investing public, it’s first public shares are likely to be in great demand, more so because IPOs are usually discounted to ensure initial sales. Thus, it is hardly unusual for IPO shares to rapidly gain value when made available on the stock market. This makes IPO shares ''hot property'' and keeps investor interest in IPOs perennially high.
Another reason for the high interest in IPOs is investor confidence in the authorities, including market regulators. The stringent guidelines and evaluation processes that precede a public listing assures investors that an IPO is a credible investment opportunity.
Companies that decide to go public must go through a vigorous screening process by submitting complex documentation to the Securities Commission of Malaysia (SC) through the issuing bank. Further on, the company''s prospectus — which sets out in detail its profile, core business, management, financial positions, corporate strategy, number of shares and price of shares, dividend forecast, risk, etc. — has to pass several levels of authoritative scrutiny.
Despite these meticulous listing requirements, more and more companies are going public. The chart below shows that both trade volume and the number of Public Listed Companies is growing.
Applying for an IPO
For the public investor, there are three ways to apply for an IPO – two traditional ways and an online way. However, before applying,the investor will need to ensure they have a Direct CDS account with Bursa Malaysia. It is important to thoroughly study the IPO by reading the prospectus of the company. A great deal of reliable information can also be found using resources like established newspapers and Bursa Malaysia''s website. An informed investor is more likely to be successful than a reckless investor.
A preliminary point to note is that, under the law, you may make only one share application for an IPO. Submitting multiple applications is an offence under the Capital Markets and Services Act, 2007.
- Apply Using Application Forms (White)
The traditional way to apply for an IPO is through a printed form known as the White Application Form. This paper form is easily available with issuing houses, stockbroking companies and financial institutions.
The application has three essential steps:
- Attach the banker’s order payment slip for the amount of shares that you are applying for.
- Submit your completed application directly to the issuing house. You may also send it to them via postal mail.
A prominent issuing house where you can apply for IPO shares is the Malaysian Issuing House (MIH). You may submit your share application via ordinary mail, courier services or the drop-in boxes at their offices.
- Apply Using Electronic Share Application (ESA)
Another way to apply for an IPO is using an ATM to submit an Electronic Share Application (ESA).
To use the ESA facility at an ATM, you must have a savings account, an ATM card issued by the participating financial institution, and a Central Depository System (CDS) account. The CDS is a system managed by Bursa Malaysia Depository Sdn Bhd. A CDS account is like a digital locker that holds your securities in electronic form and allows you to credit, debit or transfer securities from or into it.
At the ATM, follow the instructions. You will need your PIN, your CDS account number and the IPO stock code.
After registering your application, remember to retain the printed ATM slip for your records and reference.
- Apply Online
The third way to apply for an IPO is to apply online.
Unlike the other two application routes, the online application is a relatively new development. Applying for an IPO from the comfort of your own home is now increasingly popular with retail investors.
In 2005, Maybank became Malaysia''s first bank to offer this online convenience. Today, most local banks offer this feature. Since procedures and processes differ from bank to bank, it is a good idea to first check with your bank the correct way to successfully apply for an IPO and if any charges or fees apply.
The online application also requires you to meet certain eligibility criteria. You must be at least 18 years old, a Malaysian citizen with a Malaysian address. You must also have a Direct CDS account and must not be a director or employee (or an immediate family member of a director or employee) of the issuing house. The application must also be for at least 100 IPO shares (or multiples of 100).
Remembering Your Objective
Prudence and informed judgement are always beneficial when considering any investment avenue and it is no different with IPOs. What seems to be attractive or promising might not be so upon diligent scrutiny.
Before you apply for an IPO, conduct your checks, research the company and the business sector it is in, and analyse the prospects ahead not just for the company but also for the overall market.
Remember, it is your money.
Tags: EQUITY, INITIALPUBLICOFFERING, IPO, PRIVATECOMPANY, PUBLICLISTING, SHARESHOLDERS
