Document Sample
IPO Powered By Docstoc
The full name of an overview of IPO IPO Initial public offering (IPO) refers to a
company (companies or limited liability company) for the first time public offering to
the public the means to distribute. Limited liability company will become a Limited

Corresponds to a market, most of the public offerings underwritten by investment
banking group to enter the market or the underwriting of the banks in accordance with
a discount price from the issuer to buy into their own account, and then agreed to sell,
than the public offering of preparation costs high, to some extent part of the private
placement can avoid such costs.

This phenomenon was launched in the U.S. in the late nineties, when the
shares the United States is experiencing a bubble. Founder of the company will set up
a separate capital, and that during the bull market, fund raising through initial public
offering (IPO). Because investors think these companies have the opportunity to
become the second company, the stock market in the early stages of their usually

Many founders have become millionaires overnight. Benefit from stock options,
employees earn a considerable income. In the U.S., most of the funds through an
initial public offering of stock will be trading in the Nasdaq market. Many Asian
countries, the company will be through a similar method to raise funds to develop the
?IPO Characteristics
Advantages: to raise funds

Good circulation

Establish a reputation

Return on investment and personal investment in wind

Disadvantages: cost (possibly up to 20%)

Companies must comply with SEC regulations

Stress management

Wall Street's short-sighted

Lost control of the company
?IPO process
First of all, to public offerings of the company must submit to the regulatory
prospectus, prospectus only through a review of the company can continue to be
allowed public offering. (In China, the audit work is undertaken by the China
Securities Regulatory Commission.) Then, the company needs four road shows (Road
Show) to promote themselves to the public. After this step, some companies or
financial institutions, investors will be interested in IPO companies. Them as venture
capital investors (Venture Capitalist) to invest in IPO companies. (Venture capital
investors, the company does not want to IPO shares, they just want to throw in after
the stock market to make the difference.) One of the financial institution may be hired
for the IPO's underwriter (Underwriter). By the underwriters for IPO
listing of newly issued shares of all the course work, and is responsible for all of the
stock sale to the market. If not fully sold out of stock, the underwriters may have to
buy all shares not sold out or have irresponsible (specific situation should be
underwriters in the IPO company and the contract between the state). IPO shares are
priced the work of underwriters, the valuation model by the underwriters to conduct a
reasonable valuation, and obliged to protect the post-IPO stock price stability and
avoiding large fluctuations. IPO IPO pricing process is divided into two parts, first by
a reasonable valuation model to estimate the theoretical value of listed companies,
followed by selecting the appropriate way to reflect the issue of market supply and
demand, and ultimately determine the price.

U.S. IPO preparation process:

The establishment of IPO team, CEO, CFO, CPA (SEC counsel), attorney, asset
evaluation institutions

Selection of underwriters

Due Diligence

Preliminary application

Roadshow and pricing
?IPO Recruitment
Typically, the listed company's shares is based on the securities will be
issued to the appropriate prospectus or registration statement of the terms agreed to
sell through brokers or market makers. In general, once the IPO is completed, the
company may apply to the stock exchange or quotation system listing.

Another way to get listed on a stock exchange or quotation system, trading is possible
in the prospectus or registration statement, agreed to allow private companies to sell
their shares to the public. These shares are considered "free
trade", making this enterprise to a stock exchange or quotation system
listing requirements of the conditions. Most of the stock exchange or quotation system
on the listed company have at least the number of free trading stock has a mandatory
number of shareholders.

