Assignment on

Brief description of the IPO process for the perspective of Bangladesh:

Initial public offering or IPO:
Initial public offering or IPO is described as the process where a private company declares itself
public by selling of its stocks in the general public. Any company, irrespective of the number of
years from its time of establishment, its size and type of business it deals in, can go ahead and
get itself listed in the exchange to go public. A company can raise equity capital with initial
public offering, by issuing new shares to the public or the existing shareholders can sell off their
shares to other people without raising any fresh capital. The company that sells its shares are
known as an issuer and does so with the help of investment bank present in the market. After an
initial public offering, the company’s shares are traded in an open market.
Description of the IPO process for the perspective of Bangladesh:
The IPO process for the perspective of Bangladesh starts with the submission of application to
Bangladesh Securities and Exchange (BSEC). For helping the company issuing the common
stock (known as issuing firm), the issuing firm appoints an issue manager from the list approved
by BSEC. There are two methods in IPO process. One is fixed price method and other is book
building method. In fixed pricing method, the shares are offered at par value. If the issuing firm
wants to issue shares at a premium, it has to follow the book building process. In book building
method, the price of the shares is determined following a road show. In the road show, the
prospectus of the issue is sent to all eligible investors for submission of price of the impending
issue. From the prices submitted by eligible investors, the IPO priced is fixed. After getting the
approval of the BSEC, the issuing firm has to invite subscription from the public. This is done
through publication of prospectus in at least two national newspapers. Interested investors are
asked to submit their subscription through their brokerage houses within the subscription period.
The issue is oversubscribed, lottery is conducted to determine who, among the subscribers, will
get the shares and who would not. If the issue is undersubscribed portion of the issue. The IPO
ends after the allocation of the shares to the winning subscribers. Then the listed process starts.
The shares that are brought through IPO process, must be listed in at least one of the two stock
exchanges such as the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE).
The IPO processes are discussed in detail in the following:
 Select an investment bank: The first step of the IPO process requires the company to
select an investment bank. These banks are registered with the SEC (Securities and
Exchange Commission) and act as underwriters. IPO underwriters are specialists who
work alongside the company issuing the IPO. They help determine the initial offer price,
buy the shares from the issuing company and then sell the shares to investors. Usually,
they have a network of potential investors to reach out to in order to sell the shares. There
a few things to consider when choosing an underwriter such as reputation, the quality of
research, industry expertise, network distribution reach, the company’s prior relationship
 with the investment bank, & the underwriter’s past relations with other companies.
Underwriting an IPO can be a long and expensive process. It requires time, money and a
team of experts. But a good underwriter can be the difference between a successful IPO
and an IPO failure.
 Due diligence and regulatory filings: The second step in the IPO process is for the
underwriting team to begin doing its job. Generally speaking, this takes place around 3
months prior to the IPO. This entails multiple forms and documents that need to be filled
accurately, which will subsequently be reviewed by the SEC for approval. The forms to
be filled by the underwriting team include engagement letter, letter of intent,
underwriting agreement, S-1 registration statement, & red herring document.
 The IPO Roadshow: An IPO roadshow is a traveling sales pitch. The underwriter and
issuing company travel to various locations to present their IPO. They market the shares
to investors to see what demand, if any, there is. Looking at investor interest, the
underwriter can better estimate the number of shares to offer.
 IPO Price: Once approved by the SEC, the underwriter and company can decide the
effective date, number of shares and the initial offer price. Typically, the price is
determined by the value of the company. This is done by the valuation process and occurs
before the IPO process even begins. There are a couple factors to consider when pricing
an IPO such as value of issuing company, reputation of issuing company, success/failure
of the IPO roadshow, the issuing company’s goals, the condition of the economy. It’s
common for an IPO to be underpriced. When underpriced, investors will expect the price
to rise, increasing demand. It also reduces the risk investors take by investing in an IPO,
which could potentially fail.
 Going Public: Now that everything is decided, it’s time for the IPO to go live! On the
agreed-upon date, the underwriter will release the initial shares to the market.
 Stabilization: Stabilization is a crucial step in the IPO process because it gives the
underwriters an opportunity immediately following the introduction to market to balance
any potential order imbalances. In plain English, stabilization is the process of
underwriters purchasing shares in an effort to – you guessed it – stabilize the market
price. Think basic supply and demand. If there are a ton of shares that nobody is buying,
the prices will drop. In order to keep the price stable, underwriters will purchase those
‘leftover’ shares and make it appear to individual investors that the demand is up.
 Transition to Market Competition: The final stage of the IPO process, the transition to
market competition, starts 25 days after the initial public offering, once the “quiet period”
mandated by the SEC ends. During this period, investors transition from relying on the
mandated disclosures and prospectus to relying on the market forces for information
regarding their shares. After the 25-day period lapses, underwriters can provide estimates
regarding the earning and valuation of the issuing company. Thus, the underwriter
assumes the roles of advisor and evaluator once the issue has been made.