Initial public offering (IPO) refers to the first sale of company’s securities so as to collect funds from the general public. Securities are brought in the primary market to develop the liquid market of the company.
Capital is the most important factor for the development and success of an organization. Capital plays an essential role at every stage of the business. Seed money invested at the start of the business plays the vital role. For a newly established organization capital can be generated through different means. Public company collects the capital from capital market through public issue of ownership of the organization.
Capital market is the place where long term securities are traded having maturity period more than one year. The capital market mobilizes savings of individuals as investment in different securities, which are ultimately utilized for productive purposes in various sectors of the economy.
Capital market can be divided into primary market and secondary market. Primary market is the market place where first issuance of securities takes place and secondary market is the place where trading of existing issued securities takes place. Initial public offering (IPO) is the mechanism of primary market
Generally companies start their business with the small number of investors and with the expansion of the firm they would go public by selling shares. This kind of selling shares is known as initial public offerings (IPO). It includes different costs both direct and indirect. The direct costs include legal, auditing, and underwriting fees. And the indirect costs include management of time and efforts as well as dilution of selling shares at below the price prevailing in the market
People or the institutions working as the intermediary between securities issuing companies and the investors on those securities are known as investment bankers or underwriters. Company offering shares contracts with the underwriter to go public in order to find the investor for the shares being offered.
Evolution of initial public offerings in Nepal started with the issue of shares by Biratnagar jute mills and Nepal bank limited in 1973 A.D. The development of the capital market started in 1976 A.D. after the establishment of Security Exchange Center with the objective of facilitating and promoting the capital market in Nepal.
Security Exchange Center was converted into Stock Exchange Limited in 1993 and with this broker system for secondary market came in existence in Nepal. Its basic objective of is to impart free marketability and liquidity to the government bonds and corporate securities by facilitating transactions in the trading floor through market intermediaries such as brokers, market makers and others. With the establishment of full fledged stock exchange. The shares which the public held for the decades became liquid.
Stock exchange has been defined as any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying and selling of or dealing in securities. The stock exchange therefore is the most important institution in the secondary market. In the primary market, it comes into play during primary share allotment, during issuing share in premium and when Securities Board asks Securities Exchange Market for its opinion.
Securities Exchange Act 2040, Clause 7 has stated that for the operation of the stock exchange market, approval needs to be taken from the Securities Exchange Board. Any registered institution except private companies willing to do or allow others to do security transaction should get approval for securities exchange market from the securities board.
After the issue of securities to the public, the Act requires that companies be listed in the Security Exchange Market before the floated shares can be traded in the market.
NRB has made mandatory...