The valuation model, the properties of different industries, growth, financial
characteristics determine the valuation of listed companies to apply different models.
Now more commonly used valuation methods can be divided into two categories:
income discount law and analogy. The so-called income discount law is the
reasonable way to estimate the future state of business of listed companies, and select
the appropriate discount rate and discount model, calculate the value of listed
companies. The most commonly used as a dividend discount model (DDM),
discounted cash flow (DCF) model. Discount model is not complicated, the key is
how to determine the company's future cash flow and discount rate, which
is a manifestation of the professional value of the underwriters. The so-called analogy,
that is, by selecting some of the same ratio of listed companies, such as the most
commonly used price-earnings ratio (P / E or price / earnings per share), book value
(P / B or price / net assets per share), combined with the new listed
company's financial indicators such as earnings per share, net assets per
share to determine the value of listed companies, generally predictive indicators. PE
application of the Act has many limitations, such as requiring Listed Companies
should be stable, so no losses, while the book value without these laws, but also
flawed, mainly over-reliance on book value of the company's market value
instead of the latest . Therefore, a high proportion of liquid assets for those companies
such as banks, insurance companies, this method is more applicable. China
Construction Bank IPO in the process, according to the prospectus to determine the
price range of 1.9 to 2.4 HK dollars, net assets per share after the release of about 1.09
to 1.15 Hong Kong dollars, the book value (P / B) 1.74 ~ 2.09 times. In addition to
these indicators, but also through the market value / sales (P / S), the market value /
cash flow (P / C) and other indicators to be valued.

Through the valuation model, we can reasonably estimate the theoretical value of the
company, but to finalize the issue price, we also need to select a reasonable
distribution method, in order to fully find the market demand. The issue most
commonly used methods include: total tender, fixed-price approach, competitive
bidding. General competitive bidding is more common on the issue, where the
magazine. Total bid is the world's most popular IPO one of the ways, is the
publisher through the book building system to determine the issue price, and
self-allotments. The so-called "book building system" refers to
first determine the IPO lead underwriter price range, hold road show will promote,
according to demand and demand price information repeatedly on the issue of price
correction, and ultimately the process of determining the issue price. Normal time of 1
~ 2 weeks. For example, the initial inquiry CCB interval 1.42 ~ 2.27 Hong Kong
dollars, then narrowed to 1.65 to 2.10 Hong Kong dollars, the final issue price will be
determined on October 25. The process of inquiry is the intention that investors
generally do not represent the final purchase commitment.
In the inquiry system, the new share issue price is not pre-determined price in the
fixed mode, the lead underwriter to investors, according to the valuation results and
the projected demand, an issue directly to determine the price. Fixed price method is
relatively simple, but inefficient. Over the past China has been the way of a
fixed-price release, December 7, 2004 the Commission launched a new stock inquiry
system, has taken a key step in the market.

The SFC and the Hong Kong Stock Exchange in November 1994 published a
"joint policy statement offering mechanisms" Since then, a large
IPO in Hong Kong is basically a cumulative bid and offering fixed-price hybrid
mechanism for public subscription.

Determine issued after the release into the formal stage, at this time if the number
exceeds the effective subscription number to be issued shall be over-subscribed,
over-subscription ratio higher, indicating strong investor demand the more. In the case
of over-subscription, the underwriters may allocate shares have the right, that is, the
right placement, it may not be, determined in accordance with Exchange rules.
Through the exercise of the right placement, the issuer can achieve the desired
shareholders. In China, currently the lead underwriter does not have the right to
subscribe for shares must be in accordance with the Subscription proportion.
According to reports, the CCB issued H shares in Hong Kong Stock Exchange, as at
IPO closing date (October 19), attracted 76 billion U.S. dollars in subscription funds,
intended to be sold over nearly 9 times, open to the public in Hong Kong release some
of them even got close to 40 times over-subscription ratio, in which the international
sale of part of the book will be co-manager of distribution under a variety of factors,
some of Hong Kong public offering on the strict principle of proportional allocation,
but allocation benchmark may be because the applicant The number of shares to
different group decision, but did not rule out the possibility ballot.

When there is an over subscription, the underwriter can also use the
"over-allotment option" (also known as "green
shoe") to increase the number issued. "Over-allotment
option" means the issuer an option to give the lead underwriter, lead
underwriter of this authority can be in the stock market within a certain period after
the issue price by the same over a certain percentage of shares sold during this period ,
if the market price below the IPO price, underwriters bought directly from the market,
this part of the shares allocated to the proposed purchase of the investor, if the market
price above the issue price, the issuance by the issuer directly. This after a certain
period in the stock market remain relatively stable stock prices, while beneficial to the
underwriters against the risk issue. The bank's listing prospectus as
provided by the CICC and Morgan Stanley Dean Witter underwriters on behalf of the
international sale of shares began trading in Hong Kong Stock Exchange within 30
days of the exercise of over-allotment optio