In the dynamic world of finance and investing, the term IPO—short for Initial Public Offering—holds special significance. It marks a pivotal milestone in a company’s journey from being a private enterprise to a publicly listed entity. In simple terms, an IPO is a process by which a privately held company offers its shares to the general public for the first time. This moment allows the company to raise capital from a broader investor base and enables public participation in its future growth.

what is IPO shares and how it works? When a company decides to go public, it works with underwriters (usually investment banks or financial advisors) to determine the valuation, number of shares to be issued, and the price band. Once finalized, the company lists its shares on a stock exchange—like the Pakistan Stock Exchange (PSX)—through an IPO. Investors can then subscribe to the IPO, and once allotted, the shares are credited to their CDC (Central Depository Company) accounts.

How Do Companies Raise Capital Through IPOs?

The IPO process is part of what is known as the primary market, where companies raise fresh funds directly from investors. In Pakistan, there are four key ways companies can raise capital in the primary market:

• Public Issue – Selling new shares to the public via IPO.
• Rights Issue – Offering new shares to existing shareholders.
• Private Placement – Offering shares to select institutional investors.
• Preferential Allotment – Issuing shares to specific investors, sometimes at a discounted rate.

These methods are often used based on the company’s capital requirements, strategy, and regulatory permissions.

What Are IPO Shares in Pakistan?

IPO shares in Pakistan function similarly to those in other global markets. The Securities and Exchange Commission of Pakistan (SECP) and PSX regulate the IPO process. Companies looking to list must go through a rigorous approval process including submission of a prospectus, financial audits, and public disclosures. Once the IPO is approved, it's listed on PSX and investors—both institutional and retail—can subscribe to the offering.

One of the main questions many retail investors have is: Can we sell IPO shares immediately? The answer is yes. Once shares are listed on the stock exchange and credited to your account, you can sell them on the secondary market. However, for institutional investors, there might be a lock-in period ranging from 90 to 180 days to prevent volatility on listing day.

Difference Between Share and IPO

A common question among new investors is: What is the difference between share and IPO?

• IPO is the process through which shares are offered to the public for the first time.
• Shares, on the other hand, are the actual units of ownership in a company. Once issued via an IPO or other methods, shares can be freely traded on the secondary market.

In short, the IPO is the event, while shares are the product.

The Role of the Secondary Market

Once the IPO process is complete, shares are listed on the stock exchange, moving from the primary market to the secondary market. In this space, investors can buy and sell shares without the involvement of the issuing company. The value of these shares fluctuates based on market conditions, company performance, and investor sentiment.

There are two types of secondary markets:

• Auction Market – A centralized place like a stock exchange where buy and sell orders are matched.
• Dealer Market – In this case, brokers or dealers quote prices and investors transact through them, often electronically.

Who Can Invest in IPOs?

In Pakistan, IPO participation is open to:

• Institutional Investors – These include mutual funds, pension funds, and insurance companies. They often get preferential access and are offered large quantities of shares.
• High Net Worth Individuals (HNIs) – Investors who subscribe to IPOs with a value above PKR 1,000,000 fall under this category.
• Retail Investors – These are individual investors applying for a minimum lot (e.g., 500 shares). SECP prioritizes retail participation to promote inclusive capital market growth.

The SECP also mandates transparent allocation policies to ensure fair treatment to small investors, making IPOs a viable entry point for many retail participants.

IPO Jargons You Should Know

Here are some commonly used terms that can help demystify IPO documentation and improve your investment decisions:

• Offer Date: The date when the IPO opens for public subscription.
• Price Band: The range within which investors can bid for the shares (e.g., PKR 100–120).
• Cut-off Price: The final price at which shares are allotted, typically determined based on the highest number of successful bids.
• Lot Size: The minimum number of shares you must bid for. Bids must be in multiples of this number.
• Undersubscribed Issue: When the total applications are less than the number of shares offered.
• Oversubscribed Issue: When the demand exceeds the number of shares on offer.
• Green Shoe Option: An option that allows a company to issue up to 15% more shares than originally planned in case of oversubscription, helping stabilize the post-listing price.

Why Should You Consider Investing in IPOs?

Investing in IPOs can be rewarding, especially if the issuing company has strong fundamentals and growth prospects. By participating early, you can benefit from price appreciation after the listing. Additionally, IPOs can offer access to promising sectors and new business models that may not be available otherwise.

However, it’s important to assess:

• Financials of the company
• Industry outlook
• Use of IPO proceeds
• Promoter reputation
• Risk factors outlined in the prospectus

Quick Recap:

• What is IPO? It is the process where a private company offers shares to the public for the first time.
• The IPO is part of the primary market, whereas shares are traded on the secondary market after listing.
• IPO shares in Pakistan are regulated by SECP and PSX and can be accessed digitally via platforms like CDC and brokerage houses such as Azee Securities.
• What is IPO shares and how it works? IPOs raise capital by offering shares to investors, who become partial owners of the company.
• Yes, you can sell IPO shares immediately after listing unless there’s a lock-in period (typically for institutional investors).
• The difference between share and IPO is that the IPO is the process, and shares are the units of ownership.
• IPO terms like price band, lot size, cut-off price, and green shoe are key to understanding the offering.
• IPO investing offers early entry, potential price gains, and diversified exposure to new sectors.

Get Started with Azee Securities

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