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What is an Initial Public Offering?
An Initial Public Offering (IPO) is the first public stock offer of a corporation. Non public corporations can have only a few owners. When a corporation “opens” it's capital, their stocks are traded in the capital market. After the IPO, the stocks are traded in the secondary market and anyone can boy them. A stock represents a small fraction of the capital of a corporation.
Even if a corporation divides it's capital in stocks, the public may not have access to it's stock.
An initial public offering is a way to gather additional capital to carry out investments that can lead to a higher market share, access to new markets and technologies and gain more profits.
People buy stocks as an investment. Stocks can lead to profits in 2 ways:
- The price of the stock can increase.
- Corporations can pay dividends to stock owners.
The IPO is carried out by an investment bank that specializes in this complex operation. An IPO requires knowledge of the market, regulations, paperwork, valuations, market conditions, contacts, etc. Some big companies that carry out IPOs are PwC, KPMG and Ernst & Young,
After an IPO, a portion of the capital can be traded in the stock market.
Largest IPOs
Some of the largest IPOs in history were:
- Bank of China 2006: $11.1 billion
- AT&T 2000: $10.62 billion
- OAO Rosneft 2006: $10.65 billion
- Deutsche Telekom AG 1996: $12.48 billion
- General Motors 2010: $15.8 billion
- Enel SpA Italian Energy Company 1999: $16.58 billions
- VISA 2008: 17.9 billions
- NTT Mobile Communications 1998: Japanese cell phones 18.4 billion
- Industrial and Commercial Bank of China (ICBC) 2006: $19.1 billion
- Agricultural Bank of China (ABC) 2010: $19.2 billion
Discussion