An Initial Public Offering (IPO) is an initial public offering of shares. It is the process by which a company goes public and the general public is given the opportunity to buy its shares for the first time. There can be several reasons for an IPO, but one of the main reasons is to raise additional capital to grow the company and increase publicity. An IPO will also increase credibility and corporate prestige.
Newly subscribed shares can offer an interesting investment opportunity. It is not uncommon for sought-after stocks to experience a sharp rise in share price in the first few days after the IPO. However, investors must also be prepared for the possibility that the share price may fall. Each investment opportunity therefore needs to be analysed carefully.
- Regulated markets (Prime Market and Standard Market)
The underwriting is handled by an issue manager hired by the company that has decided to go public. This is usually a major investment bank with a securities dealer's licence. During the public offering, investors can place their orders with the transaction manager or with other dealers who have agreed to cooperate with the transaction manager. The order book (i.e. the list of all orders) is administered by the issue manager.
- Start Market
The underwriting and the entire IPO transaction is handled by an IPO advisor hired by the company that has decided to go public. This is usually an experienced corporate finance advisory firm or an investment bank. During the public offering, investors can place their orders with securities dealers who are technically connected to the PX's electronic public offering system. These are primarily members of the PSE. The order book is administered by the PSE.
For all of them, the issuer will set the subscription price and the number of shares to be acquired by each investor after the completion of the public offering. If the demand is higher than the supply, there may be a so-called order shortage and some investors may receive fewer shares than they asked for. The date of the public offering, the price range, the size of the issue and other terms of the subscription are set out in the prospectus of the security, which is approved by the regulator and published on the issuer's website.
The PX Public Offering is an electronic system that is technically operated by the BSE. For the purpose of the public offering, it is leased to issuers whose shares will be or are admitted to trading on the Start Market.
The terms and conditions of the public offering are set out in the prospectus of the security, which the issuer publishes on its website prior to the commencement of the offering. This document is also sent to the PSE, which sets the underwriting parameters in the PX public offering system. The public offer usually lasts 14 days. Investors place orders (number of shares requested and the price per share requested) with their dealers, who ensure that the relevant order is entered into the PX public offering system. The list of orders is used to create an order book, the contents of which are not public during the first week of the public offering. In the second week of the public offer, the order book is published on the PSE website in the form of a chart with cumulative data on the orders entered at all price levels requested.
Once the collection of orders is completed, i.e. on the day on which the public offer ends, the issuer shall determine and publish the final public offer price and the final public offer volume. The transactions will then be settled by the Central Securities Depository and the shares will be admitted to trading on the Start Market. For Czech issues, the settlement date is T+3. For Slovak issues, the settlement date may be different.
Orders with a price limit below the closing price will not be satisfied. If the issue is in high demand, the order book may be overwritten and only partially satisfied.
A re-signing of the book will occur if there is more demand than supply within the public supply. In this case, there may be a so-called order shortage and some investors may be only partially satisfied as they receive fewer shares than they asked for.
In the PX public offer system, a proportional reduction of all orders occurs when the allocation rate is less than 100%. The principle of reduction is as follows:
- according to the specified allocation rate, the quantity requested in the order is rounded down to whole lots,
- the system shall sort the orders in descending order according to their rounding rate,
- the remaining lots are then allocated by the system one at a time to each order in order of their rounding rate. In the event that more than one order reaches the same rounding rate, the principle of time priority is applied when allocating the remaining lots.
In other systems (e.g. when the order book is managed by a transaction manager), the principle of order reduction may be different.
A secondary public offering (SPO) is another public offering of shares organised by a company whose shares are already traded on a stock exchange. It is one way to issue new shares and raise additional capital from investors for development. The IPO process is very similar to an IPO, with one exception. The issuer must allow existing shareholders to exercise their pre-emptive rights. The share subscription therefore takes place in two rounds, with only existing shareholders able to participate in the first round.
Accelerated bookbuilding (ABB) is a so-called accelerated subscription and one of the forms of SPO used mainly for larger established companies whose shares are traded on regulated markets (Prime Market or Standard Market). Shares are only offered to qualified institutional investors and the offer is made within a very short period of time, e.g. 48 hours. ABB may not only offer new shares, as it is often a way for major shareholders to sell a larger volume of shares in a particular company.
Information about new subscriptions and public offers can be found on the websites and social networks of the stock exchange and the company whose shares are subject to the public offer. Members of the Exchange or your trader can also provide you with further information. New IPOs are also regularly reported in various economic and mainstream media.
All companies must prepare and publish a prospectus for admission to the PSE. This is a document containing detailed information about the company and its financial situation, the public offering and the forthcoming share issue. The prospectus must be approved by the relevant supervisory authority, which in the case of Czech companies is the Czech National Bank.
Companies that enter the Start Market and meet certain criteria can prepare a so-called Union Growth Prospectus, which is simpler and designed for smaller companies. Companies entering the Start Market must also prepare and publish an initial analytical report and a basic legal due diligence (DD report) for investors. They usually also publish an investor presentation. Investors can find all documents, including the IPO medallion, in the issuer's file on the PSE website.
Shares that are offered in an IPO are not yet publicly traded on the market. Investors therefore have no historical indicators as to the development of the share price. Even historical information and data about the company may be limited. Therefore, investing in IPOs is generally considered riskier and is more suitable for investors with a higher risk tolerance, who are aware of the possibility of high profits and losses and are able to absorb any losses.
Investors should first obtain as much information as possible about the company offering its shares in the public offering and thoroughly analyse the potential investment opportunity and the terms of the public offering. If they do not have sufficient investment knowledge and experience, they should seek experienced financial and investment advice.
Investors may purchase shares offered by way of a public offering from securities dealers who are involved in the public offering. For shares underwritten in the PX public offering system, these are members of the exchange or a dealer that works with a member of the exchange. In the case of offerings where the order book is managed by a transaction manager, the range of dealers from whom shares may be purchased during the public offering may be different.
Investors must have an investment account and place their order during the public offering either online, by telephone or in person at a branch. The investor must check with his or her dealer for the method of placing the order and other terms and conditions.
Fees for purchasing shares should be verified with the trader who will broker the orders for you. The fee policy is certainly one of the criteria that should be considered when choosing a trader.
