Conflict of Interest in Investment Banking
February 12, 2025
The concepts of cash burn and cash burn rate are relatively new to the investor as well as to the entrepreneur committee. Hence, even though investors have gradually started accepting cash burn to be a normal part of setting up certain types of businesses, they are not really aware of how it needs to be […]
The Israeli bank crisis of 1983 rocked the Middle Eastern financial world. The Israeli economy was believed to be strong and has been able to navigate many wars since its inception in 1948 without breaking down. However, in 1983, the economy faced major shocks even in the absence of any major war or political upheaval. […]
Bankruptcy is a state in which firms are not able to meet their obligations to internal as well as external stakeholders. It is for this reason that bankruptcy prediction is of utmost importance. Stakeholders like employees, suppliers, customers, etc. could gain a lot if they had a method for predicting the likelihood of a company […]
In the previous articles, we have already seen how important cash flow is for the retail sector. We have also explained how the lack of adequate cash flow can be a cause of concern and even causes many retail businesses to shut down. However, the fact that retail businesses have cash flow issues is an […]
Continuing from the previous two articles, we will look at some more counterintuitive steps that need to be taken to calculate the cash flows which should then be discounted to arrive at the worth of the project. This article will cover the concepts of how sunk costs should be treated as well as how allocated […]
One of the responsibilities of an investment banker is to set up the basic ground rules which will have to be followed while going public. Some of these rules are imposed by regulatory and governing bodies, whereas some other rules are self-imposed. The setting up of all these rules and communicating it to the relevant parties is called structuring a public issue. In this article, we will have a closer look at some of the rules which are followed while structuring a public issue.
Before we look at the issue structure, let us clarify the meanings of some important jargon, which are often used while explaining these rules.
Issue Size: Regulatory bodies all over the world have certain rules about how shares issued in a public issue are to be allocated. They are generally allocated in one of the three ways.
In the first two cases, shares are generally allocated at a higher price as compared to the general public.
Gross Public Offer: Now, as we can see from the definition above that not all shares in the public issue are available to the public at large. This is because the first category of shares mentioned above will be held by the promoters themselves. They will not be issued to the general public. This is the reason that the second and third categories of shares, i.e., shares for financial institutions and retail investors, are together called the gross public offer.
Net Public Offer: Not all shares listed in the gross public offer are bid upon. This is because the shares issued to financial institutions are on a firm allotment basis. Hence, the number of shares on which bidding actually takes place is called the net public offer. This includes only the shares which are available to the retail investors.
Hence, when an IPO takes place, the company may want to sell 100 shares, out of which 10 shares will be purchased by the promoters. Another 20 shares will be purchased by financial institutions on a firm allotment basis. Hence, the net offer will be only for the balance 70 shares. These balance 70 shares are the ones on which the bidding will finally take place.
Issue structuring may be thought of as a mundane or administrative task. However, in reality, it is quite important to be compliant with the law for an IPO issue to be successful.
Your email address will not be published. Required fields are marked *