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Investing 101: The Basics of an IPO in Singapore

Those of you who are just starting to learn about the stock market might have heard of the term “IPO.” But what does it mean exactly? Let’s check out the 5W1Hs (What, Why, Where, When, and How) of an IPO.

What Exactly Is An IPO?

The term IPO is an acronym for “initial public offering”. As its name suggests, an initial public offering is an event where a company is offering its shares to the public for the first time. A once-privately-held company then becomes a public-listed company.

Why Do Companies Go Public?

Companies can conduct an IPO for various reasons. The main reason is usually for a company to raise funds from the public to fund its growth projects, both by reinvesting into its own business (organic growth) or by buying other companies (inorganic growth).

Other reasons to file for an IPO include for regulatory reasons. A good recent example for a regulations-driven IPO is NetLink NBN Trust  (SGX: CLJU), which was listed in July 2017. NetLink NBN Trust was previously fully-owned by Singapore Telecommunications Limited  (SGX: Z74), but the Infocomm Development Authority of Singapore required Singtel to divest more than 75% of its stake in NetLink NBN Trust by April 2018.

There are other reasons to file for an IPO, including to enhance a company’s brand image; achieve a higher valuation than private companies; or for investors in the business to sell their shares.

Where Do IPOs Happen?

IPOs occur on a stock exchange. In Singapore for example, the only stock market operator is Singapore Exchange Limited (SGX: S68), or SGX for short. At the time of writing, Synagie Corporation Ltd (SGX: V2Y) just went public in the local stock market and debuted with a stock price of S$0.265, slightly lower than its IPO price of S$0.27.

IPOs may “pop” on their opening day of trading, meaning to say their share prices may rise by large percentage immediately after their shares are open for trading on the stock market. For example, the largest traditional coffee shop operator in Singapore, Kimly Ltd (SGX: 1D0), saw its shares open for trading at a price of S$0.55 apiece in March 2017, up 120% from the IPO price of S$0.25. There was a Business Times article reporting on jump, with the headline “Kimly enjoys 120% IPO pop.”

As we’ve seen with Synagie, there are also IPOs with share prices that fall immediately after debuting on the stock market. This is why IPOs can contain so much hope, promise, optimism, and at the same time, fear.

Who Can IPO?

Any company can decide to go public when it has achieved a certain scale and wants to grow its business further. However, there are specific listing requirements to follow for companies wanting to list on the SGX. The requirements vary depending on whether the company wants to list on the Mainboard or the Catalist board of the stock exchange. Listing on the Catalist board is less stringent, and it usually caters to smaller and/or younger companies under a sponsor-supervised scheme.

When Can A Company IPO?

This is answered in the “Who” too. Companies can IPO any time, so long as their businesses have reached a certain scale.

How Can A Company Go Public?

To transition from a privately-held company to a public-listed company, there are certain processes to follow. These include: pre-listing preparations; submissions to the stock exchange and regulatory body; lodgement of the listing prospectus; registration of the prospectus; and finally, the launch and trading of the shares.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange Limited. Motley Fool Singapore contributor Sudhan P owns shares in Singapore Exchange Limited and units in NetLink NBN Trust.