IPO You Should Know: Everything You Need to Understand About Raising Capital Through the Stock Market

What is an IPO? Why do companies go for an IPO?

IPO (Initial Public Offering) or the first sale of securities to the public is a mechanism that companies use to transition from being private to public entities. The main principle is to raise a substantial amount of capital to expand the business and develop the company.

When a company decides to go public through an IPO, it means there are several objectives:

Financial Aspect: Raise fresh funds from the public instead of relying solely on bank loans

Image Aspect: Build trust and increase public awareness of the company and its brand

Ownership Rights: Provide an opportunity for the general public to become part-owners of the company by purchasing shares in that IPO

What qualifications must a company meet to go for an IPO?

The Securities and Exchange Commission (SEC) and the Stock Exchange of Thailand (SET) have set strict criteria for companies seeking registration as follows:

Legal Status:

• Must be a public limited company or a legal entity established under Thai law specifically

Financial Stability:

• Shareholders’ equity must be at least 300 million THB before the IPO
• Must have a track record of more than 3 years of operations under the same management

Operational Performance:

• Net profit criteria: In the last 2-3 years, total net profit must exceed 50 million THB, with at least 30 million THB in the most recent year
• Market Cap criteria: Market value must exceed 7,500 million THB prior to registration

Corporate Governance:

• Have an independent director and an audit committee
• No conflicts of interest
• Financial statements must be audited by an accepted auditor approved by the SEC

Who are the key players involved in making an IPO successful?

Making an IPO successful requires cooperation from multiple parties, each with different roles and responsibilities:

Pros and cons of going public

( Advantages

For Investors:

• High confidence due to strict regulation by SEC and SET
• Fair share of profits from company operations
• Newly listed IPOs often yield high short-term returns during market uptrend
• Suitable for long-term investors aiming for sustainable wealth
• No special techniques needed; just study the company’s profile well

For Companies:

• Raise substantial funds without traditional borrowing
• Enhance credibility and company image
• Open doors for employees to feel more secure as the company becomes transparent

) Disadvantages

For Companies:

• Must disclose all financial data, including profit and tax statements, which competitors can utilize
• Incurs high costs for legal, accounting, and investment banking professionals
• Ownership stake decreases as new shares are widely offered
• Owners may lose control as different management groups gain influence

For Investors:

• IPO stock prices can be quite volatile initially, risking losses
• Cannot sell shares immediately due to lock-up periods
• Need to identify the actual company; poor decisions can lead to significant losses

The preparation process for a company planning an IPO

Before IPO shares reach investors, the company must go through a complex preparation process that can take from 6 months to 1 year, depending on the company’s readiness:

1. Study regulations and contact advisors - Understand relevant laws and regulations, then hire financial advisors
2. Prepare documents - Financial statements, business plans, and other required documents as mandated by the SEC
3. Convert corporate structure - Change from a limited company to a public limited company
4. Set IPO price - Evaluate the company’s value and determine an appropriate price
5. PR and communication - Raise awareness among investors
6. Establish pension funds and appoint registrars
7. File with the SEC - Submit the application for approval

How to subscribe for IPO shares

Investors can subscribe to IPO shares in two ways, each with different characteristics and risks:

( Method 1: Buy IPO shares before they enter the market )Primary Market(

This method offers the highest returns because:

• The company and SET announce the share subscription via SET’s website or brokers
• Subscription period typically lasts 3-7 days, depending on demand
• IPO price is usually set quite low to attract investors
• When shares list, prices often surge multiple times, allowing early subscribers to gain significant profits
• However, not everyone who applies will get shares due to oversubscription

) Method 2: Buy IPO shares after they enter the market (Secondary Market)

• Suitable for those who missed the initial subscription
• Purchase through stock exchanges, similar to regular stock trading
• Prices may be much higher than the IPO price due to high demand
• Prices can be highly volatile initially, so caution is advised

How is the IPO price determined?

Setting the IPO price is not random but involves a careful valuation process conducted by financial advisors and investment banks:

• Book Building - Advisors gauge demand from institutional investors to estimate price range
• Valuation - Assess the company’s value using methods like DCF, P/E multiples, comparable companies
• Financial Factors - Profitability, shareholder equity, growth history, etc.
• Market Demand - Prices of similar companies in the market
• Fundraising Strategy - Companies often set a lower price to attract more investors

Most IPO prices are set below the company’s intrinsic value as a way to thank investors who help raise funds

Where to find IPO information?

If you want to follow IPO updates and upcoming listings, you can check:

SET Website (www.set.or.th)

• “Upcoming IPO” section - List of companies registering for listing
• “Latest IPO” section - Recently listed companies
• Download Prospectus (Information Memorandum) for detailed info

Company websites seeking IPO

• Key documents such as fundraising purpose, offering volume, subscription period, etc.

Brokerage Firms (Brokerage Firm)

• Follow updates via mobile apps or broker websites
• Receive notifications of new IPOs

How does an IPO impact the country’s economy?

An IPO is not only about companies and investors but also affects the overall economy:

Positive impacts:

• Companies raising funds can expand, purchase machinery, and create jobs
• Efficient stock markets facilitate capital flow to promising businesses
• Good returns for investors can lead to increased spending, stimulating economic growth

Negative impacts:

• Unsuitable investments may create bubbles ###Bubble### in the stock market
• Some IPO companies may not last long if their business does not meet expectations
• Potential inequality in profit sharing if original owners are ousted

Example of IPO process: from month 0 to 100

To better understand, consider this case study:

Company ABC is a private limited company producing tea, owned 100% by founders:

• 1,800,000 shares @ 2 THB par value
• Total investment 3,600,000 THB

When ABC decides to go IPO: the company applies to offer 800,000 new shares @ 15 THB:

• Raises 12,000,000 THB ###800,000 × 15(
• Total shares become 2,600,000
• Founders now hold 69.23% worth 27,000,000 THB
• New IPO investors hold 30.77% worth 12,000,000 THB

Subsequently:

• ABC’s shares are listed on the stock exchange
• Everyone can buy and sell ABC shares in the secondary market )Secondary Market###
• The company does not receive money from secondary trading; it’s just a transfer of ownership among investors

The most important: Basic education before applying for IPO shares

Many investors feel wary of IPOs because they think they lack technical investment knowledge. In fact, IPO investing is open to everyone; there are no strict requirements for extensive expertise.

What to do before applying for IPO shares:

• Study the company’s business - What does it do? How does it make profits?
• Check management - Does the team have experience?
• Analyze financial figures - Profit, shareholder equity, growth rate
• Compare prices - Is the IPO price reasonable compared to similar companies?
• Understand risks - What are the business risks?
• Set investment goals - Short-term profit or long-term growth?

In short: The more you study, the higher your chances of success. No one is perfect or a genius; everyone just chooses to learn or gamble in the market.